What Are the Consequences of Overdrawing a Checking Account

Even if you regularly peek at your bank balances online, it is possible to accidentally let your account fall negative, otherwise known as overdrawing your account. For example, you may have written a check to a company or individual who did not deposit it immediately. A debit card transaction may not have cleared quickly, and your balance was larger than it should have been. Or, a deposit could have been delayed, leaving you with insufficient funds to cover your withdrawals.

Whatever the reason, the consequences for having non-sufficient or insufficient funds (NSF) or overdrawing your checking account will depend on your bank's policies, whether or not you have a linked savings account, and if you have opted for overdraft protection.

Key Takeaways

  • If you have overdraft protection, your bank will let your account become negative but will charge you fees for every transaction.
  • Federal regulations require bank customers to opt in to overdraft protection programs.
  • Monitoring your account closely—and linking your checking account to a backup savings account—can help you avoid overdraft fees.

Understanding Overdraft Protection and Fees

Your bank may offer an overdraft protection program. In some cases, you can link another account to the checking account, and if your balance goes negative, funds will automatically be transferred in to cover the difference. In other cases, the bank will process the transaction, and you will be charged fees until you deposit money to cover the difference.

Either way, you may pay multiple fees for using these services. Your bank may charge you a fee for each transaction until your balance is restored (often around $35), or each time it transfers money from your backup savings account to your checking account. There could also be a monthly service fee and daily fees for each day your account is negative. If a check bounces, you may have to pay a returned check fee. All these costs can add up quickly.

Should You Opt In?

Federal regulations require bank customers to opt in to overdraft protection programs. That means that your bank cannot automatically enroll you when you open an account. While these programs may seem like a safety net, they can result in an avalanche of fees.

Not opting in also has its costs. If you do not have overdraft protection and try to complete a transaction that you do not have funds to cover, it will usually be denied. If you are trying to take money out of an ATM, that's an inconvenience. But if you've written a check and it bounces, the bank may charge a non-sufficient funds (NSF) fee. In addition, the party receiving the bounced check may demand reimbursement for a returned check fee.

Overdrawing too often (or keeping your balance negative for too long) can have its own consequences. Your bank can close your account and report you to a debit bureau, which may make it hard for you to get approved for an account in the future. (And you'll still owe the bank your negative balance.)

Special Considerations to Avoid Overdraft Fees

Overdrawing your account can become extremely expensive. To avoid paying overdraft fees, the Federal Deposit Insurance Corporation (FDIC) recommends that you monitor your account balance regularly and link your checking and savings accounts, so a shortfall is covered through an overdraft-protection program. (This may cost money, but it is likely to be less than paying overdraft fees.)

Bank apps make it convenient to keep tabs on your balance, and many banks offer notifications such as text reminders when your balance is low. If you do get hit with an overdraft or returned check fee, and it is the first time, it is worth calling your bank to ask to have it waived. Either way, add funds back to your account to cover the difference as soon as you can, which can help prevent fees from spiraling.