Overdraft Fees: News, Key Terms and Resources

Overdrafts can be frustrating, but consumers have options for how to handle their bank account if they overdraft.
Mar 10, 2022

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Banks charge overdraft fees when a customer makes a transaction that brings their account balance into the negative. Overdraft fees are typically in the range of $30-$35 per instance, and some banks charge that fee multiple times per day if the customer keeps making transactions that overdraw their account. Some banks also charge continuous negative balance fees. If the funds in a customer's account aren't replenished within a certain period, they will be charged an additional fee. (If you're looking for a new account, see NerdWallet's picks for best checking accounts.)

» See the latest in overdraft fee news

Overdraft fees can add up very quickly. People who don't pay their overdraft fees can sometimes have their information sent to ChexSystems, a reporting system that keeps track of consumers who might be risky bank customers. Being in ChexSystems can make it very difficult for you to open a new bank account.

» Learn more about ChexSystems

Some banks might reverse overdraft fees for customers in good standing. Still, if overdrafts are an ongoing problem, there are options for overdraft coverage and other ways to avoid paying an overdraft fee. Some major banks and credit unions have recently reduced or eliminated overdraft fees, including Discover, Ally, Capital One and Alliant Credit Union.

Banks that have recently reduced or eliminated overdraft fees

Financial institution

New overdraft policy and fees

Alliant Credit Union

In 2021, Alliant Credit Union decided to eliminate overdraft and nonsufficient funds fees.

Ally

In June 2021, Ally eliminated overdraft fees and now offers two forms of free overdraft coverage: free overdraft protection transfers from a linked Ally savings or money market account and its CoverDraft service, which allows customers to overdraft up to $100 with 14 days to replenish the account funds.

Bank of America

Bank of America announced in 2022 that it will eliminate nonsufficient funds fees — also known as bounced check fees — and that it will reduce its overdraft fee from $35 to $10 and remove its overdraft protection transfer fee.

Capital One

Capital One announced in late 2021 that it would eliminate overdraft and nonsufficient funds fees for customers.

Citibank

In February 2022, Citibank announced that it would remove overdraft fees, overdraft protection fees and returned items fees by summer 2022.

Discover

In 2019, Discover removed its overdraft and insufficient fund fees. If a customer tries to make a transaction that would result in an overdraft, they can use a free overdraft protection transfer from another Discover account to cover the cost of the transaction.

Banks are ditching overdraft fees

Overdraft definitions

Glossary of overdraft terms

ChexSystems. ChexSystems tracks and provides reports on consumer deposit accounts. Someone might end up being 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 it falls off their record after five years.

Continuous negative balance fee. If a bank 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. However, 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 so that 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 consumers to load a debit card with a set amount of money, which can help with preventing overdrafts since any transaction beyond the available card funds will be declined.

Second-chance checking account. Second-chance checking accounts are designed to help consumers 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 consumers to rebuild their banking history until the negative marks fall off their records.

Frequently asked questions
What is an overdraft fee?

An overdraft fee is a fee that banks charge when a customer has made a transaction that dips below the available funds in their account. Some fees related to overdraft fees might include nonsufficient funds fees, overdraft protection transfer fees and continuous negative balance fees.

How much do overdraft fees cost?

Overdraft fees typically range from $30-$35 per instance and can be charged multiple times per day, depending on the bank’s overdraft policies.

How do I avoid overdraft fees?

Overdraft fees can be avoided in several ways:

  • Opt out. You can contact your bank to tell it that you’d rather have a transaction declined instead of overdrafting.

  • Link an additional account. If your bank allows overdraft protection transfers, you can link another checking or savings account to cover the cost of any transaction that would result in an overdraft. Be aware that some banks charge a fee for this option.

  • Apply for an overdraft line of credit. Some banks allow their customers to open an overdraft line of credit, which is a credit line that covers the cost of any transactions that would overdraft an account. These lines of credit, however, are similar to credit cards in that they often come with high interest rates.

  • See if your bank has special overdraft coverage. Some banks allow their customers to overdraft up to a certain amount with no fee, sometimes even as much as $200.

Is it possible to get an overdraft fee refunded?

If you’re a customer in good standing with your bank — meaning you overdraft your account rarely — there’s a chance that your bank might refund an overdraft fee. Contact your bank’s customer service department to find out.

Is there a limit to how many overdraft fees can be charged per day?

Overdraft fee limits depend on your bank. Some banks charge this fee only once or twice a day, while others charge unlimited overdraft fees per day.

What is ChexSystems?

ChexSystems is a consumer reporting agency that tracks and provides information about consumer deposit accounts. If a bank customer hasn’t paid an overdraft fee, their bank might report them to ChexSystems, making it harder for them to open a bank account elsewhere.

What overdraft coverage is the best?

The best overdraft coverage depends on your needs, but ideally, you shouldn’t need to pay any fees. An overdraft protection transfer is usually a simple way to avoid an overdraft fee, but if your bank charges a fee for the service, then it won’t be as helpful. If you want to avoid fees altogether, opting out of overdraft coverage might be the best option, but it could leave you stuck if you need to pay for something in an emergency.

What should I look for in an overdraft policy?

The best overdraft policies have low or no fees and lots of options for overdraft protection and coverage.

Learn about the basics of overdraft fees

What banks charge for overdraft fees

How to avoid or fix an overdraft fee

Latest news about overdraft fees

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