What Happens if Your Bank Account Goes Negative?

A negative account balance can happen all too easily: An automatic bill payment might hit when your account doesn’t have enough to cover it. Or maybe you lost track of purchases made with your debit card and overextended yourself.

The resulting negative bank balance can have a serious impact, leading to overdraft fees, declined transactions, and even account closure. Read on to learn more about a negative bank account balance, including ways to avoid the problem, and what to do if you wind up with a negative balance.

What Does a Negative Balance Mean?

A negative account balance, also known as an overdraft, occurs when you spend more money than you have in your bank account, causing the account to dip below zero. This happens when a bank allows a transaction to go through even though there are insufficient funds. The bank is effectively lending you money to cover the difference, often at the cost of an overdraft fee. The bank may also charge other fees until the balance is restored to zero or positive.

To help you visualize this, here’s an example:

•   Imagine you have $500 in your account, and you write a check for $515, because you thought you had a balance of $600.

•   If the bank pays the $515, you end up with an account balance of minus $15. That’s the difference between how much money you had in the account and how much the bank paid the person that cashed your check. The bank made up the difference.

Common Causes of Negative Balances

Your balance goes negative when you have withdrawn more than you have in your account. This can happen if you make a transaction — such as ATM withdrawal, or debit card purchase — for an amount that exceeds the balance in your checking account.

This is when overdraft protection, if you have it, kicks in. Instead of rejecting the transaction, the bank will cover the overage, allowing your account to go negative. Typically, you repay a negative balance with the next deposit of funds.

Here’s a closer look at how a negative bank balance can occur.

Miscalculation/Mistakes

Overdrafts can happen with miscalculations and mistakes. For instance, you might overestimate how much is in your account and spend more than you actually have. Or you may forget to record a bill you paid, which could take your balance down into negative territory.

Pending Transactions and Auto-Pay Delays

It’s possible you’re not exactly sure what checks you’ve written have been cashed and what incoming checks are still pending and haven’t yet cleared. You may unwittingly make a payment or ATM withdrawal thinking you’re good, but discover you’re not.

Or perhaps you experience an auto-pay delay, when your automatic bill payment doesn’t process on the exact date it should because the due date is on a weekend or a holiday, or the transaction is taking longer than usual. If sufficient funds aren’t sitting in your account the date the payment finally processes, that could result in a negative bank account balance.

Overdraft Fees Compounding the Balance

Your bank can charge you an overdraft fee whenever you don’t have enough in your account to cover a transaction. The amount varies by bank, but the fee may be as much as $35 per transaction. Since overdraft fees may be charged per transaction, they can multiply quickly, adding even more charges to the negative balance in your account.

The Risks of Ignoring a Negative Balance

Ignoring a negative bank account balance could lead to serious consequences that could cost you money and potentially damage your financial profile. Here are some of the issues ignoring a negative bank account can trigger.

Accumulating Daily Fees

If your bank covers a transaction that puts your account in negative territory, as noted above, it will typically charge an overdraft fee — and it might continue to do so daily or every time you make a transaction. If you make multiple transactions, and/or a number of days go by before you realize you have a negative balance, these fees can add up to a significant sum.

Involuntary Account Closure

If you don’t fix your negative balance by depositing money into your account, or if you overdraw your account too often, your days as a bank customer may come to a close. The bank can opt to shutter the account, and it can be difficult to reopen a closed bank account.

ChexSystems and Credit Score Impact

If the bank closes your account due to an ongoing negative bank account balance, it will likely report the closure to ChexSystems, a consumer reporting company banks use to screen customer accounts. A negative report by this agency will stay on your record for up to five years, which could make it difficult for you to open a new bank account.

Also, a bank that closed your account due to unpaid overdrafts might sell your debt to a collection company. That, in turn, could negatively impact your credit profile and your credit score.

How Long Can a Bank Account Stay Negative? (The Timeline)

How long a bank account can stay negative depends on the specific bank and its policies. Some banks offer a 24-hour grace period for you to bring your balance back up before they charge an overdraft fee; other banks may allow you to be overdrawn for one or two days up to a certain amount (like $50.)

The 30 to 60-Day Risk Window

If you have a negative bank balance for five to seven days, some banks charge extended overdraft fees, which add even more to what you owe. After about 30 to 60 days, many banks will close down the account. At this point, they may send your account to a debt collection agency.

When Does it Get Reported to ChexSystems?

When a bank closes an overdrawn account for a negative unpaid balance, they also typically report the closed account, and the reason it was closed down, to ChexSystems. A negative report by this company can stay on your record for up to five years making it difficult to open a new bank account. In that case, your only option might be a second chance checking account.

Overdraft vs NSF: What’s the Difference?

An overdraft fee is not the same thing as a non-sufficient funds (NSF) fee. Here’s a look at the difference when it comes to overdraft vs NSF fees:

•   An overdraft fee is what a bank or credit union charges you when they have to cover your transaction when you don’t have enough funds available in your account. This fee is around $35.

•   When a financial institution returns a check or electronic transaction without paying it, they may charge a non-sufficient funds fee. It’s usually about $18. The difference is, with a non-sufficient funds fee, the bank is not covering the shortfall; they are essentially rejecting the transaction and charging you for doing so.

How to Clear a Negative Bank Balance

If you have a negative bank balance, it’s important to take action as soon as you can. The following steps can help you get back on track.

Step 1. Audit Your Transaction History

Determine what went wrong and triggered the overdraft. Check your bank account online or via your bank’s app and also see what charges haven’t been paid or received. Then, do the math. This will give you an idea of where you stand and how soon you may be back in the positive zone for your balance.

Step 2. Stop All Automatic Payments Immediately

Automating your finances can be a convenient tool, but if you are in overdraft, automatic payments could keep popping up and derailing your efforts. Stop these payments right away for all your bills so they don’t keep adding to your negative balance.

Bring the Balance to Zero

Once you understand your situation, take action. Deposit enough money to bring your account balance to zero — and even better, deposit funds to put your balance firmly in the positive zone again. Ideally, put in enough to give yourself some cushion to help protect from future overdrafts.

Recommended: Savings Goal Calculator

Ask for Fee Forgiveness

Make a request to your bank to have your fees waived. They may be feeling generous, particularly if this is your first offense.

If your bank won’t waive the fees, go ahead and pay what you owe. If you don’t, you’ll just make your situation worse, meaning the bank could close your account and turn the matter over to debt collection. Taking action sooner rather than later to protect your bank account is usually best.

How to Prevent Future Negative Balances

There are ways to avoid a negative bank account balance. Try these strategies:

Set Up Low-Balance Alerts

Set up account alerts to let you know when your account balance reaches a certain number. If you know your account is getting low, you can take steps to avoid going into the negative balance zone. In addition, consider setting alerts to notify you before automatic deductions are made (many banks offer this option). That way, you can monitor your bank account and its balance to make sure you can cover the debit.

And be sure to check your balance regularly. “Waiting until the end of the month to check in on accounts leaves you at risk of excess spending and potentially overdrawing your checking account, “ says Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “Checking in once a week leaves time to self correct and adjust your budget to help balance the numbers.”

Link a Backup Savings Account

Explore what overdraft protection your bank offers. And then carefully consider: Do you need overdraft protection? It can keep a transaction from being declined if you don’t have enough money in your account, but the overdraft fees —as much as $35 per transaction — can add up.

Instead, you may be able to link a savings account to your checking which can be tapped to cover overdrafts. It may cost you a fee for that transfer, but it’s likely not as steep as an overdraft fee. While you don’t want overdrafts to be a regular occurrence, you do want to be protected in case they crop up.

Switch to a No-Fee Bank

Another option is to look for a no-fee bank, which may not charge overdraft fees, and set up a no-fee checking and savings accounts. A growing number of banks are offering no-fee accounts, especially no-fee checking accounts, so shop around and see which one offers the best option for your needs.

The Takeaway

Having a negative bank balance means you overdrafted your account. This often triggers pricey overdraft fees, and it can lead to other financial issues such as having your account closed down if the situation isn’t remedied. To help prevent a negative balance, keep tabs on your bank account balance, set up low-balance alerts, link a savings account to your checking account for extra coverage, or consider switching to a no-fee bank.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Does a negative bank balance affect my credit score?

A negative bank balance could potentially affect your credit score if the negative balance isn’t resolved. For example, your bank might close your account due to an unpaid negative bank account balance and sell your debt to a collection company which could negatively impact your credit score.

Can a bank take my whole paycheck to fix a negative balance?

If you don’t remedy an overdrawn account, it’s possible that a bank could eventually choose to sue you and take legal action to garnish your wages. They would typically need a court order to do this, and it’s probable that they could only take a portion of your wages rather than your entire paycheck. But it’s wise to consult a legal professional about your specific situation.

How much does it cost to have a negative balance?

Having a negative balance typically costs about $35 per transaction in overdraft fees, though the exact amount can vary by bank. The costs can add up quickly, especially if you have a negative balance for several days.

Can I open a new bank account if I have a negative balance?

You may be able to open a new bank account if you have a negative balance, but it might be challenging, depending how long you’ve had the negative balance. If it’s been more than 30 to 60 days, your current bank may close your account and report it to ChexSystems, a banking reporting agency. A negative report can stay on your record for up to five years, making it difficult to open a new account. An option to consider in this case is a second chance bank account, a type of checking account for people with a negative banking history.

What is a “forced closure” of a bank account?

A forced closure means a bank shuts down a bank account without the account owner’s consent, usually for a policy violation such as repeated overdrafts, unpaid fees, or suspicious activity. If this happens to you, contact the bank to find out the reason for the closure. Ask what can be done to remedy the situation. For example, in the case of repeated overdrafts, find out how much you owe and how to go about repaying it to avoid having the account sent to collections, which could impact your credit.

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Photo credit: iStock/kupicoo

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