What are Overdraft Fees and How Can You Avoid Them?

An overdraft fee is what a bank charges you any time you withdraw more money from your account than what you have in it.

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At some point in our lives, a lot of us will need a financial helping hand. There is no shame in falling into hard times, and something we will all most likely go through in our lives.

Whether that be dipping into an overdraft every now and then, or needing a personal loan to cover major unexpected bills or home repairs. The most important thing you can do is to stay calm and take the time to understand what you’re getting yourself into. Financial education is key when it comes to smart online banking.

So What Are Overdraft Fees?

Sometimes dipping into an overdraft is inevitable with online banking. We explain everything you need to know about what is an overdraft fee and how to avoid them.

Overdraft Fees Common Questions

Here are common questions people ask about overdraft fees:

  • What is an overdraft fee? A bank fee is charged when a withdrawal from an individual's bank account exceeds the available balance. The bank will institute such a fee to cover the cost of the transaction. Overdraft fees vary by the financial institution and can be incurred for each transaction going over the available account balance (Source)
  • Are overdraft fees per day? A $35 fee typically applies to each transaction that overdraws your available account balance by more than $5, whether that transaction is made by debit card, check, in-person withdrawal, or other electronic means (up to a maximum of 5 fees per day).
  • What happens if I don't pay my overdraft fee? If you don't add money to your bank account to pay your overdraft fees, your bank has the ability to close your account. You will also get charged NSF fees if your balance is negative.
  • Can I transfer money from a Visa gift card to my bank account? Venmo lets you add Visa gift card balances as long as the transfer isn't blocked for fraud protection reasons. You can transfer the balance to your account after it is loaded.
  • Are there ATMS that let you overdraft? If you’re looking for a list of ATMs that let you overdraft, look no further. With these bank ATMs that let you overdraft, you can overdraft your account if you so choose as there are banks that let you overdraft.

How to Avoid Overdraft Fees?

To avoid dipping into an authorized or unauthorized overdraft, there are a few things you can do yourself:

  • Ensure you check your balance regularly. Ensure you are not overspending on unnecessary items
  • Download your bank's app, as well as setting up mobile and online banking
  • Set up text alerts from when you drop to a certain amount to avoid the red completely
  • Set a budget to manage your own finances, check that you’re not dipping into an overdraft for your usual monthly outgoings, and try and make the required budget cuts. Cutting a few dollars off your weekly shopping budget or cutting back on nights out or takeaways could have a massive impact.
  • Always open your bank letters. It’s so easy to get into a habit of not reading your bank's correspondence, however, they might be writing to tell you about changes to your account.
  • Make the most of your savings. If you have them and can afford to dip into them slightly, it might be better in the long run to avoid fees, and build it back up at a later date.
  • Switch account completely. Different banks offer different rates and deals. Switching might open you up to a whole world of savings in charges (like these savings accounts), as well as some interesting added extras!

How Much are Overdraft Fees?

Here’s a sample of the overdraft fees charged by some popular financial institutions:

FINANCIAL INSTITUTIONOVERDRAFT FEE
Wells Fargo$35
Bank of America$35
Capital One$35
Chase$34
USAA$29
Ally$25

How to Get Overdraft Fees Waived

Getting overdraft fees waived can save you money and alleviate financial stress. Here are some steps you can take to increase your chances of having overdraft fees waived:

  1. Act quickly: As soon as you realize that you have been charged an overdraft fee, contact your bank or financial institution right away. The sooner you address the issue, the better.
  2. Understand your bank's policies: Familiarize yourself with your bank's policies regarding overdraft fees. Review the terms and conditions of your account agreement to see if there are any provisions for fee waivers or forgiveness.
  3. Explain the situation: When speaking with a representative from your bank, provide a clear and concise explanation of what led to the overdraft and why you are requesting a fee waiver. Be honest about any extenuating circumstances, such as unexpected expenses or financial difficulties.
  4. Highlight your account history: If you have a good track record of responsible account management and have not incurred overdraft fees in the past, emphasize this to your bank. Pointing out your history of prompt payments and responsible financial behavior may increase your chances of having the fees waived.
  5. Negotiate and request a review: Politely ask the representative to review your account and consider waiving the fees as a one-time courtesy. Be persistent, but remain calm and respectful throughout the conversation.
  6. Consider overdraft protection options: Inquire about overdraft protection programs offered by your bank. These programs can help prevent future overdrafts and potential fees. Explore the terms, costs, and eligibility criteria associated with these programs.

Remember, each bank has its own policies and discretion when it comes to fee waivers. While there are no guarantees, taking these steps will increase your chances of successfully getting overdraft fees waived.

Authorized Overdraft vs. Unauthorized Overdraft

An overdraft is a loan agreement from your bank or building society, where they extend your credit against your current account. Depending on your bank, it will depend on the overdraft agreement. However, most will charge a set fee for daily usage, or charge a set fee for every time money is borrowed.

The most important thing you need to know is whether the overdraft has been pre-agreed by the bank, or if it is an unauthorized overdraft.

Both incur fees, however dipping into an unauthorized overdraft can carry larger charges, and you may end up paying out a lot more than you initially needed to borrow.

Authorized overdraft

An authorized overdraft or arranged overdraft is a pre-agreed arrangement you will have made with your bank. For a lot of people, this will be offered when opening a new current account. Most banks will also allow you to extend this over time. If you have been with your bank for a while but don’t have an authorized overdraft, you can look online or inquire at your local branch. Most banks will offer the service.

Unauthorized overdraft

An unauthorized overdraft or unplanned overdraft is when you have spent over the funds in your current account, without agreeing with your bank beforehand. Some banks won’t charge if you dip maybe $5, $10 into an unauthorized overdraft, but you will need to check with your account provider. If you already have an agreed overdraft, but go over the agreement, this can also be classed as an unauthorized overdraft, as you are going over the pre-agreed amount.

The Bottom Line

Sometimes dipping into an overdraft fee is inevitable. The best thing to do is to make sure you are prepared. You can also look into the best checking accounts that don't charge overdraft fees so you're protected from these pesky bank fees.

About the author

Brian Meiggs
Hi, I'm Brian Meiggs! A personal finance expert, entrepreneur, and the founder of My Millennial Guide. My drive is to help others unlock the wealth of freedom and pave the path to financial success. With my bachelor's degree in finance, I help millennials follow the smart money in order to increase their earning potential and start building wealth for the future. I write regularly about side hustles, investing, and general personal finance topics aimed to help anyone earn more, pay off debt, and reach financial freedom. I have been quoted in major publications including Business Insider, Yahoo Finance, NASDAQ, Discover, GoDaddy, BiggerPockets, Fox News, Debt.com, Quick Sprout, Money Geek, MSN Money and many more!