Know Your Overdraft Options
Money & Debt
Overdraft fees can make it more difficult to meet your financial goals. This article will explain what an overdraft fee is, how it happens, and what you can do about it.
This article was adapted from a publication of the Consumer Finacial Protection Bureau. Visit the Consumer Financial Protection Bureau to access their publications.
What is an overdraft?
An overdraft occurs when you spend or withdraw more money than you have in your checking account. If you spend or withdraw more money than you have, your bank or credit union can advance you the money to cover the cost. When a bank or credit union does this, they charge a fee. This is called an overdraft fee.
How much are overdraft fees?
The overdraft fee amount varies by bank or credit union but is usually between $30 and $35. Depending on the bank, the overdraft fee can be as low as $10.
Can a bank or credit union charge for multiple overdrafts?
Yes. Banks can charge an overdraft fee for each transaction. For example, if you make five transactions you cannot pay, the bank can charge a fee to cover each one.
Can a bank charge multiple overdraft fees in one day?
Yes. However, some banks and credit unions have a limit on how many overdraft fees they can charge in one day.
What is an extended overdraft fee?
You may be charged an extended overdraft fee if your account has a negative balance for several days.
How can I reduce or eliminate overdraft fees?
Below are options for reducing or eliminating overdraft fees. You can switch to a different option at any time. Just contact your bank or credit union.
Option 1 - Open an account at a bank with low or no overdraft fees.
Some banks and credit unions charge a lower amount for overdrafts. Depending on your situation, you may want to switch to a bank or credit union that has low or no overdraft fees.
Option 2 - Refuse to opt in to any overdraft protection or coverage with your bank.
You can choose not to opt in to any sort of overdraft services or protections at your bank or credit union. If you do not opt in, your debit card will be declined if you don’t have enough money in your account. You will not be charged any fees for this.
Option 3 - Link your checking account to a savings account.
Linking a savings account allows your bank to move money to your checking account. Depending on your bank, you may be charged a transfer fee. However, the transfer fee amount is usually lower than the overdraft fee amount.
Option 4 - Link your checking account to a credit card or credit line.
Linking a credit card or credit line allows your bank to use the credit line to cover the transaction. You may have to pay a fee when your credit line is used, as well as interest on the amount of the transaction. However, this fee amount is typically lower than the overdraft fee amount.
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