Overdraft Fees and How to Avoid Them

Overdraft fees are one of the most expensive mistakes in banking—$35 for a $5 purchase that overdrew your account. Banks collected over $15 billion in overdraft fees in a recent year. Here's how to never pay one again.

How Overdraft Works

When you spend more than your account balance, banks have options:

1. Decline the transaction (no fee)
2. Cover it and charge you (overdraft fee, usually $35)

Many people don't realize they can choose option 1.

The True Cost of Overdraft Fees

If this happens a few times a month, overdraft fees can cost hundreds annually.

Opt Out of Overdraft "Protection"

Here's the secret: you can opt out.

Banks must let you decline overdraft coverage for debit card and ATM transactions. Without it:

• Transactions that would overdraft are simply declined
• No fee charged
• You keep your money

How to opt out:

1. Call your bank or visit a branch
2. Ask to "opt out of overdraft protection"
3. Confirm for both debit card and ATM transactions

Better Alternatives

1. Link to Savings Account

Many banks offer free or low-cost transfers from savings to checking when you overdraft.

• Fee: Usually $0-12 (vs. $35 overdraft fee)
• Automatic when checking goes negative

2. Overdraft Line of Credit

A small credit line that kicks in when checking goes negative.

• Interest only on what you use
• Much cheaper than $35 per transaction

3. Low-Balance Alerts

Set up notifications when your balance drops below a threshold.

• Most banking apps offer this
• Get warned before you overdraft

Prevention Strategies

Keep a Buffer

Maintain a $200-500 "floor" in your checking account. Mentally treat that as $0.

Check Balance Before Spending

Takes 30 seconds. Saves $35.

Know Your Paycheck Timing

Don't schedule bills to pay before your paycheck actually clears.

Track Pending Transactions

Your "available balance" may not include pending charges.

If You Get Hit with a Fee

Ask for a Refund

Banks often waive fees for:

• First-time offenders
• Long-term customers
• Those who ask politely

Call and say: "I see I was charged an overdraft fee. This is unusual for me. Would you be able to waive it as a one-time courtesy?"

Success rate: 50%+ for first requests.

Switch Banks

Some banks have eliminated overdraft fees entirely:

• Ally Bank
• Chime
• Discover
• Capital One (for many accounts)

The Bottom Line

Overdraft fees are avoidable. Opt out of overdraft "protection," link a backup account, set low-balance alerts, and keep a buffer. If you do get charged, ask for a refund. Banks profit billions from these fees—don't contribute.