What is overdrafting and how does it work?

This article is intended to provide general information about overdraft coverage and does not reflect the overdraft options offered by Capital One.

Whoops! Those sneakers you bought with your debit card were a little more than you had in your checking account—but you still walked away with a fresh pair of kicks. This is called an overdraft—when you spend or withdraw more than you have in your account, but the transaction still goes through.¹ Much of the time, this is possible through a service called overdraft protection—or overdraft service.²

Overdraft protection is a program offered by many banks. If you opt in, you can be covered for transactions that would bring your account into the red—including purchases, ATM withdrawals and written checks.²

Overdraft service differs from bank to bank. Some may cover the difference from the transaction and charge you for it later on top of an overdraft fee, which could be around $35.¹

Some banks may have you link your checking account to a savings account, credit card or other line of credit. With this type of overdraft protection, you may still be charged a transfer fee. But that fee is typically less than an overdraft free.¹

Every bank is different, so the Consumer Financial Protection Bureau recommends checking with your bank or credit union to learn about its policies.³ You could ask about its daily maximum—and whether it charges continuous overdraft fees for each day your account remains overdrawn.¹

When a bank or credit union covers an overdraft, there’s usually a fee involved—fittingly named the “overdraft fee.” How much is an overdraft fee? The cost may be around $35—and a bank may charge you this each time you overdraft, which can quickly add up.¹

However, like most fees, these differ from bank to bank. For example, some banks don’t charge a fee at all. If you decide to sign up for overdraft service, be sure to ask your bank or credit union about their overdraft policy.

Something else to consider—if you overdraft but have your overdraft service set up to draw from a savings account or credit card, you may avoid an overdraft fee. Instead, you’ll typically incur a transfer fee. While this fee is often lower than that of the average overdraft fee, it too can add up with repeated overdrafts.

The standard overdraft fee isn’t the only one you risk if you bring your account below $0. There are other similar fees—non-sufficient funds (NSF) fees, overdraft protection fees and extended overdraft fees. Like the standard overdraft fee, these related fees also differ from bank to bank, so be sure to ask about them before opting into overdraft service.

Standard overdraft fee

This is a fee many banks charge when you overdraft your account. Be aware that this isn’t a one-time fee—you can be hit with it each time you overdraft. This typically costs around $35.

Non-sufficient fund (NSF) fee

Unlike the standard overdraft fee, this is a fee the bank can charge if they decline a transaction that overdrafted your account. Another difference? Banks aren’t required to have customers opt in to NSF fees.¹ Sometimes called insufficient funds fees, they’re common with bounced checks and automatic bill payments.¹ And the fee typically costs the same as an overdraft fee.

Overdraft protection fee

Also known as a transfer fee, you may incur this if you overdraft and your overdraft service is linked to a savings account or credit card.

Extended overdraft fee

You may incur this fee if you overdraft your account and don’t replenish it within the next 5 to 7 days. This fee is usually given in addition to the standard overdraft fee—and you may keep getting hit with it if you keep your account in the negative. But like all fees, it differs from bank to bank.⁴

Bottom line: Like stepping on gum in your new shoes, having an overdraft isn’t ideal—but it happens. If you’re considering enrolling in your bank’s overdraft service, be sure to talk to them first about the rules and fees involved.