If you make a transaction that tips your checking balance into the red, known as an overdraft, your purchase will likely be rejected, and you could incur a charge. Banks offer programs to help you out in the event of an overdraft, but they carry fees of their own — sometimes steep ones.
Here’s a look at different overdraft programs and fees across major banks and credit unions.
At most bigger financial institutions, a checking account usually comes with three overdraft options:
- Opting out. You can decide not to participate in any overdraft program, meaning that any transaction you make that exceeds the funds available in your account will be rejected. You won’t have to pay an overdraft fee, but you might still face a nonsufficient funds (NSF) fee and/or a returned-item fee for bouncing a check.
- Overdraft transfer. Also called “overdraft protection,” this service links your checking account to another account, such as savings or a second checking account. Some banks even let you link to a line of credit or credit card. If your checking balance is too low to handle a transaction, the bank automatically transfers money from the linked account to your checking. Banks typically charge a fee, such as $10, for such transfers.
- Overdraft coverage. Under the most expensive option, you can have the bank cover a transaction with what amounts to a short-term loan when your balance isn’t high enough to handle it. This typically results in a fixed overdraft fee, at a median cost of $34, and additional charges may be added if your balance isn’t replenished to cover the transaction for days or weeks.
Waived overdraft fees
If you opt into an overdraft program, you might not be charged fees for using it when the amount is small. Many financial institutions are beginning to waive overdraft fees if you overdraw your account by $5 or less.
Depending on the bank or credit union, this threshold of $5 may apply to the total overdrawn balance at the end of the day. For example, if you bought a $3 coffee with $2 in your checking account, no fee would be charged. But if you also bought a $10 sandwich that day, your negative balance would be $9, so an overdraft fee would be applied.
Some banks use other ways to cover demands that exceed your balance and don’t charge any penalties.
Institutions with no overdraft fee, but …
Capital One 360
The online bank Capital One 360 offers an overdraft line of credit to cover your account. Instead of a fixed fee, you just pay interest on the amount used to cover the transaction that caused the overdraft. There’s no fee for signing up and it is an opt-in service.
Discover doesn’t offer an overdraft service. If you overdraw a checking account, you can be charged a $30 insufficient funds fee per day until that charge is paid, and the transaction won’t be processed. A $15 deposited item return fee, such as when you write a check that bounces, can also apply.
Pentagon Federal Credit Union
This credit union also doesn’t offer an overdraft service, so if your balance is too low to cover a transaction or if you bounce a check, you’ll accrue a nonsufficient funds fee of $30.
Overdraft fees by financial institution
Although the median cost of an overdraft nationwide is $34, the exact amount varies by financial institution. Here’s a comparison of overdraft fees across 20 larger banks and credit unions:
|Financial Institution||Overdraft Fee||Max Fees per Day||Overdraft Protection Transfer|
|Alliant Credit Union||$25 per item||None||$3 a day|
|Ally Bank||$25 per item||1||$0|
|Bank of America||$35 per item||4||$10 per transfer|
|Note: Extended overdraft fee of $35 may be charged to an account overdrawn for 5 or more consecutive business days.|
|BB&T||$36||6||$12.50 a day (or less with select accounts)|
|Note: Branch Banking & Trust, or BB&T, waives overdraft fees if an account is overdrawn by $5 or less by end of the day. Extended overdraft fee of $36 may be charged starting when an account is overdrawn for 7 calendar days. No fees on transfers under $5. Transfer fee waived for those with BB&T Asset Management Account, BB&T Wealth Vantage and BB&T Private Vantage. Transfer fee waived for first 2 transfers per statement cycle for those with Elite Gold and BB&T Elite@Work Checking; $9 for each additional transfer.|
|BBVA Compass Bank||$38 ($32 in CA) per item||6||$12 ($7 in CA) a day|
|Note: Extended overdraft charge of $25 may be charged when account is overdrawn for 10 consecutive calendar days and again if overdrawn for 20 days. In select states and based upon approval, a checking account can also be linked to a line of credit with an annual percentage rate of 21% for all advances under the Overdraft Protection Line of Credit.|
|BMO Harris Bank||$35||4||$10 per transfer|
|Note: Overdraft fee is waived if the account is overdrawn by $5 or less by end of day’s processing. Extended overdraft fee of $5 may be charged every day after the third business day that the account is overdrawn, up to 10 days. Limit of one transfer fee a day.|
|Chase Bank||$34||3||$10 a day|
|Note: Overdraft fee is waived if account is overdrawn by $5 or less by end of processing. Overdraft fee waived for those with the Premier Platinum Checking account for 4 or fewer overdrafts within 12 months. All overdraft and nonsufficient funds fees waived for those with Private Client Checking. Extended overdraft fee of $15 may be charged after an account is overdrawn for 5 consecutive business days, even if overdrawn by $5 or less. Transfer fee waived for Chase Private Client Checking and Premier Platinum Checking account holders, but interest is applicable if checking account is linked to credit card for overdraft protection service.|
|Note: Citibank also offers “Checking Plus,” an overdraft protection service that transfers funds from a line of credit to your checking account. The rate that you may pay on the overdrawn amount varies from 15.25% to 18.25%. Transfer fee waived for Citigold and Citi Private Bank customers.|
|Connexus Credit Union||$29.95 per item||None||$8.95 per transfer|
|Consumers Credit Union||$30 per item||None||$10 per transfer|
|Note: Overdrawn account fee of $25 may be applied as well. Overdraft service can cover up to $750.|
|HSBC Bank||$10 a day||1||$10 a day|
|Note: HSBC also offers “Select Credit Check,” in which either $5 or 3% of the transaction amount is charged to let a payment in an overdrawn account go through. Overdraft fee waived for those with HSBC Premier relationship.|
|Nationwide Bank||$25 per item||None||$5 a day|
|Navy Federal Credit Union||$20 per item||3||$0|
|Note: Navy Federal also offers a checking line of credit. Overdraft fee waived on transactions of $5 or less and on balances overdrawn by $15 or less by end of day’s processing.|
|PNC Bank||$36 per item||4||$0|
|Note: Overdraft fee waived for those with Foundation Checking. Extended overdraft fee of $7 may be charged after 5 consecutive days, up to $98.|
|SunTrust Bank||$36 per item||6 overdraft, 6 returned items||$12.50 per transfer|
|Note: Overdraft fee waived for transactions of $5 or less. Extended overdraft fee of $36 may be charged on an account overdrawn for 5 consecutive business days. Maximum of 1 transfer fee a day.|
|TD Bank||$35 per item||5||$10 per transfer|
|Note: Overdraft fee waived for an account overdrawn by $5 or less by end of day’s processing. TD Bank also offers overdraft protection by linking a checking account to a line of credit. Extended overdraft fee of $20 may be charged if account overdrawn for 10 consecutive business days.|
|Union Bank||$33 per item||5||$10 a day|
|Note: Overdraft fee waived for accounts overdrawn $5 or less by end of day’s processing. Overdraft fee is $15 a day on teen and child accounts and $10 per day on electronic transfer accounts. Extended overdraft fee of $6 may be charged if account is overdrawn for 7 consecutive business days.|
|U.S. Bank||$36||4 overdrafts, 4 bounced checks||$12.50 a day|
|Note: Overdraft fee waived for transactions of $5 or less. Extended overdraft fee of $25 may be charged if account is overdrawn for 8 consecutive days and charged again each week after that.|
|Wells Fargo Bank||$35 per item||4||$12.50 a day|
|Note: Overdraft fee waived if account is overdrawn by $5 or less by end of day’s processing. Overdraft fee is $15 for Wells Fargo Teen Checking, limited to 2 a day. The $12.50 transfer fee applies when linked to an eligible savings account. Fees from other linked accounts may vary.|
Recent overdraft practices
In the past three years, financial institutions have changed some overdraft practices.
- For instance, 84% of 32 major banks studied in 2015 by the Pew Charitable Trusts, a nonprofit research group, now disclose that having debit and ATM overdrafts declined, rather than handled by an overdraft program, is the default option in their accounts. That’s up from 47% in 2013. This is designed to help consumers understand choices beyond overdraft programs.
- Transaction reordering — the bank practice of processing transactions from highest amount to lowest to maximize overdraft fees, is also less frequent. About 56% of the 32 banks Pew reviewed in 2015 don’t reorder transactions or don’t charge overdraft fees at all, compared with 41% in 2013.
Even so, more could be done. Consumers who opt into overdraft programs pay more than seven times as much in overdraft and NSF fees, averaging almost $260 a year, based on a recent report from the U.S. Consumer Financial Protection Bureau. Pew is pushing for the agency to set formal rules regarding disclosures and transaction reordering on overdrafts.
“We’ve called for making the fees reasonable and making them not hidden,” says Susan Weinstock, Pew’s director of consumer banking in Washington.
Deciding whether to opt for overdraft services and knowing the potential costs can help you minimize or avoid these fees in the future.
We looked at the 15 largest banks by assets and eliminated those without a significant retail banking presence. We also included financial institutions in the country’s five largest metro areas and several of the largest online-only banks that offer a full suite of checking and savings products. We rounded out the list with some of the country’s biggest credit unions with broad-based memberships.
Updated Aug. 3, 2015.
Image via iStock.