In your financial life, overdrafting your bank account is bad enough; no one likes to feel as if they’ve run out of money. But being charged an overdraft fee can dig you even deeper into the hole.
That’s why it can make sense to take some simple steps to avoid overdraft fees. You may be able to get a reprieve by contacting your bank or by linking accounts, among other moves.
In this guide, you’ll learn more about overdrafting and the charges involved, plus smart ideas for how to avoid overdraft fees.
What Is an Overdraft Fee?
If you pay out more than is in your bank account, your bank may go ahead and process the payment you’ve initiated, taking your balance into negative territory. They will likely charge you for this privilege (that is, letting you spend more than you have), and that is an overdraft fee.
💡 Quick Tip: Feel ‘phew’ on payday — up to two days earlier! Sign up for an online bank account and set up direct deposit to get paid faster.
How Much Do Overdraft Fees Cost?
Overdraft fees aren’t cheap. The cost can vary somewhat depending on the bank or financial institution, but they generally run around $35.
It’s important to note that the overdraft fee is generally per overdraft. So if you overdraft your account and don’t realize you overdrafted, you might make multiple purchases and incur a fee on each one.
And these fees can add up quickly. At $35 a pop, just three small purchases could set you back over $100.
Some banks may also charge extended overdraft fees (sometimes called continuous or sustained fees) if your account doesn’t go back into positive territory within a few days.
It’s no wonder that Americans paid $7.7 billion in overdraft and the related non-sufficient funds (NSF) fees each year.
However, a bit of hope: Over the last year or two, some banks are beginning to lower their overdraft fees. For instance, Bank of America reduced their fees to $10, and some financial institutions, often online banks, don’t charge any fees for, say, the first $50 of overdraft.
10 Ways to Avoid Overdraft Fees
Next, consider these ways to avoid overdraft fees. These strategies can keep overdraft fees from accumulating — or ever being charged in the first place.
1. Keep an Eye on Your Balances
How often do you monitor your balance typically? It’s a good idea to make a habit of checking your accounts weekly or even more frequently to make sure your balances aren’t too low.
This can be done quickly online, via mobile app, when you take money out of the ATM, and/or by calling the bank and getting an automated update on your account.
2. Maintain a Cushion
One simple way to avoid overdraft fees is to keep a cash cushion in your checking account. A cushion means you have a little more stashed in your account than you typically spend each month in order to cover unexpected or forgotten charges.
This cash cushion can prevent overdraft. You might even add it as an item on your budget to make sure it gets replenished if you use it up.
Get up to $300 when you bank with SoFi.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!
3. Set up Balance Alerts
An easy way to help avoid unexpected overdrafts, plus those high overdraft fees, is to set up some automatic alerts.
• One that is particularly helpful is a low balance alert, which means you will be notified (by text, email, or cell phone notification) whenever your balance falls below a certain amount.
You could then immediately transfer money from savings, or hold off on making any purchases until another paycheck comes in.
• Another useful alert you may be able to set up is the overdraft alert. This means you would be notified whenever you overdraft your account.
This alert won’t help you avoid the initial overdraft fee, but it could stop you from continuing to make payments and incurring more overdraft fees.
4. Opt Out of Overdraft Coverage
It is possible to prevent your bank from using the automatic overdraft. You just need to opt out of overdraft coverage.
Customers typically have to “opt-in” to a bank’s overdraft protection program, which many do without thinking much about it when they open their accounts.
This gives the institution permission to clear a transaction even if there is not enough money to cover it in the account. If you’re unsure about whether you’re enrolled in an overdraft program when you opened your account, you can contact your bank to find out whether you have this coverage or not.
There are pros and cons of overdraft coverage. If you have overdraft coverage, you may want to consider opting out. Without overdraft coverage for debit card purchases and ATM withdrawals, you will not be able to overdraft.
Instead, if you try to withdraw more than you have in the account, your charge will simply be declined — no money will be withdrawn from your account, and no fees will be triggered. This may help some people stay more mindful and accountable about their spending.
Keep in mind, though, that opting out of overdraft coverage programs typically does not protect you from fees charged for bounced checks.
💡 Quick Tip: Are you paying pointless bank fees? Open a checking account with no account fees and avoid monthly charges (and likely earn a higher rate, too).
5. Link to Another Account
Next on the list of how to avoid overdraft fees: Connect your accounts.
Your bank or financial institution might offer an overdraft protection service that is different from overdraft coverage. This service, which typically involves signing a contract to set up, will link your checking account to another account at the same institution.
Then, in the event that there’s not enough cash in your checking account to cover a transaction, the needed money would then be transferred from the linked account to cover it.
It’s important to remember, however, that some savings accounts have a limit of six withdrawals per month. Also, there may be a fee involved for the funds transfer, but these charges are typically lower than overdraft fees.
Another perk of overdraft protection is that it can help you avoid the awkwardness of having your transaction denied.
Recommended: Can You Overdraft Your Savings Account?
6. Be Careful About Where You Use Your Debit Card
Here’s another way to avoid incurring overdraft fees:
• You may want to use something other than your debit card to check into a hotel or rent a car. These companies may put a hold on your card equal to or sometimes greater than the full amount of your bill.
In this case, money wouldn’t actually be withdrawn from your account, but it also wouldn’t be available for you to use. If you use your debit card to make another purchase and don’t realize that the hold is tying up your money, you may put yourself at risk for overdrafting.
If you’re planning to use your debit card to book a hotel or rent a car, you might want to check company policies in advance.
• You may also want to avoid using your debit card to make lots of small purchases. These might be harder to keep track of and could add up quickly, making it more difficult for you to know how much money is flowing out of your account.
If you lose track of your spending, this too could put you more at risk for overdrafting.
7. Use Prepaid Debit Cards
Another tactic for avoiding overdraft fees is to do your spending with prepaid debit cards. These cards are often branded with a credit card logo and can be bought in a variety of sums. They come preloaded with that amount of money, and you spend until the cash value is gone. In this way, overdrafting isn’t a possibility. This might help some people stick to their budget.
8. Schedule Payments Carefully
You might also eyeball when payments are due, and see how that dovetails (or doesn’t) with your paycheck schedule. For instance, you might be more likely to overdraft your account if your credit card payment is due a couple of days before your paycheck hits. If that’s the case, you might try contacting your credit card issuer and see if they could move your due date slightly to better accommodate your cash flow. Many companies will do that.
9. Use Mobile Banking Apps
Here’s one more way to avoid overdraft fees: Use a mobile bank app, which can let you see your balance, pending payments, and spending in one click glance at your mobile device.
This can make it easy to eyeball how your money looks and avoid overspending.
10. Consider a Bank With No Overdraft Fees
Some banks are recognizing what a pain point overdraft fees can be for consumers. You may find that some are lowering their charges, and others are actually providing fee-free overdraft coverage. This may be limited to a certain amount (such as covering the first $50 of an overdraft) and may require the customer to get back to a positive balance within a certain period of time (say, until your next direct deposit hits). It can be wise to shop around for this feature; you may find it more often at online vs. traditional banks.
What to Do If You Overdraft
If you overdraw your account, here are some steps to take:
• The best first step is generally to transfer money into the account right away. You might still be able to prevent an overdraft fee.
You may then want to 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. That’s because leaving a balance negative for several days can sometimes result in an extended overdraft fee.
• If you are charged an overdraft fee, however, that doesn’t automatically mean you are stuck paying it. It doesn’t hurt to negotiate to try to have the fee reimbursed.
You can try to get overdraft fees waived by calling the bank and politely asking if they will remove the charge—if it’s your first offense, you might prevail. You may also want to ask your bank if it has a formal forgiveness program. Some institutions have policies to waive the first fee charged each year or if a customer is experiencing economic hardship.
The Takeaway
Overdrafting is when you try to spend more money from your checking account than you actually have in that account. Banks will often let your charge go through instead of declining it, but then will charge you an overdraft fee that can be around $35. These fees can add up quickly, especially if you don’t realize you overdrafted your account and continue to make purchases.
But there are a few simple ways to avoid hefty overdraft fees, such as opting out of overdraft coverage, setting up an automatic low-balance alert, linking your accounts, keeping a little cushion in your account, or banking where you get a level of no-fee overdraft coverage.
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.
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.
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.
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.
SOBK1023032
