One small purchase on a low balance can turn into a fee bigger than the purchase. Overdraft and NSF fees hit hardest when money is already tight, and several fees in one day can wipe out a paycheck. You can avoid overdraft fees with a few settings and habits, most of which take five minutes to set up.
This guide uses rules and tips from the Consumer Financial Protection Bureau (CFPB).
Overdraft fees vs. NSF fees
Both happen when you don’t have enough money in your account to cover a payment. The difference is what your bank does next:
- Overdraft fee. The bank pays the transaction anyway, your balance goes negative, and the bank charges you a fee.
- NSF (non-sufficient funds) fee. The bank declines or returns the payment and charges you a fee for it. The CFPB notes this fee is often the same amount as an overdraft fee. The merchant you were paying may add its own returned-payment fee on top.
Either way, you pay. The goal is to avoid both.
Opt out of debit card and ATM overdraft coverage
This one step prevents a large share of overdraft fees.
Under federal rules, your bank can’t charge overdraft fees on ATM withdrawals or one-time debit card purchases unless you opted in to overdraft coverage. If you haven’t opted in, the bank declines those transactions when your balance is too low, and you pay no fee.
Many people opted in when they opened the account without knowing it. You can cancel your opt-in at any time. Call your bank, ask at a branch, or look for “overdraft coverage” or “overdraft settings” in your online banking.
A declined card at the register is awkward. It costs you nothing.
Know what the opt-out doesn’t cover
The opt-in rule only covers ATM and everyday debit card transactions. Your bank can still charge overdraft or NSF fees on:
- Checks
- Automatic bill payments and other recurring charges
- Recurring debit card payments, such as subscriptions
- Electronic transfers from your account
For these, the steps below matter more.
Pick a cheaper backup
If you’d rather have a payment go through than get declined, ask your bank about options that cost less than a standard overdraft fee. The CFPB lists:
- Linking a savings account. The bank moves money from savings to cover the shortfall. There may be a transfer fee, usually lower than an overdraft fee.
- Overdraft line of credit. A small credit line tied to your checking account. You’ll pay interest and maybe a fee, and you’ll need to qualify.
Ask your bank for the fee on each option in writing and compare it with its overdraft fee.
Set alerts and watch your balance
Most banks let you set text or email alerts. Turn on:
- A low-balance alert at an amount that gives you a cushion, such as $100
- An alert for large withdrawals
- An alert when a deposit posts
Remember that your available balance may not include checks you’ve written or pending charges. Keep a running tally of upcoming automatic payments. Our monthly budget planner helps you see which bills hit and when.
Line up bills with your paydays
Many overdrafts happen because a bill comes out a day or two before a paycheck lands. Call your billers and ask to move due dates to a few days after payday. Many card issuers, utilities, and lenders will change a due date if you ask. Our guide on budgeting paycheck to paycheck walks through how to map it out.
Consider an account built to avoid overdrafts
Some banks and credit unions offer checking accounts that don’t allow overdrafts at all. Transactions that would overdraw the account get declined, and the account charges no overdraft or NSF fees. These accounts are sometimes called “checkless” or safe accounts. They’re a good fit if fees keep eating your balance, or if you’re rebuilding after a closed account. See our guide on getting a bank account after a denial.
How to get an overdraft fee refunded
If you already paid a fee, ask for it back. Call your bank, stay polite, and say:
- How long you’ve been a customer
- That this was a one-time mistake, if it was
- What you’re doing to prevent it, such as setting alerts
Many banks will refund a fee, and your odds are best on the first one. If you have several fees from one day, ask them to refund all but one.
Don’t let a negative balance sit
If your account stays negative, the bank may charge more fees and close the account. A bank can report an unpaid negative balance to ChexSystems or Early Warning Services, which can make it harder to open an account elsewhere for years. Bring the account back above zero as soon as you can, or call the bank and ask for a payment plan.
If your bank charges a fee you didn’t agree to
Check your account agreement and the fee schedule. If you think your bank charged a fee it shouldn’t have, complain to the bank first. If that doesn’t work, file a complaint with the CFPB or call (855) 411-2372.
Quick checklist
- Check whether you opted in to debit and ATM overdraft coverage, and opt out if you did
- Link savings as a cheaper backup
- Turn on low-balance alerts
- Move bill due dates to after payday
- Ask for a refund on any fee you’ve already paid
For more money habits, see our guide to building an emergency fund and the Budget Center.
