There are so many checking account options available that it can often be a daunting task to find one that fits your needs. And you have a lot of things to consider before you decide which one you'll open. First, you need to nail down your account usage. Are you the kind of person who likes to visit a branch or do you do most of you your banking online? Do you write a lot of checks or is your debit card your best friend? This will help you decide which financial institution with which you'll want to bank. If you love face-to-face interaction, consider one of the bigger name banks. If that's the least of your concerns, you have many online banks at your disposal. But perhaps one of the most important things you'll want to factor into your decision is how much you're willing to pay for fees—especially if the word overdraft is a common part of your banking vocabulary. This article will try to help you out by narrowing down your choices. Read on to find out the basics of overdraft and some of the more popular banks that don't charge overdraft fees.

Key Takeaways

  • While many banks charge you for going into overdraft, some offer accounts with no overdraft fees.
  • Among the benefits they offer, Moven and Simple don't allow accounts to go into overdraft.
  • The Capital One 360 account generally doesn't allow overdraft, but in certain cases, you are only responsible for the interest on the overdrawn balance.
  • A linked Schwab brokerage account covers any overdraft incurred on your High Yield Investor Checking Account.
  • Bank of America's Advantage SafeBalance Banking will decline any charges that put you in overdraft.

The Lowdown on Overdraft Fees

What do you do when money's tight and you lose track of your bank account balance? In most cases, the bank will reject any attempts you make to withdraw cash and will bounce any payments. This results in nonsufficient funds (NSF) fees. But in some cases, the bank may actually honor the payment and put you into overdraft.

A bank may allow you to go into overdraft, putting you into a negative balance on an exception basis or if you have overdraft protection. Overdraft protection is a credit facility issued by a bank and attached to your checking account It essentially acts as a cushion or short-term loan, so you can still take out money from your account if you don't have enough to cover payments or withdraws. But it comes at a cost. In fact, overdraft fees can turn a quick pit stop into a major headache. Banks charge overdraft fees when you withdraw more money than what's available in your checking account.

For instance, banks charge a flat fee if you use your debit card to pay for a $5 latte and there’s only $2 in your account. Overdraft fees can range between $30 and $35. Some financial institutions may charge multiple overdraft fees per day, so all those $40 cups of coffee add up to big business for banks. You may also be hit with additional fees if the balance isn't repaid in full by a certain date. And let's not forget overdraft interest. This is often at a premium and is based on the average overdraft balance each month.

Use your account wisely because overdraft fees can range anywhere between $30 and $35.

Keeping You in the Black

The Consumer Financial Protection Bureau (CFPB) found Americans pay an average of $260 a year in overdraft fees. Millennials are particularly hard hit, with one in 10 having more than 10 overdrafts a year.

Consumers got some relief in 2010, though, when the Federal Reserve barred banks from automatically enrolling customers in overdraft protection. You now must give consent for your purchases to be covered in the event of an overdraft. If you don't, the charge will be declined. But the rules don’t apply to checks or recurring automated payments—you may still be on the hook for $35 for these charges.

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, no minimum account balances, and access to thousands of no-fee automated teller machines (ATMs) through the nationwide STAR ATM network. Since they don't let you go into overdraft, your debit card will be declined instead. Simple may allow you to go into overdraft in some cases, for which you still won't be charged an overdraft fee, but it's up to you to bring the account back above a $0 balance.

Each service also offers budgeting tools. Moven provides real-time feedback on your spending patterns, and Simple’s Safe-to-Spend feature shows your true current balance minus upcoming bill payments, pending transactions, and items for which you’re saving. Sounds good, right?

There are drawbacks, though. Each has a daily ATM withdrawal limit of $500, and you may not like the idea of banking primarily online or on your phone—especially considering the occasional bug that some mobile users experience 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, lets you use paper checks if you choose, and there’s no minimum account balance. The account will decline any charges if they put you into overdraft, so you won't pay any fees.

If you do end up in overdraft, you will be responsible for interest charges on the amount you overdraw your account until you pay it back. For instance, $100 overdraft for 10 days would cost 31 cents. And there’s a $9 insufficient funds charge for a bounced paper check. 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 covers any overdrafts from your checking account while letting 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. As for the account’s best feature—it's a tie. It offers rebates on all ATM fees worldwide and accrues interest at a variable rate of 0.15% annually.

Bank of America’s SafeBalance Banking

Bank of America’s Advantage SafeBalance checking account offers a more traditional banking experience without incurring overdraft fees. There’s no overdraft protection, so your debit cards are declined if you don’t have enough money in your account. 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. The bank will waive the fee, though, if you sign up for its Preferred Rewards program, which requires a three-month average combined balance of $20,000 or more in your BoA accounts. There's also a $25 minimum balance and you won't earn any interest on your account balance. You do 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 that cut out those pesky 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.