Uh-Oh. It’s a Bank Overdraft.

What it is and how overdraft coverage may help you avoid it.

If you have a checking account, you probably understand the basics: you put money in, the bank holds onto it, then you’re able to get cash from an ATM, write checks or use your debit card for everything from gas to groceries. With every transaction, money is taken out of your account.

But what happens if you spend $125 on groceries and remember (a little too late) that your checking account balance is $100?

You’ve just entered The Overdraft Zone. Your checking account balance has dropped below zero. When you look at your account balance, you might see a negative number. There may also be a notice alerting you to the overdraft on your account.

If it’s the first time this has happened to you, the word "overdraft" may catch you by surprise–but you’re not alone. On average, Americans overdraw their accounts about twice a year.1

But don’t panic just yet. Sometimes, a checking account overdraft can be taken care of quickly. If you’ve rarely or never had a bank overdraft, just get in touch with your bank. They may be willing to work with you as you restore your account balance and even help you avoid overdraft fees.

In any case, an overdrawn bank account is no fun. You may be asking "Can I withdraw money if my account is overdrawn?", "How long can your checking account be overdrawn?" or "Does an overdrawn account hurt your credit?" It’s good to know the ins and outs of overdrafts so, going forward, you can manage your money with a bit more confidence.

How does an overdraft work?

It depends. Some banks may cover a check or recurring withdrawal, such as a monthly gym membership, even if you don’t have enough funds in your account at the moment.2 Sometimes, a purchase is simply declined. And other times, your bank may let the purchase go through, then charge you a fee later.

Banks and credit unions have different ways of handling overdrafts for their customers, so it’s helpful to go over those details whenever you open a checking account. That way, you’ll know exactly what to expect if you mistakenly spend more than you have. This will also help you set up your account in a way that works for your lifestyle and spending habits.

How does overdraft protection work?

If you want to get overdraft protection, you have a few options, but many involve fees, so don’t be afraid to ask for details. One way to avoid these fees is to opt for "auto-decline." If you try to spend more than you have, the purchase generally won’t go through. Here are some other overdraft options to think about:

Savings link: You can link your checking account to another account at your bank, such as your savings. This way, if you’re overdrawn, the bank will move funds from your savings into your checking to cover the difference. Sometimes, this service can be free.

Line of credit: With an overdraft line of credit, the bank will loan you the amount needed to cover the transaction. You may even be able to use this account in an emergency. Since it’s really a loan, you’ll have to pay interest on the money covering your overdraft, but it may amount to less than typical overdraft fees.3

Credit card link: Linking your checking account to a credit card is possible, too. If your checking or savings account can’t cover a charge, the balance would be placed on your credit card for you to pay off later.

One benefit of overdraft protection is that you might avoid a hefty fee added to a late payment, such as a house or car payment. But you’ll have to compare the fees that come along with each situation to make the best decision.

How much are bank overdraft fees?

On average, an overdraft will cost you $35.4 Some banks will charge more and some will charge less.

While fees are no picnic, an overdraft may not have to slow you down for long. As soon as you pay the amount you owe from overdrawing and bring your account balance into the black, you can usually continue using the checking account again.

To protect your account and your credit, it’s a good idea to straighten things out as soon as possible. If an account is left overdrawn anywhere from 3 to 31 days, the bank may charge an additional fee.4 After that, the bank can close the account and may send a negative report to credit agencies, which may keep you from opening a new checking account for up to five years.5

While this may sound scary, it’s helpful to be aware of everything that can happen in an overdraft situation. Better yet, you can learn ways to prevent them from happening.

How can I prevent an overdraft on my account?

Nobody wants their bank account closed due to overdraft. Luckily, there are plenty of nifty tools to help you avoid an overdraft. Here are a few you might try:

Get alerts: Ask your bank to tell you if your checking account drops to a certain level. You’ll be able to shift funds from a different account, or make a deposit before the balance dips into the danger zone.

Check in regularly: Make a habit of checking your account balance from your phone every day. It will only take a minute and will help you stay on top of your money all month long.

Build a buffer: Think about adding a certain amount, such as $100, to your checking account. Make it your new "zero balance." That way, if you slip up (and it happens), there’s already a cushion in place.

Ask for help: Check with your bank to see what other tools may be available to help keep your account in the black.

Dealing with an overdraft is a bummer, but mistakes happen. Knowing you have options can put you in a better position to manage your money and hopefully avoid getting into the red. If you’re dealing with overdrafts more than you’d prefer, it may help to create a simple budget. Sometimes, just getting a clearer picture of what’s coming in–and what’s going out–can help you stay ahead of the game.

This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

  1. El Issa, E. Confusion About Overdraft Coverage Can Cost You Dearly. (September 26, 2017). Retrieved on October 30, 2017, from: https://www.nerdwallet.com/blog/banking/overdraft-fees-nerdwallet-survey/

  2. Pritchard J. Learn about overdraft protection plans. (July 2, 2018) November 2, from: https://www.thebalance.com/overdraft-protection-plans-315312

  3. Pritchard J. Overdraft line of credit. (August 25, 2018) Retrieved on November 2, from: https://www.thebalance.com/overdraft-line-of-credit-315353

  4. Dixon, A. Survey: ATM fees hit a record high for 14th year in a row. (October 3, 2017). Retrieved on October 10, 2018, from: http://www.bankrate.com/banking/checking/checking-account-survey/

  5. Hayes, A. Four Options When You Can’t Open a Bank Account. (June 27, 2018) Retrieved on November 26, from: https://www.doughroller.net/banking/4-options-when-cant-open-a-bank-account/

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