When money is tight and you lose track of your bank account balance, overdraft fees can turn a quick pit stop into a major headache. Banks charge overdraft fees when a user withdraws more money than is available in his or her checking account. Customers get charged a flat fee, for instance, if they use their debit cards to pay for a $5 latte and there’s only $2 in their accounts. The median overdraft fee is $35, according to a report released last year by the Pew Charitable Trusts, and all those $40 cups of coffee add up to big business for banks.
The Consumer Financial Protection Bureau found Americans each pay an average of $260 a year in overdraft fees. Millennials (age 18–25) are particularly hard hit, with one in 10 having more than 10 overdrafts a year.
Consumers got some relief in 2010 when the Federal Reserve barred banks from automatically enrolling their customers in overdraft protection. You now must opt in for your purchases to be covered in the event of an overdraft; otherwise, the charge will be declined. But the rules don’t apply to checks or recurring automated payments: For those, you may still be on the hook for $35.
Still, there are ways to beat the system. Plenty of checking accounts are available that remove the overdraft option from the equation entirely. Here are a few of our picks for the best checking accounts with no overdraft fees.
Moven or Simple
Moven and Simple are two mobile banking apps with no overdraft fees (users’ debit cards will be declined instead), no minimum account balance and access to thousands of no-fee ATMs through the nationwide STAR ATM network.
Each service also offers budgeting tools: Moven provides real-time feedback on users’ spending patterns, and Simple’s Safe-to-Spend feature shows your true current balance minus upcoming bill payments, pending transactions and items you’re saving for. Each has a few drawbacks, like the daily ATM withdrawal limit of $500, and some users won’t like the idea of banking primarily on their phones or online – especially considering the occasional bug that some mobile users have experienced during app updates.
Capital One 360
If you want the convenience of online and mobile banking with the confidence of a big bank’s name behind it, Capital One 360 (formerly ING Direct) might do the trick. Like an old-school checking account, it accrues interest and gives users the option to use paper checks if they choose. There’s also no minimum account balance and no flat overdraft charge.
You’ll pay interest on the amount you overdraw your account until you pay it back ($100 overdraft for 10 days would cost 31 cents, for instance). And there’s a $9 insufficient funds charge for a bounced paper check – but that’s still far lower than the national average bounced-check fee of $30. While you can’t get over-the-counter service at Capital One branches, customers have access to 2,000 Capital One ATMs, plus 38,000 fee-free ATMs through the Allpoint ATM network.
Schwab Bank High Yield Investor Checking Account
The online- and mobile-only Schwab Bank High Yield Investor Checking Account is a great option if you want your money to do double duty. Customers are required to have a linked Schwab One brokerage account, which will cover any overdrafts from your checking account and let you trade stocks, bonds, mutual funds and more.
Both accounts are free to open and maintain. The only fees you’ll come across are a $25 charge for a bounced check and a $5 fee for a deposited check that's been returned. It’s a tie for the checking account’s best feature: It offers rebates on all ATM fees worldwide – and it accrues interest at a variable rate of 0.10% annually.
Bank of America’s SafeBalance Banking
Bank of America’s SafeBalance checking account offers a more traditional banking experience without overdraft fees. There’s no overdraft protection, so users’ debit cards will be declined if they don’t have enough money in their accounts. Customers can make deposits or withdrawals at any BofA branch, though they can’t write paper checks.
Other downsides include a $4.95 monthly maintenance charge, a $25 minimum opening balance and no interest accrual on the account. Customers have access to Bank of America’s extensive ATM network, but they’ll pay $2.50 per non-BofA ATM transaction (and $5 in foreign countries, unless you use one of BofA’s partner banks).
The Bottom Line
While there are plenty of checking accounts out there with no overdraft fees, each has tradeoffs. Most accounts don’t accrue interest, and there’s usually minimal access to old-school means of payment like paper checks and over-the-counter transactions. But if you’re willing to jump into online-only or mobile banking, choose one of these accounts and breathe a sigh of relief that $40 lattes are a thing of the past. (For related insight about bank fees, explore the 5 bank fees you may not know about.)