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Wire transfers and transfers via the Automated Clearing House (ACH) are both ways to move money from one place to another. However, there are some key differences between them that make one a better choice than the other, depending on how quickly you need the money to get there and if you mind paying a fee.

With an ACH transfer, money is sent from one bank to another by way of an intermediary (the Automated Clearing House). With a wire transfer, money is sent directly between two different banks. Wire transfers are generally faster than ACH transfers but come with a higher cost.

Here’s a closer look at ACH vs. wire transfers and why you might use one or the other to send money to an individual or business.

What Is a Wire Transfer?

A wire transfer is a type of electronic funds transfer (EFT) that goes directly between two financial institutions. Since there is no middleman, wire transfers are fast — the money typically arrives the same day, and sometimes instantaneously.

It’s common to use a wire transfer when money needs to be sent quickly, or when money needs to be sent internationally, since a wire transfer allows currency exchange if necessary.

But this expedited service comes at a cost. Wire transfer fees can run around $30 for domestic wires and $50 for international wires. Some banks may even charge you a fee to receive a wire from someone, which can run anywhere from $5 to $15.

💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.

How Does a Wire Transfer Work?

You can send a wire transfer from your bank or a nonbank transfer service like Western Union. To wire money, you need to fill out a form and include the name of the recipient’s bank, that bank’s routing number, and the recipient’s bank account number (if you want to receive a wire transfer, you’ll need to provide these details).

Once you submit the wire transfer form, the bank processes your instructions and sends them to the recipient via a messaging system (such as Fedwire for domestic transfers and SWIFT for international transfers). The receiving institution reviews the instructions and credits the recipients with the designated amount.

What Is ACH?

An ACH transfer is a type of electronic payment between bank accounts using the Automated Clearing House (ACH) network. The ACH is a centralized system for moving money between financial institutions in the U.S. Businesses are charged a nominal fee to send or receive ACH payments, but this fee usually isn’t passed on to consumers.

You can make an ACH transfer to any person or entity that has a bank account. But unlike wire transfers, ACH payments don’t happen immediately — they are generally processed in batches several times per day.

The ACH network is commonly used to process transactions such as direct deposits, direct payments, recurring payments (like autopay), e-checks, and electronic funds transfers (such as transferring funds between accounts you have at different banks).

How Does ACH Work?

There are two main types of ACH transfers: ACH credit transfers and ACH debit transfers.

ACH credit transfers are when you “push” money online to an account at a different bank, either an account you own or someone else’s account. When you sign up for direct deposit, your employer pays you using an ACH credit transfer.

ACH debit transfers involve money getting “pulled” from an account. When you set up a recurring bill payment, for example, the company you’re paying can pull what it’s owed from your account each month.

The Key Differences Between Wire and ACH Transfer Payments

To decide which option for transferring money is best for your needs, you’ll want to consider the following differences between wire transfers and ACH payments.

ACH vs Wire Transfer Compared

	ACH	Wire Transfer
Availability	Domestic and international	Domestic and international
Security	Built-in protections against fraud	Fewer transaction safeguards due to speed
Transfer limits	Generally high but varies by bank	Up to $1 million per day
Processing times	1-3 days	Typically, same day (sometimes instantaneous)
Reversals	Possible within the same day	Typically not possible
Fees	None for consumers	$30 to $50 (or more)

Availability

Both ACH and wire transfers can be used to transfer funds to individuals or businesses in the U.S. or abroad.

Security

Both wire transfers and ACH payments are considered secure. However, the slower ACH process gives people more time to request a cancellation if there’s a problem with the transaction.

Wire transfers happen more quickly, so there’s less time to reverse a mistake or fraudulent transaction. Generally, wire transfers are final once they’ve been sent.

Transfer Limits

Wire transfers are regulated under the Electronic Fund Transfer Act (EFTA), which does not put a limit on the amount of money a person can transfer. However, financial institutions often impose daily transaction limits on deposits and withdrawals from accounts.

Consumers and businesses are generally limited to $1 million per day on ACH transfers.

Processing Times

While same-day ACH transfers do happen, it’s more common for an ACH transfer to take a few days to process. On the other hand, a wire transfer is generally processed the same day that it is sent, and it’s not uncommon for wire transfers to be sent instantly. An international wire transfer may take a few days.

Reversals

Because ACH transfers don’t happen right away, it’s often possible to reverse an ACH transfer if you discover an error within the same day you sent it. Because wire transfers happen much faster (often instantaneously), it’s not always possible to reverse them. For this reason, it’s important to only wire money if you are certain the recipient is trustworthy.

Fees

Businesses may need to pay a small processing fee for an ACH transfer, but generally consumers don’t incur any charges for ACH. Wire transfers, on the other hand, usually aren’t free — fees can range from $30 to $50 or more, depending on the financial institution and whether you’re wiring money domestically or overseas.

The Future of ACH and Wire Transfer Payments

Both ACH and wire transfers have been around for decades, and aren’t going anywhere. ACH payments are poised to undergo a substantial shift in the next few years as demand grows for faster digital payments. Wire transfers are expected to become safer as institutions develop better fraud protection systems. Fees for wire transfers may also come down.

Wire Transfer vs. ACH: Which Should You Use?

If you need to send money to a person or business, the best method will depend on how quickly you need it to get there and whether you mind paying a fee.

A wire transfer will typically get money into the recipient’s bank account significantly faster than an ACH transfer. However, these transfers usually come with a cost. If the need isn’t urgent, you’re generally better off with ACH. These transfers are free and can be used to set up recurring payments. They also have built-in fraud protection since the transfer doesn’t happen instantaneously.

The Takeaway

Wire transfers and ACH transfers are two different ways to send money electronically. When considering the differences of ACH vs. wire transfers, keep in mind that ACH transfers take a bit longer to process, but they are usually free. They’re also ideal if you’re looking for a convenient way to pay bills from your bank electronically. If you need to send funds to someone right away or transfer money to someone overseas, a wire transfer is likely the best option.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Why would you use a wire transfer?

You might use a wire transfer if you need to send money to someone overseas, since they are easy to exchange to a foreign currency. Another time when you might use a wire transfer is if you need to send money to someone quickly. Domestic wire transfers are typically processed the same day (and sometimes instantly), while international transfers are usually completed within a few days.

Is wire transfer safer than direct deposit?

Both wire transfers and direct deposits are considered safe and secure. However, since wire transfers generally happen on the same day (and sometimes instantly), it can be hard to reverse a wire transfer in the event of a mistake or fraud. Because of this, it’s important to make sure your wiring instructions are correct and you’re sending money to someone you trust.

How safe are ACH transfers?

ACH transfers are facilitated by the National Automated Clearing House Association (NACHA), and considered a secure way to send money. Also, because ACH transfers generally take a few days to process and post, it’s generally easier to reverse a mistaken or fraudulent ACH transfer compared to a wire transfer.

Can ACH be lost?

ACH payments generally don’t get lost. However, an ACH payment may not get to its intended recipient if the routing or account numbers are incorrect. If this happens, you may be able to reverse the ACH transfer if you flag the error soon after you send it.

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Photo credit: iStock/Igor Suka

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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These days, it’s all too easy to get sucked into a bank scam. The reason is that scammers, and their scams, are getting increasingly sophisticated. According to the latest Federal Trade Commission data, consumers lost more than $10 billion to fraud in 2023, a 14% increase over reported losses in 2022. The most commonly reported scam category in 2023 was imposter scams, which saw significant increases in reports of both business and government impersonators.

Scammers often use savvy tactics to commit fraud that make it hard to cancel or reverse the transaction. As a result, one of the best ways to protect your hard-earned cash is to be aware of what’s out there. Learn what the most common bank account scams are and how to spot them.

1. Overpayment Scams

If you sell products online, you could inadvertently be hoodwinked by this popular scam. Here, the fraudster will pose as a buyer and send you a check or money order for more than the purchase price. Then, they’ll ask you to refund the difference either through an online payment or wire transfer. But the original payment type was fraudulent, meaning you lose the refunded money. If you already sent the item you “sold” them, you’ll lose that too. But it doesn’t end there: You’ll likely also be on the hook for a returned item fee from the bank.

How to Avoid Them

If you ever receive an overpayment, your best bet is to ask the buyer to void it and send the correct amount.

2. Check Cashing Scams

This scheme appeals to your compassion. A scammer approaches you outside your bank to see if you would be willing to cash a check for them. They explain that they don’t have any ID on them or don’t have a checking account at that particular bank and really need the money. You deposit the check and, since it generally takes time for a check to clear, you give them the amount it’s written for from your own funds. Days or weeks later, the bank comes back to you and says the check is fake, and you’re responsible for the withdrawn amount, plus any fees.

How to Avoid Them

You’re better off saying no to anyone who asks you to cash a check for them, no matter what reason they give. You never know, and it’s not a good idea to risk it.

Recommended: Avoiding Mobile Deposit Scams, Fakes, and Hacks

3. Unsolicited Check Fraud

This banking scam involves a check you get in the mail. It might be described as a “rebate check,” a refund on an overpayment, or prize money for a contest you’ve won, even though you don’t remember entering one. You deposit it into the bank — why not?

Here’s why: There may be some (very) fine print on the front or back of the check stating that by cashing the check you are entering into a legally binding contract — one you likely don’t want to enter. It might be a membership with monthly fees, a loan, or other long-term commitment that ends up costing you far more than the “free” check you deposited.

How to Avoid Them

Be sure to double check any unsolicited checks with your bank before cashing or depositing them.

4. Automatic Withdrawal Scams

Also known as automatic debit scams, these involve unauthorized withdrawals from your bank account — typically checking accounts. Scammers get access to your bank account numbers through fraudulent telemarketer calls or by stealing them from unsecured websites when you sign up for a free trial.

Once a scammer has access to your account information, they set up an automatic withdrawal. When your bank receives the draft, they transfer money from your checking account to pay the scammer. Unless you pay close attention to your daily bank transactions, you may not notice the scam until much later.

How to Avoid Them

It’s a good policy to never share sensitive information over the phone, unless it’s with a trusted friend or family member.

Also make sure you only use encrypted websites when entering your bank information: Look for “https://” before the URL (not “https://”) and a locked padlock in the left corner of the address bar.

5. Phishing Scams

Phishing scams are particularly tricky because they come dressed as emails or texts from trusted companies you already know. The message may even mention suspicious activity on a personal account, such as your savings or checking account.

Typically, you need to click on a link in the email or text, and then complete an action like confirming personal information. When you click through, it usually looks like the website from your bank or the company in question. So you tap in the required information (which may be a password, account numbers, or some other type of personal information). The scammers now have your sensitive data.

How to Avoid Them

If you get an email or text warning you of suspicious activity or a compromised account, and asks you to click on a link, don’t. Instead, head to the website for the financial institution or company, and log into your account there. If there aren’t any notices asking you to update your information, chances are it’s a phishing scam.

6. Government Imposter Scams

A fraudster will contact you by phone, email, or text posing as a representative from a government or law enforcement agency (like the IRS, Medicare, or the FBI). They may ask you to provide personal information needed to issue a payment (like for a tax refund) or tell you that you owe money and need to make a payment immediately. The imposter could even threaten to put you in jail if you don’t reveal your personal information or send payment.

How to Avoid Them

Don’t engage with anyone who makes this type of contact. The reality is that a federal agency will never call, email, or text you and ask for personal information or a payment of any kind. This is not a strategy the government uses to collect payments or to get missing information on tax returns or other forms.

7. Charity Scams

Sadly, many scammers play on people’s compassion, kindness, and generosity to line their own pockets. A charity scammer might contact you by phone, email, or ringing your doorbell. They claim to represent a real (or real-sounding organization) and tell you in detail about an urgent need or crisis. They often flash legit-looking IDs.

You want to help, so you give them cash, a check, or, perhaps, your credit card or bank account information for a recurring donation. Unfortunately, they aren’t connected to any type of nonprofit organization and you’ve given funds or sensitive financial information to a scammer.

How to Avoid Them

If you’re approached by a charitable organization asking for money, don’t give right away — even if you fully believe in the cause. Instead, look up the charity to see whether it’s legitimate. There are online databases, such as Charity Watch, that will let you know if the organization is real, as well as exactly how the group will use your donation. If you’re still interested in giving to that charity, you can then reach out to them yourself and make a donation.

8. Employment Scams

A job scammer posts an enticing ad on a job board. The job they’re offering sounds too tempting to pass up. It might be a work-from-home set-up, the chance to be a mystery shopper, or a job that pays a full-time salary for part-time work. Before the employer can onboard you, however, you’ll need to pay a fee or supply your bank account information and other personal details so they can pay you. It’s all a front to get you to part with your money.

How to Avoid Them

Use only reputable job boards when job hunting and verify the position directly before sending any personal information. If a job offer sounds suspicious, research the company, check online reviews, and find out if there have been any complaints on the Better Business Bureau’s site before applying.

Also know that applying for a job should never involve paying a fee, even one supposedly needed to process your application or conduct background screening. If you encounter this scenario, the job is unfortunately too good to be true.

Recommended: Different Types of Bank Account Fraud to Look Out For

More Tips on How to Protect Yourself From Bank Fraud

To make sure you don’t inadvertently fall for a bank scam, here are some general guidelines to keep in mind.

Know the Red Flags

While today’s scammers are increasingly sophisticated, there are some red flags that can give them away:

•   You need to act urgently.

•   You’re threatened with law enforcement or a government agency action.

•   You’re told to purchase gift cards and provide codes as a form of payment.

•   You need to mobile deposit a check and then transfer cash from your account to the person or company that wrote the check.

Don’t Trust Strangers

Never cash a check for someone you don’t know, no matter what reasons they give you. Also refrain from engaging with unknown callers on the phone, even if they have government agency names as their caller ID.

Contact Your Bank

If you receive any calls, emails, or texts from your financial institution asking for information, don’t respond directly. Instead, reach out to your bank on your own using the phone number listed on your statement or debit card. You only want to provide information when you have initiated the conversation using a vetted contact number.

Stay Up to Date With Your Bank Statement

It’s important to carefully check your monthly bank statements, whether you view them online or receive them by mail. This will allow you to spot any suspicious activity right away. The sooner you catch and report a scam, generally the easier it is to resolve the situation.

The Takeaway

These days, scammers can come off as entirely believable — they can fake the caller ID and may already have a lot of your data so they sound like they’re legitimate. Fortunately, by knowing the red flags and all the latest scams for stealing your hard-earned cash, you can protect yourself and your bank account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How do bank scams work?

Bank scams usually involve someone asking for your banking or personal info — like account numbers, passwords, PIN codes — for a seemingly legit reason. They may have a “real” caller ID or a website that looks exactly like your bank’s. Once you provide or input your information, however, they use it to drain your account.

What bank information does a scammer need?

Having your bank account number and routing number is often enough for a scammer to perform fraudulent activities. While it’s not sufficient to access your bank account, it can allow a scammer to make fraudulent payments, create checks for your account, and make online purchases from retailers that only require bank account information.

What do you do if you suspect an online bank scam?

If you believe a scammer made an unauthorized transfer from your bank account, contact your bank as soon as possible. Let them know it was an unauthorized debit or withdrawal and request that they reverse the transaction and give you your money back.

If you gave a scammer your username and password, you’ll want to create a new, strong password. If you use the same password anywhere else, change it there, too.

If you gave a scammer your Social Security number, you can go to IdentityTheft.gov to see what steps to take, including how to monitor your credit.

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Photo credit: iStock/eggeeggjiew

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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An overdraft is a negative balance in your bank account and can occur for any number of reasons. You might accidentally spend more than you have available in your checking account, for example, or forget to transfer funds before an automated payment gets debited from your checking account. Whatever the cause, an overdraft comes with a number of negative consequences, especially if you don’t pay what you owe right away.

Read on to learn exactly what happens when you overdraft a bank account, plus tips on how to repair the damage and avoid overdrafts in the future.

What Is an Overdraft?

An overdraft happens when you spend more than you have available in your bank account and the bank pays for the transaction anyway. Think of it as a form of credit, where the bank is lending you money to cover the transaction and you’ll need to pay them back. Having this feature can be convenient, since it allows you to cover payments or withdrawals, like subscription services or a utility bill, even if you don’t have enough funds in your account to cover them.

However, many financial institutions charge their customers hefty fees for this convenience. Depending on the bank, overdraft fees can run upwards of $35. You are expected to pay the fee, plus the amount that was overdrawn.

💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

What Happens if You Overdraft Your Bank Account and Don’t Pay It Back?

If you overdraft your bank account and don’t pay what you owe plus the overdraft fee, you could face several unpleasant consequences, such as owing additional fees, your account being closed, and having the debt go to collections. Here’s a closer look at the potential fallout.

You Owe the Bank

The amount that was overdrawn, plus any fees, is what you owe the bank. You can repay your debt by transferring or depositing the owed amount into your account. Depending on the financial institution, you may have a certain amount of time to pay the bank back, such as within 30 days of the overdraft.

Pay the Overdraft Fee

Some banks charge a fee each time you overdraft, while others charge a fee for each day you overdraft. This is an important distinction: If your bank charges a fee for each overdraft and you inadvertently overdraft your account multiple times on the same day (which can happen if you have a low balance to start with), you’ll face multiple overdraft fees. For example, if your bank charges $35 per overdraft and you have three transactions in one day, you’ll owe the bank $105 in fees.

Your Account Could Be Closed

If you continue to overdraft your bank account and don’t pay it back, the bank may close your bank account to prevent any more withdrawals. You will still owe the amount you’ve overdrawn, plus any fees you’ve incurred. In some cases, the bank will send your debt to a collection agency.

The Bank Can Sue You

Anyone you owe a debt to can take you to court to try to collect it. The bank can sue you or, if it turns the matter over to a collection agency, the agency can sue. If the court grants a judgment against you, the bank or collection agency can garnish your wages or to place liens against your property in an effort to collect the debt.

Difficulty Opening Another Account

Some financial institutions will report closing your bank account and your unpaid overdraft debt to ChexSystems, the reporting agency for banking. ChexSystems maintains a report of your banking activity, which banks and credit unions can use to determine whether to approve your application for a new checking or savings account. Having an overdrawn and closed account could impact your ability to open a new account, even if it’s at a different bank or credit union.

How to Avoid Overdrafts

Overdrafts are an expensive nuisance. Here are some strategies that can help you avoid overdrawing your account in the first place.

Monitor Your Spending

Keeping an eye on how much you have in your checking account each day and knowing when bills are due can help you avoid spending more than you have available.

Set Up Low Balance Alerts

Many financial institutions allow you to sign up for customized banking alerts, either online or via your banking app. It’s a good idea to set up an alert for whenever your balance dips below a certain threshold. That way, you can top up your account to prevent the account from being overdrawn.

Check Your Account Statement Regularly

Looking at your account statement each month can help you spot patterns, like when your account balance tends to dip and, if you have an overdraft, when and why it happened. This can help you better monitor your account and adjust your spending.

Link Your Checking Account to Another Account or Credit Line

Many banks offer overdraft protection, which allows you to link your checking account to a savings account within the same financial institution or, if you qualify, a credit line. That way, if you don’t have enough funds in your checking account to cover a transaction, the bank will automatically transfer money from your savings to cover the transaction. In the case of a credit line, the bank will borrow what it needs from your credit line.

Overdraft protection avoids overdraft fees, but may come with interest and other fees.

💡 Quick Tip: Want a new checking account that offers more access to your money? With 55,000+ ATMs in the Allpoint network, you can get cash when and where you choose.

The Takeaway

Overdrafting your bank account and not paying what you owe could result in some negative consequences, like racking up even more fees, having your account closed, the debt going to collections, and difficulty opening a new bank account.

Even if you do all you can to prevent an overdraft, the reality is that it can happen on occasion. If you’re worried about the occasional overdraft, it may be worth looking for a bank that doesn’t charge overdraft fees.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Can you go to jail for an overdrawn bank account?

Having an overdrawn bank isn’t considered a criminal offense, so you won’t go to jail. You could face other consequences, though, such as overdraft fees, the bank closing your account, and the balance you owe going to collections.

How long can your bank account be overdrawn?

The time period will depend on your bank. Some may require you bring the negative balance to zero (basically, deposit the amount you’ve withdrawn plus any fees) by the next business day, while others will give you a 30-day grace period.

Can I close my account with a negative balance?

In most cases, banks won’t let you close a checking account that has a negative balance. You will need to ensure your account is current — getting the overdraft amount back to zero and paying any fees you owe.

What happens if your bank account goes negative and you never pay it?

Your bank may close your account and send the amount you owe to collections. The account closure and overdraft debt will also be reported to ChexSystems (an agency that tracks consumer banking history). This could mean you’ll have a hard time opening another bank account.

Can your bank sue you for the overdraft?

Yes. If you’re not aware of an overdrawn account or simply choose to ignore it, the bank could eventually take legal action against you. The amount your account is overdrawn is a legal debt you owe, which means the bank can sue you and use legal tactics such as wage garnishment to recoup their losses.

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Photo credit: iStock/vorDa

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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