Overdraft Fees: Different Types, Explained & Compared
Managing finances is easier than ever with banks offering online and mobile banking services. You can access your account 24/7 to keep track of payments, withdrawals, debit card charges, automatic bill payments and more.
So, you may be wondering:
What happens if you log in and see those dreaded red numbers indicating your account is overdrawn?
It can even happen to the most diligent person at one time or another.
Not only will your account have a negative balance, you’ll also get hit with overdraft fees.
If you don’t bring your account to a positive balance, you’ll be charged with fees on top of fees and your account could even be closed by the bank.
Whether you’re unaware or you just don’t have money to cover the negative balance plus the added fees, here’s what will happen if your checking account is overdrawn for too long, the fees bank charge for being overdrawn, and how to avoid doing it again.
Types of Overdraft Fees
Banks offer overdraft protection in case you miscalculate the budget or simply run out of funds for a short amount of time. If this does happen, you’ll most likely be charged fees from your bank.
The three main types of checking account overdraft fees are:
1. Overdraft Fee
This type of fee is pretty standard across most banks and credit unions. If you write a check or withdraw more money than you have in that account, the bank will still pay for the overdraft item, but you’ll be charged a fee.
Overdraft fees range anywhere from $15 to $40 per overdraft, depending on the bank and type of overdraft protection service on your account.
Here are overdraft fees charged by some of the top banks:
Overdraft Fees at Top Banks
| Bank | Overdraft Fee | Max # Of Fees Charged Per Day |
|---|---|---|
| Bank of America | $35 | 4 |
| Wells Fargo | $35 | 3 |
| Chase | $34 | 3 |
| Citibank | $34 | 4 |
| U.S. Bank | $36 | 4 |
| PNC Bank | $36 | 4 |
| Capital One | $0 | - |
| TD Bank | $35 | 5 |
| Regions Bank | $36 | 6 |
| M&T Bank | $38.50 | 5 |
| Citizens Bank | $35 | 7 |
| Fifth Third Bank | $37 | 5 |
| BMO Harris Bank | $35 | 4 |
| Santander | $35 | 6 |
| Union Bank | $33 | 6 |
| Ally | $0 | - |
2. Overdraft Protection Fee
In general terms, you can think of overdraft protection fees as transfer fees.
Banks will try to attract customers by advertising free annual overdraft protection services.
What many people don’t realize is that the service is free, however; the fees are high if you do need to use the service.
You’ll be charged a fee, whether it’s a flat rate or daily interest rate, whenever money is transferred into your checking account to make up for any negative balance.
Overdraft Protection Transfer Fees at Top Banks
| Bank | Overdraft Transfer Fee |
|---|---|
| Bank of America | $10 |
| Chase | $0, but every transfer counts towards your savings withdrawal limit (6), which is $5 after the 6th transfer/withdrawal |
| Wells Fargo | $12.50 |
| Citibank | $10 |
| U.S. Bank | $12.50 ($7.50 for Gold Checking and $0 for Platinum Checking) |
| Capital One | $0 |
| SunTrust | $0 |
| TD Bank | $10 |
| Fifth Third Bank | $12 for Essential Checking ($10 for Better Checking accounts and $0 for Enhanced and Preferred Checking accounts) |
| Citizen's Bank | $12 |
3. Extended Overdraft Fees
Sometimes these types of fees are referred to as sustained overdraft fees.
Once your account has a negative balance, the clock starts ticking.
You’ll have a determined number of days to bring your checking account balance above zero before you’re charged a sustained overdraft fee. This fee is in addition to any overdraft fees - so you are being charged the overdraft fee plus an additional extended overdraft fee.
Sustained overdraft fees vary greatly bank to bank. Here are the extended overdraft fees charged by some of the top banks:
Extended Overdraft Fees at the Top U.S. Banks
| Bank | Extended overdraft fee | # of days until charged |
|---|---|---|
| Bank of America | $35 | 5 consecutive business days |
| Capital One | $0 | N/A |
| Chase | $15 | 5 consecutive business days |
| Santander Bank | $35 (fee waived for Santander Premier Plus Checking) | 5 consecutive business days |
| U.S. Bank | $36 | 7 consecutive business days |
| PNC Bank | $7 (up to a maximum of $98) | 5 consecutive business days |
| TD Bank | $20 | 7 consecutive business days |
| Union Bank | $6 | 5 consecutive business days |
| Regions Bank | $0 | N/A |
| Citizen's Bank | $6.99 (up to a maximum of $69.90) | 3 consecutive business days |
| Fifth Third Bank | $8 | 5 consecutive business days |
| M&T Bank | $38.50 | 5 consecutive business days |
| BMO Harris | $7 (up to a maximum of $70) | 3 consecutive business days |
| Ally Bank | $0 | N/A |
*An additional $25 Extended Overdraft Service Charge will be charged if your account remains overdrawn for twenty consecutive calendar days. |
At some banks, you are allowed a set amount of days to pay back the amount and thereafter, you’re charged a daily fee between $5 and $10.
Other banks charge you a larger fee, averaging $30, every five or so days.
If your account continues to be in the red, the bank can continue to charge you these fees and even close your account.
If a bank closes your account due to a prolonged negative balance, your credit score might even take a hit.
The closed account will be noted on your credit report as “involuntarily closure” indicating there was a negative reason the account had to be closed by the bank.
How Do Overdrafts Occur?
An account is overdrawn when you spend more money than you have in your checking account.
This can happen many different ways, such as:
Old checks
If you write a check, there is a chance you forgot about a check if it’s not cashed right away.
For example:
If you write a check and it’s not cashed for two months, you might completely forget about it. Once that check is cashed, and you didn't have the money to cover the amount of the check (maybe because you spent it or never had it in the first place), your account is overdrawn.
Note: Post-dated checks do not have to be enforced by a depositing bank. Post-dating doesn't really mean anything.
Joint accounts
If you and your spouse share an account, it’s possible that one person might not be aware that the other person spent money in the account.
It’s important to be aware of your spouse’s spending habits in order to avoid spending money that isn’t there.
Automatic payments
Setting up automatic payments each month helps to ensure you never miss a payment.
Some payments, like a gym membership, are the same amount each month. Other payments, such as utilities, fluctuate month to month.
If a monthly payment is unexpectantly high, like an electric bill after the coldest January on record, this payment might cause your account to be overdrawn.
Track spending
Even if you don’t necessarily check your checking account after every transaction, it’s good to keep an eye on charges and to check your balance.
It’s easy to lose track of your balance so if you have an expensive charge about to go through or plan to go on a shopping spree, you might want to check your account to ensure you have enough money in the bank.
There are a wide variety of budget apps and financial tools that can do this for you as well.
Overdraft Protection for Your Bank Account
Overdraft protection services vary by bank. Most checking accounts offer some type of overdraft protection program.
This means that some or all of the transactions that post to your account will still go through, even if you do not have sufficient funds in the account.
However, you do not have to add overdraft protection to your account. In fact, banks are required to seek your approval to add these services to your account since the fees can quickly add up.
Problems arise when multiple transactions hit your account once your balance has fallen below zero.
You’re charged these fees per transaction, so one non-sufficient funds transaction can wreak havoc on your account if you continue to use your debit card or write checks.
If you choose to opt out of overdraft protection, transactions and ATM withdrawals will be rejected if you do not have enough money in the account.
Linked to savings
Savings overdraft protection is when a checking account is linked to another account, such as a savings account or money market account (usually from the same bank).
The linked account acts as a backup to your checking account.
If your checking account falls below zero, the bank will transfer the exact amount of money needed from the backup account to cover the overdraft amount, in order to process the transaction.
For example, if you spend $20 on lunch and only have $15 in your checking account, the remaining $5 will be transferred from your linked savings account to your checking account.
By opting in for savings overdraft protection, you’ll avoid checking account overdraft fees and returned check fees.
You’ll still be charged an overdraft fee to transfer the money from savings to checking, but typically that fee is lower compared to other types of overdraft fees.
Overdraft line of credit line
The second type of overdraft protection is an overdraft line of credit connected to your checking account.
As with any credit or loan, opting for overdraft credit is based on your credit score and available credit.
You’ll need to apply for this type of overdraft protection before you need the actual money.
If you happen to spend more money than you have, the available line of credit will automatically cover the difference.
With an overdrawn line of credit, you’ll owe interest on the amount borrowed. Interest charges accrue daily until the full amount is paid off.
If you repay the loan in a day or two, the interest should be minimal. If you carry the balance over a significant amount of time, interest adds up.
Overdraft linked credit card
A third option for overdraft protection is to link a credit card to your checking account.
If you happen to overdraft your account, the difference will be charged to the credit card, plus fees.
Just like a cash advance, interest on the amount will begin immediately.
Interest rates on cash advances are often higher compared to standard credit card charges. The longer it takes you to pay back the balance, the more interest you will pay.
Final Thoughts
The best way to avoid astronomical overdraft fees:
Only use the amount of money that you have in your account.
As simple as it seems, banks can only charge you these fees if you use the overdraft protection services.
If you do find yourself in a situation that you cannot avoid, and your checking account has a negative balance, call your bank and speak to a customer service representative.
Most banks forgive one overdraft fee as an annual courtesy to their customers.
If your account spiraled out of control because you were unaware of a negative balance, call your bank to work with them on a realistic payback schedule.
They are able to go over all the fees and how they were incurred, plus they help you come up with a plan to bring your account to good standing.
