Your bank covers the transaction, then charges you a fee

When you spend more money than you have in your account, your bank can choose to cover the difference. This is called overdraft coverage. The transaction goes through, but your account balance becomes negative — you now owe the bank money. Within one to three business days, the bank sends you a notice and charges you an overdraft fee, which is typically between $25 and $35 per transaction, though some banks charge more.

The fee is separate from the amount you overspent. If you overdraft by $5 and your bank charges a $35 fee, you now owe $40. If multiple transactions overdraft your account on the same day, you may be charged a separate fee for each one — some banks charge up to three or four fees in a single day. The fees stack up quickly, which is why overdrafting is one of the most expensive mistakes in banking.

Not every bank automatically covers overdrafts. Some will straightforward decline the transaction and charge you a non-sufficient funds fee instead, which is similar in cost. You can usually choose whether you want overdraft coverage turned on or off, though the default varies by bank.

Key Takeaways

  • Your bank covers the overdraft transaction and charges you a fee of $25 to $35 or more, making the total cost much higher than the amount you overspent.
  • Multiple overdraft transactions on the same day can result in multiple fees, sometimes three or four in a single day.
  • You can usually turn overdraft coverage on or off in your online banking settings or by calling your bank.
  • If you cannot pay back the negative balance within a set time, your bank may close your account and report you to a checking account registry.
  • Some banks offer overdraft protection linked to a savings account or credit card, which costs less than overdraft fees.

How long you have to pay back the negative balance

Banks do not expect you to pay back an overdraft when ready, but they do expect payment within a reasonable time — usually between 5 and 10 business days, though this varies. If you deposit money or transfer funds into your account before that important date, the negative balance is covered and no further action happens. You pay the overdraft fee, but the account stays open and active.

If you do not pay back the negative balance within that window, the bank sends you a second notice. At this point, you have another opportunity to deposit money. If you still do not pay, the bank may close your account. A closed account for unpaid overdraft goes into your banking history and can make it harder to open a new account elsewhere.

Some banks are more lenient than others. A few will work with you if you call and explain the situation, especially if this is your first overdraft. It is worth calling your bank's customer service line to ask what options exist before the important date passes.

What happens to your credit score

An overdraft fee itself does not show up on your credit report. Your credit score is based on your history of borrowing and repaying loans, credit cards, and similar products — not on checking account mistakes. So one overdraft will not damage your credit.

However, if you do not pay back the negative balance and your bank closes your account, that unpaid amount may be sent to a collection agency. A collection account does appear on your credit report and will lower your score. This usually happens only if you ignore the bank's notices for several weeks or months.

Additionally, if your account is closed for unpaid overdraft, your name goes into ChexSystems, which is a checking account registry that banks use to screen new customers. Being in ChexSystems makes it difficult to open a checking account at most banks for up to five years, though some banks specialize in second-chance accounts for people with ChexSystems records.

Overdraft protection as an alternative

Many banks offer overdraft protection, which is different from overdraft coverage. With overdraft protection, you link your checking account to another account — usually a savings account you hold at the same bank, or sometimes a credit card. If you overdraft your checking account, the bank automatically transfers money from the linked account to cover it.

Overdraft protection costs less than overdraft fees. Some banks charge a flat fee of $10 to $15 per transfer, while others charge no fee at all if you have a savings account with them. If you have a linked credit card, the transfer works like a cash advance, which typically costs 3 to 5 percent of the amount transferred plus interest.

The downside is that overdraft protection only works if you have money in the linked account. If both accounts are empty, the transaction is still declined and you may be charged a non-sufficient funds fee instead. But if you keep even a small emergency cushion in a savings account, overdraft protection can save you hundreds of dollars a year compared to overdraft fees.

How to turn off overdraft coverage

If you do not want your bank to cover overdrafts, you can disable the feature. Log into your online banking account and look for settings related to overdraft or transaction settings. Most banks let you turn overdraft coverage on or off from there. If you cannot find it online, call your bank's customer service line and ask them to disable overdraft coverage on your checking account.

With overdraft coverage turned off, transactions that would overdraft your account are straightforward declined. You will not be charged an overdraft fee, but the transaction fails and the merchant may charge you a declined transaction fee (though most do not). This is a safer option if you tend to overspend or if you want to avoid the risk of surprise fees.

Some banks make overdraft coverage the default and make it difficult to turn off, which is a sign of a bank prioritizing fees over customer protection. If your bank makes this hard, it may be worth switching to a bank that respects your choice.

What to do if you overdraft by accident

If you overdraft once and catch it quickly, contact your bank when ready. Explain that it was an accident and ask if they will waive the fee as a courtesy. Many banks will do this once, especially if you have been a customer for a while and have not overdrafted before. There is no harm in asking — the worst they can say is no.

Deposit money into your account as soon as you can to cover the negative balance. This stops the clock on the important date and prevents the account from being closed. If you cannot deposit the full amount right away, deposit what you can and call the bank to let them know you are working on it.

After the overdraft is resolved, review what caused it. Did you lose track of a pending transaction? Did an automatic payment come out on an unexpected date? Once you understand what happened, take steps to prevent it next time — such as setting up account alerts, keeping a larger buffer in your account, or switching to a bank with better overdraft tools.

Banks that charge fewer or no overdraft fees

Not all banks charge overdraft fees. Some online banks and credit unions offer checking accounts with no overdraft fees at all — transactions are straightforward declined if there is not enough money. Others charge lower fees than traditional banks, or offer a certain number of free overdrafts per year.

Before opening a checking account, ask about the bank's overdraft policy. Look for banks that either do not charge overdraft fees, offer overdraft protection at no cost, or allow you to easily turn off overdraft coverage. Reading the account terms and conditions takes time, but it can save you hundreds of dollars.

If you are currently with a bank that charges high overdraft fees and you overdraft frequently, switching banks may be the most practical solution. A bank that aligns with your spending habits and offers lower-cost overdraft options is worth the effort of moving your account.

Frequently Asked Questions

Can a bank close my account for one overdraft?

No. A single overdraft results in a fee, but your account stays open as long as you pay back the negative balance within the bank's important date, usually 5 to 10 business days. Your account is closed only if you ignore multiple notices and do not pay back the overdraft for several weeks or longer.

Will an overdraft show up on my credit report?

The overdraft fee itself does not appear on your credit report. However, if you do not pay back the negative balance and the bank sends it to a collection agency, that collection account will show up on your credit report and lower your score.

What is the difference between overdraft fees and non-sufficient funds fees?

An overdraft fee is charged when your bank covers a transaction that would have made your account negative. A non-sufficient funds fee is charged when your bank declines a transaction because there is not enough money. The fees are similar in cost, but overdraft fees mean the transaction went through while non-sufficient funds fees mean it did not.

Can I get an overdraft fee waived?

Many banks will waive one overdraft fee as a courtesy, especially if it is your first one or if you have been a customer for a long time. Call your bank's customer service line and ask. Be honest about what happened and show that you are taking steps to prevent it in the future.

Is overdraft protection the same as overdraft coverage?

No. Overdraft coverage means the bank covers the overdraft and charges you a fee. Overdraft protection means the bank transfers money from a linked account to prevent the overdraft in the first place, usually at a lower cost or no cost.