How Much Can You Overdraft Your Checking Account?

An overdraft happens when transactions posted to your bank account exceed your balance. In other words, you spent more money than you had in your account.

Overdrafts are problematic because they can cost you money. And, over time, they can add up. In fact, banks can charge an overdraft fee for each transaction you have that exceeds your balance – which means you could get charged multiple fees in a day.

When an overdraft happens, the bank covers the transaction for you and charges a fee for doing so. There are two main types of overdrafts: authorized and unauthorized.

• Authorized overdraft means you have an agreement with the bank that covers transactions that go over your balance.
  Your bank might offer you an overdraft line of credit that you can draw against. Say you have a checking account and the bank grants you a $1,000 overdraft limit. That means you can spend all the money in your account, plus up to $1,000 more before the bank blocks any further transactions. That sounds convenient but you might pay a daily, monthly, or annual fee for this type of overdraft protection. The bank may also charge you interest on the line of credit.
• Unauthorized overdrafts happen when there’s no agreement in place about how much you can spend above your balance. This type of overdraft can open you up to overdraft fees.

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*Amount varies based on individual SpotMe limit. Estimate is based on Bankrate's 2022 Checking Account and ATM Study. https://www.bankrate.com/banking/checking/checking-account-survey/

*Amount varies based on individual SpotMe limit. Estimate is based on Bankrate's 2022 Checking Account and ATM Study. https://www.bankrate.com/banking/checking/checking-account-survey/

How much you can overdraft your checking account depends on several factors, including the bank, its overdraft policy, and your transaction history. Small and big banks usually offer an overdraft limit ranging anywhere from $100 to $5,000.¹

Here’s an at-a-glance guide to overdraft policies and fees for some of the top checking accounts:

Here are some of the most common scenarios that can result in overdrafts:

• Intraday overdraft. An intraday overdraft – or daylight overdraft – happens when a bank transfers more money than it has in its reserve account. (The Federal Reserve sets the reserve requirements for banks.)
  Example: If a bank has assets of $100 million and the Fed requires a 10% reserve, the bank has to keep $10 million on hand at all times. If the reserve dips below that level because the bank is transferring money out, that can create an intraday overdraft. In that case, the Federal Reserve lends the bank money to cover the gap.
• Bank fees. Hidden or unexpected fees your bank charges to your account could result in an insufficient balance.
  Example: Any new transactions that post could lead to overdraft fees.
• Merchant overdraft. Business bank accounts can sometimes run into the negative just like personal bank accounts.
  Example: If a business is counting on a customer’s payment to process payroll for the week, only for the customer’s check to get lost in the mail, it may have to rely on its bank’s overdraft services to cover the payroll payments.
• ATM overdraft. Getting cash at the ATM is convenient but you could end up in overdraft if you take out too much cash. This can happen accidentally or intentionally but the result is the same: overdraft fees for you.
  Example: You go to the ATM to withdraw $60 but you only have $50 in your checking account, resulting in an overdraft fee.
• Merchant error. Merchant error can cause overdrafts if purchase amounts are entered incorrectly or a transaction is processed more than once. That’s why it’s always important to check the total before you pay and get a copy of your receipt – just in case merchant error causes an overdraft.
  Example: Say you purchase an item for $100 and the merchant accidently enters it as $200. If you only have $160 in your account, this can result in an overdraft fee.
• Authorization holds. These can unintentionally cause overdraft if your bank is holding back part of your balance.
  Example: If you book a hotel room using your debit card, the hotel might hold the amount of the booking until you check out. In the meantime, this hold could shrink the amount you have available to spend. If you have transactions that post against the hold amount that could put you in overdraft.

Overdraft is an umbrella term that describes what happens when a bank account balance ends up in the negative. When this happens, the bank will often charge you fees. The main kinds of these fees include:

• Overdraft fee. This is the fee the bank can charge when you have a transaction that exceeds your balance. The typical overdraft fee is over $27, and often greater than $35.⁸ Though, some banks have eliminated the overdraft fee altogether. Banks can also decide when to cap these fees, if at all.
• Non-sufficient fund fee (NSF). This fee occurs when a debit card transaction is processed even though your bank account has a zero or negative balance. Non-sufficient funds fee amounts vary from bank to bank, though they’re often similar to overdraft fee amounts.
• Overdraft protection fee. Overdraft protection means you’ve authorized your bank to transfer funds from your savings account to your checking account to avoid overdraft. In exchange, the bank charges you a fee for this service. You do have to opt-in to this protection to take advantage of it.
• Extended overdraft fee. This fee can apply when your bank account balance stays in the negative for a number of consecutive days. The amount you pay depends on the bank.

To get overdraft protection, you can speak with a bank representative, sign up online, or visit the bank in person.

At Chime, you can get fee-free overdraft coverage when you sign up for Chime+. We’ll spot you up to $200 on debit card purchases and cash withdrawals with no overdraft fees. You can also access SpotMe with Chime’s Credit Builder card.

If you want to skip the overdraft fees, here are some tips that could help you sidestep them.

1. Link your checking and savings accounts

Linking your checking account to your savings account gives you an easy way to transfer money if you think you’re in danger of overdraft. You could also link a checking account to a credit card if your credit card company allows you to do so as a form of overdraft protection. But this could mean paying fees and interest.

2. Set up banking alerts

Setting up transactions and low balance alerts is easy through online and mobile banking. You can set up an alert to notify you when new transactions post or your balance dips below a certain amount so you can make a deposit and stop spending money to avoid overdraft fees.

3. Choose a bank account with no overdraft fees

Instead of paying your bank for each overdraft, you could choose a bank account that doesn’t charge these fees at all. Chime, for example, offers checking accounts with no overdraft fees, monthly maintenance fees, or minimum balance fees. You can even link external bank accounts to a Chime Checking Account for added convenience.

4. Budget carefully and track your spending

The most effective way to avoid overdraft fees is to pay attention to what’s going in and out of your bank account. Setting a budget you can stick to and tracking your spending daily can help you keep tabs on your balance so you stay in control and avoid overdraft fees.

Bigger banks may have some appeal but they may be lacking when it comes to low overdraft fees. Even if you only overdraft your bank account once in a blue moon, it makes no sense to pay a steep fee for a spending slip-up.

Switching to a checking account that charges no overdraft fees can help you hold on to more of your money. It’s easy to make the switch online and say goodbye to fee hassles. Learn more about how to open a checking account with our step-by-step guide.