How to Avoid Overdraft Fees

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If you make a purchase that pushes your checking account into a negative balance, you can be charged an overdraft fee by your financial institution — not just once but several times if you keep making purchases. This costly scenario is avoidable if you follow some of these strategies.

1. Opt out of overdraft coverage

Your financial institution gets to decide either to cover or reject a transaction that would make your balance negative, but you can control one thing. Opting out of an overdraft coverage program means that your provider cannot cover one-time debit card or ATM transactions or charge overdraft fees on them. It can cover checks and recurring debit transactions without asking for your permission.

Debit card transactions cause more overdrafts than any other transaction type, according to a 2014 report from the Consumer Financial Protection Bureau.

Without overdraft coverage, transactions get declined if there isn’t enough money. But institutions generally do not charge insufficient funds fees for declined debit card attempts.

2. Watch your account balances regularly

Check your accounts weekly or even more frequently to make sure your balances aren’t too low. Most overdraft fees from debit cards happen with transactions of $24 or less, according to the CFPB. Balances can be checked online, via mobile app, by a phone call or by visiting an ATM or branch.

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3. Set up alerts for low balances

Automate the process of checking your balance. Find out whether your provider lets you set up email or mobile text alerts so that you get notified when an account goes below a certain threshold that you set.

4. Deposit or transfer money quickly after an overdraft occurs

The median cost of an overdraft fee is $34, so three purchases, for example, can mean more than $100 in fees. When you know that a low balance has just triggered an overdraft, you might still be able to prevent an overdraft fee. See if your provider has a daily cutoff time, or deadline, for adding money to an account to correct a negative balance that same day to avoid fees. Even if you miss the cutoff, transferring money into the account soon can prevent other fees. Leaving a balance negative for several days, for instance, can result in an extended overdraft fee.

»Looking for a new account? Check out NerdWallet's best checking accounts

5. Link to another account

Your financial institution might also offer an overdraft protection transfer service. This involves linking a checking account to another account, such as a savings or credit account, at the same provider. When there’s not enough cash in your checking account to cover a transaction, money will be transferred from the linked account to cover the shortfall. There usually is a fee, but it’s cheaper than overdraft coverage fees. If you link a credit account, like a credit card or line of credit, you'll have to pay interest on the overdrawn amount and possibly a transfer fee.

6. Get a prepaid debit card

If you continue having trouble keeping your checking account in the black, a prepaid debit card might be a solution. These cards work like debit cards, so you can deposit, withdraw and spend money, but they aren't linked to checking accounts. Prepaid debit cards generally don’t have overdraft services or related fees, but they can have fees for declined transactions. Find a card with few fees that can provide the services you need.

Glossary of overdraft terms

  • ChexSystems. ChexSystems tracks and provides reports on consumer deposit accounts. Someone might be reported to ChexSystems if they’ve failed to repay an overdraft fee, which means that other banks might not let that person open an account until that negative mark falls off their record after five years.

  • Continuous negative balance fee. If a customer doesn’t bring their bank account back to a positive balance after overdrafting, their bank might charge a continuous negative balance fee until the customer funds their account.

  • Nonsufficient funds, or NSF, fee. A bank will charge a nonsufficient funds fee if a transaction is attempted that can’t be covered by the funds in an account. NSF fees are also known as bounced check fees.

  • Overdraft. An overdraft occurs when a bank customer makes a transaction for a higher amount of money than the available balance in their account.

  • Overdraft coverage. Overdraft coverage can take different forms, including overdraft protection transfers and overdraft lines of credit. Customers are allowed by law to opt out of overdraft coverage by contacting their bank and making the request, and in the future their bank will simply decline any transaction that would result in an overdraft.

  • Overdraft fee. When bank customers overdraft, their bank might charge a fee — often in the range of $30-$35 — to discourage future overdraft activity. Sometimes a bank might charge this fee multiple times per day if a customer keeps making transactions that overdraft their account.

  • Overdraft line of credit. An overdraft line of credit is similar to a credit card in that it’s a set amount of money that a customer can borrow from if they overdraft their account. Like a credit card, there's typically a high-interest charge for using an overdraft line of credit, and that interest rate is usually dependent on your credit score.

  • Overdraft protection transfer. Some banks allow customers to link another account to their checking. This way, if they make a transaction that would result in an overdraft, the difference will be taken from their linked account instead.

  • Overdraft protection transfer fee. Some banks charge a fee for allowing customers to transfer funds from a linked account to cover a transaction that would overdraft their primary account.

  • Prepaid debit card. Prepaid debit cards allow people to load a debit card with a set amount of money, which can help prevent overdrafts since any transaction beyond the available card funds will be declined.

  • Second-chance checking account. Second-chance checking accounts are designed to help people who have been blocked from opening a traditional bank account because of flawed banking history, such as having unpaid overdraft fees and being put in ChexSystems. These accounts allow people to rebuild their banking history until the negative marks fall off their records.

Best banks and nonbank financial service providers to avoid and limit overdraft fees

Here is NerdWallet's list of the best providers to avoid or reduce overdraft charges.

Best for avoiding overdraft fees

Discover Bank

5.0

NerdWallet rating 
  • No overdraft fee.

  • Offers free overdraft protection via linked account.

Ally Bank

5.0

NerdWallet rating 
  • No overdraft fee.

  • Offers free overdraft protection via linked account.

Chime

5.0

NerdWallet rating 
  • No overdraft program or fees.

  • No monthly account fees (cash withdrawal and third-party fees may apply).

  • Chime says: "Chime is a financial technology company, not a bank. Banking services provided by, and debit card issued by, The Bancorp Bank or Stride Bank, N.A.; Members FDIC."

Best for limiting overdraft fees

Capital One 360

5.0

NerdWallet rating 
  • Free transfers from linked accounts.

  • Offers overdraft line of credit.

» Want to compare more institutions? Read about what other providers charge for overdraft fees

These strategies can help minimize overdraft costs. In the long run, it’s better to have enough money in the account and avoid altogether a scenario where a transaction can be rejected by your provider.

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