Tag: Overdraft


How do overdraft fees work?

By Rebecca Lake
January 9, 2020

Checking accounts make it easy to spend, pay bills and even save, especially if you’re transferring money to a savings account automatically. 

The last thing you need is to get stuck paying high fees. Overdraft fees can be one of the most expensive charges banks can tack on. 

Here’s the lowdown on how these fees work and what you can do to avoid overdraft fees.

What are overdraft fees? 

In a nutshell, an overdraft fee is a fee that your bank or credit union charges you when a transaction exceeds the available balance in your checking account. This can include transactions like:

  • Online bill payments
  • Checks
  • Purchases made in-store
  • Online shopping 
  • Recurring subscriptions
  • ACH transfers to a different bank
  • Transfers between accounts at the same bank
  • ATM withdrawals  

Whether you can overdraft at an ATM depends on your bank. For example, your bank might let you overdraft your account by making a withdrawal at one of their ATMs but not if you’re using another bank’s machine to get cash. 

When you have a transaction that would put your balance in the red, the bank can still agree to pay it for you. For example, say you spend $125 at the grocery store but you only have $100 in your checking account. The bank can make up the difference for you to make sure the grocery store receives its money. But, you might end up paying an overdraft fee for that convenience. 

How overdraft fees work

The amount of an overdraft fee ultimately depends on the bank’s overdraft policy. For example, the bank might charge this fee for one type of transaction, i.e. online bill payments or returned checks, but not another. 

Something else that complicates things is the fact that there are different types of overdraft fees you might get hit with. Fees can fall into one of these four categories:

  1. Regular overdraft fees

The regular or standard overdraft fee is what your bank charges when you have a transaction that’s more than your account balance. The typical overdraft fee is $34, though banks can charge more or less. Chime, for instance, allows eligible members to overdraw up to $100* without charging a fee

The other side of that coin is that banks can stack multiple overdraft fees on your account. For example, if you’re already $50 in the negative and a recurring subscription charge goes through, you could pay separate overdraft fees for both those transactions. This could put you deeper in the hole. 

  1. Returned item fees

With regular or standard overdraft fees, the bank makes sure that the recipient gets paid. There are, however, situations where the bank may choose not to pay the transaction amount. In that case, the bank could charge a returned item fee in place of an overdraft fee. 

For example, say that you write your $900 monthly rent check but it gets returned because a deposit you made didn’t clear in time to cover it. The bank could charge a returned item fee in that case. In terms of cost, returned item fees tend to be similar to standard overdraft fees. 

  1. Overdraft protection fees

Overdraft protection is a service your bank can offer to help cut down on the cost of overdraft fees. This service is completely voluntary for you and you have to opt in to use it. 

If you enroll in overdraft protection and you have a transaction that would put you over your account limit, the bank will automatically transfer money from a linked savings account or money market account to cover the difference. In addition, the bank might let you use a line of credit for overdraft protection. 

This can help you sidestep the standard overdraft fee. But the bank could still charge you for this convenience. For example, you might pay $10 or $12 for each overdraft protection transfer. 

Remember, it’s totally up to you whether you want to opt in. Just keep in mind that if you opt out, your bank may not approve purchases or other transactions that are more than your account balance. 

  1. Extended overdraft fees

Ideally, if you get stuck with an overdraft fee, you could make a deposit to your account to cover the fee and put your balance back in the black. But if you don’t get your account back on track within a certain number of days, the bank may charge you an extended overdraft fee to go with the standard overdraft fee you already owe. Depending on the bank, this might be a one-time fee or you might be charged daily or weekly until you resolve the overdraft issue with your account. 

Can you waive overdraft fees?

If you rack up an overdraft fee or two, don’t panic. It’s entirely possible that your bank might waive or reduce the fees if you ask. 

You can call up the bank to ask about reducing fees or visit a branch to make your case. Whether the bank agrees to your request can depend on things like how long you’ve had your account, whether you’ve ever run into trouble with overdrafts before, and the amount that’s been overdrafted.

If you’ve had your account for five years and this is the first time you’ve ever been in overdraft, for example, then the bank might be more understanding about waiving the fee. On the other hand, if you’ve only had your account for a few months and you’ve had returned items or overdrafts before, then getting a fee waiver might be more difficult. 

Avoiding overdraft fees

Paying overdraft fees can put a real pinch on your bank account but there are a few things you can do to dodge them. 

The first and most obvious choice is to keep your money at a bank account that doesn’t charge overdraft fees

If you’re not ready to switch to another bank, you can consider enrolling in overdraft protection. But keep in mind that this might only reduce the fees you pay for overdraft, not erase them altogether. 

Another option: Try setting up banking alerts and notifications to stay on top of what you’re spending. For example, you could set up an alert to notify you once your balance dips below $100. This way you can make a deposit to beef it back up. 

Finally, you might want to think about setting up direct deposit with your employer. This way you’ll know when your paycheck is going to hit your account. With Chime’s direct deposit feature, for example, you can get paid up to two days earlier. And, this can potentially help you avoid overdraft fees. 

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*Chime SpotMe is an optional, no fee service that requires that you receive $500 in direct deposit a month to qualify to overdraw your account up to $20 on debit card purchases. Chime, in its sole discretion, may allow you to withdraw your account up to $100 or more based on your Chime Account history, direct deposit history and amount, spending activity and other risk-based factors. Your Limit will be displayed to you within the Chime mobile app. You will receive notice of any changes to your Limit. Your Limit may be increased or lowered at any time by Chime.


How to Finally Stop Overdrafting (And Avoid Fees!)

By Susan Shain
September 20, 2019

Raise your hand if this sounds familiar: You head to dinner with friends and charge $30 to your debit card

But little do you know that a bunch of bills were auto-drafted from your checking account this morning — and you only have $25 in your bank account

Yikes. You’ve just overdrafted

Most banks charge an average fee of $35 for this tiny mistake, costing Americans $34 billion in 2017. (Here’s more on how overdraft fees work.)

If you’re wondering how to avoid overdraft fees, keep reading. We’ll reveal 5 tips for nixing this costly habit — followed by how to join a bank that doesn’t charge any overdraft fees, ever. 

1. Monitor your balance

When it comes to debit card purchases (the most frequent cause of overdrafts), the median overdraft-causing transaction amount is just $24, according to the Consumer Financial Protection Bureau

Since it’s pretty easy to spend $24, one of the best ways to avoid overdrafting is to get intimately acquainted with your balance. Download your bank’s mobile app, and set a reminder to check it every Friday morning — that way, you’ll know exactly what you can spend over the weekend and following week. 

Alternatively, you can connect your bank account to an AI-powered budgeting app like Charlie, or you can try a no-frills, straight-to-the-point app like Daily Budget.

If you’d prefer to go super low tech, ask your bank for a checkbook register. 

“Each time you authorize an item or debit from the account, record it in the ledger and maintain a running balance,” suggests Adam Marlowe, the principal market development officer for Georgia’s Own Credit Union

Call it old school, but forcing yourself to write out each expenditure is a good way to stick to your budget and (hopefully) avoid another overdraft.

 2. Cancel overdraft protection

While removing the protection to prevent overdrafting may sound counterintuitive, overdraft protection can actually be detrimental.

Despite the fact more than two-thirds of overdrafters would rather have their purchases declined than pay a fee, many consumers don’t know they can opt out of this so-called benefit, according to Pew. If, up until a few seconds ago, you were one of them, call your bank ASAP — or just switch to a bank that doesn’t charge fees.

Here’s why you should do this. When you sign up for this “protection,” your bank will “let” you overdraw your account — and then smack you with an average fee of $12.30. (One exception: If your bank draws from a linked savings account to cover your purchase, the charge may be lower or even free.

How kind, right? Although $12 is less than a $35 overdraft fee, we think no fees are best of all. 

“Legally, banks must allow you to opt out of overdraft protection and simply get denied for the purchase when you don’t have enough money,” Michael Outar, founder of Savebly, explains. 

“That will prevent you from paying any ridiculous fees.”

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3. Create account alerts

Your phone notifies you whenever someone follows you on Instagram, and whenever your favorite makeup brand goes on sale… why not when your bank account dips to risky levels? 

To keep herself from overdrafting, Marissa Sanders of Simple Money Mom signed up to get an automatic notification if her balance dips to $100 or less.  

Setting up a $100 alert will give you time to institute a spending freeze, as well as check for recurring charges that will be debited before your next paycheck.

“If you know in advance that you are having certain bills drafted, contact the creditor and ask them to delay payment for a few days,” suggests Roslyn Lash, an accredited financial counselor. 

While your utility company, for example, may charge a late fee, Lash says it’ll usually be “considerably less” than what your bank would charge for overdrafting. 

And, here’s a tip: if you often find yourself squeezed between paychecks, consider getting paid early with Chime.

4. Avoid putting holds on your debit card

Got a vacation coming up? You might want to pack your credit card rather than your debit card. 

As David Bakke of Money Crashers explains: “Try to not use your debit card when renting a car, staying at a hotel, or purchasing gas. Oftentimes, with these types of purchases, there’s a hold placed on your account for more than the actual purchase amount.” 

Lightbulb moment, right? When you check into a hotel, it puts a “hold” — often to the tune of several hundred dollars — on your card. Worse, with debit cards, the hold sometimes doesn’t appear as debited from your account (and could thus make you think you have more to spend than you do). 

The best solution, of course, is to pay with a credit card. But if you only have a debit card, enter your PIN. That will process your transaction as debit rather than credit, forcing the money to come straight out of your account. Just make sure you have enough to comfortably cover the entire hold, as it could take several days after check-out before it is returned.   

5. Get overdraft fees waived

Fine, fine, so this isn’t a preventative measure — but if you hit a rough patch and accidentally overdraw your account, it’s important to know how to get overdraft fees waived. 

The good news: It’s easier than you might think. 

“When overdrafts do happen, we encourage our members to contact us if they have fallen on bad times and need a little help,” says Marlowe of Georgia’s Own Credit Union. 

“Financial institutions will often refund the fees as long as it is not a normal occurrence. After all, everyone makes mistakes.” 

As soon as you spot an overdraft fee charged to your account, call your bank. If it’s your first time in a while (or if you mention switching banks), the agent may be sympathetic to your cause. 

Are there banks without overdraft fees? 

While it’s always a good idea to take better control of your finances, wouldn’t it be nice to find a bank that had your back when you slipped up? 

As Lash, the financial counselor notes, “It’s difficult to find a bank that doesn’t have overdraft fees, but if you can, by all means do so.” 

Luckily, if you’re reading this, the hard part is over; you’ve already found that bank. At Chime, we’re proud to have fee-free overdrafts. (And fee-free everything else, too!)

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Overdraft Protection: What to Know & How to Avoid Fees

By Melanie Lockert
March 28, 2019

Have you ever swiped your debit card and held your breath, hoping you have enough money in your account? If so, signing up for overdraft protection seems like a natural solution. 

On the surface, overdraft protection seems like the perfect solution, but the details and reality of the optional banking services leave many banking customers wondering if it’s actually worth it. 

Explore our handy guide to learn all about overdraft protection, and overdraft fees, and how you can clean up your finances to avoid them altogether.

What is Overdraft Protection?

Overdraft protection is a safety net that helps you avoid overdrawing your account. Generally, if you make a purchase with your debit card and don’t have enough funds in your checking account, the purchase won’t go through. 

This is typically called an overdraft — and signifies that your account balance has dipped below zero and into negative territory. 

This situation can be embarrassing for you, as well as awkward for the person behind the cash register. It also can be highly inconvenient if you need whatever you’re purchasing now.

This is where overdraft protection comes in. Overdraft protection essentially protects you from overdrafting. So, instead of getting your card declined and leading to an uncomfortable situation, your card will go through like normal – even if you don’t have enough money in your account to cover that purchase.

How Does Overdraft Protection Work?

Overdraft protection is a type of financial protection that will help float you money if you have insufficient funds. So if you swipe your debit card or try to get cash out of an ATM, you may be able to do so even if you technically don’t have enough money in your account. 

It does this by pulling in money or credit from the account that you linked to your checking account when you set up overdraft protection with your bank.

But overdraft protection comes at a cost. Namely, in the form of overdraft protection transfer fees which can add up quickly. So, while overdraft protection, on the surface, can seem like a great solution to a temporary problem, it’s not always all it’s cracked up to be.

If you are interested in this protection, you’ll want to talk to your bank and enroll in the program. Additionally, it’s important to know all the upfront costs such as overdraft fees, credit line limits, etc.

Pros & Cons of Overdraft Protection

Before opting for overdraft protection, review the pros and cons first. 


  • Convenience, as your purchase will go through. 
  • Save you embarrassment and time getting card declined in public.
  • Being able to access cash when you really need it.


  • Paying overdraft fees. 
  • Interest if using overdraft line of credit. 
  • Pay for more than one charge, which adds up quickly. 

The overdraft fees can vary from bank to bank and your financial institution decides what to charge, and you’re usually hit with more than one charge.

You can continue getting hit with overdraft fees if your account is overdrawn for an extended period of time. These new fees are called extended overdraft fees and some are charged daily.

Consumers who frequently overdraft end up paying more fees than those who do not opt into overdraft protection. 

In fact, The Consumer Financial Protection Bureau (CFPB) found that frequent overdrafters who opt into this coverage pay nearly $450 more in fees.

On top of that, if you accrue enough overdraft fees and stay in the negative, you’re at risk of account closure. Having your account closed by your bank is a major inconvenience. Just think about all the bills that are connected to that account, or not having access to your money for a period of time.

All of these are major downsides of overdraft protection and should be considered carefully.

How Do You Use Overdraft Protection?

If you want to use overdraft protection, first make sure it’s something you’re signed up for. Your bank must get consent from you first to enroll you in overdraft protection.

Once you are enrolled, see if you have to link another account or a credit card to complete the process. Each bank may have different policies and procedures.

When it’s set up, overdraft protection will be in place if you overdraw your account. 

But remember: The hope is that you never have to use it! If you do, this means you’ve run out of money in your account, which is no fun and can be super stressful. That’s why it’s so important to keep tabs on where your money is going — both in and out, every day. 

Overdraft Fees Are Costing Americans Big Time

As noted above, in some cases your bank may offer you a line of credit or link your overdraft protection to a credit card. If linked to a credit card, you could end up paying more. Why? Because some card issuers might consider the overdraft a form of “cash advance,” which has its own set of fees, not to mention higher interest rates.

Overdraft fees – by and large – are a big business for many banks. Let’s look at the numbers:

  • Average overdraft fee: $35. 
  • Amount collected by big banks in overdraft fees in 2019: $11 billion dollars. 
  • Total amount collected in overdraft fees by financial companies in 2019: $34.6 billion. (source: CNBC)

Even credit unions, which are often thought of as more community-minded and consumer-friendly have jumped on the overdraft fee bandwagon. Overdraft fees at credit unions have nearly doubled from $15 in 2000 to $29 in 2017.

In short, overdraft fees are the bread and butter for many financial institutions. They give banks a way to make money off consumers by positioning overdraft protection as a useful service.

Currently, there is some pushback against overdraft fees during the coronavirus pandemic and a proposed bill that would put them on hold until the crisis is over. Some banks have eased up on overdraft fees but the issue is far from over. 

One pro tip is to check out Recoup, a service that helps get bank and credit card fees refunded and back in your pocket. 

How Do You Avoid Overdraft Protection?

Before 2010, many consumers were unaware that they were being “opted in” to overdraft protection programs. However, starting in 2010, federal regulations shifted and required that banks get consumers’ consent to opt into overdraft protection.

To make things simple, however, you can avoid overdraft protection by not signing up for it with your bank. If you’re currently enrolled in this service, you can cancel it. This way, if you don’t have enough in your account, your purchase or transaction will get declined. While you won’t be able to make the purchase, you also won’t be hit you with an overdraft fee.

Another option is to open a bank account at Chime, which has no overdraft fees.

Lastly, to avoid this problem altogether, keep a buffer of money in your checking account. This can help you avoid dipping into the negative. Check your account balances daily and monitor your bill due dates and auto-drafts. This way you’ll know when money is coming out of your account.

Final word

There are certainly pros and cons with overdraft protection.

It can be convenient, sure, but yet it is also costly. It can save you embarrassment and time, but also take a bite out of your hard-earned money. So, weigh these pros and cons carefully.

Final tip: If you never want to worry about an overdraft fee again, consider switching to a bank account that offers fee-free overdraft.

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