What is an Overdraft Fee? How to Avoid Them

An overdraft fee is a charge a bank or credit union may impose when a transaction causes an account balance to fall below zero. When an account is overdrawn, the financial institution may choose to cover the shortfall and complete the transaction, rather than declining it outright, but this service typically comes at a cost to the account holder.

In this article, we’ll discuss how overdraft fees work, when you might have to pay one, and how you can avoid these extra charges.

Key points

• Overdraft fees are charges imposed by banks and credit unions when a transaction causes an account balance to fall below zero. The amount varies by institution, but many charge $30 or more per transaction.
• Overdraft protection is a service that links a checking account to another account, such as a savings account or credit card, to cover shortfalls automatically. While it can help avoid standard overdraft fees, it may still carry its own transfer fees or interest charges.
• There are several ways to reduce the risk of overdraft fees, including tracking your balance, setting up low-balance alerts, and opting out of overdraft coverage.

How do overdraft fees work?

When a debit card purchase, ATM withdrawal, or automatic payment is processed against an account with insufficient funds, the account balance drops below zero. At that point, the bank or credit union must decide whether to cover the difference or decline the transaction.

If the bank or credit union covers the transaction, it effectively extends a short-term advance to the account holder, known as an overdraft. The overdraft fee is then charged as the cost of that service. Some banks charge additional fees if the account remains in a negative balance, which can cause costs to accumulate quickly if the shortfall is not addressed promptly.

Overdraft fees are typically charged per transaction, meaning multiple overdrafts in a single day can result in several separate fees. Some institutions cap the number of overdraft fees that can be charged within 24 hours, while others do not. ^[1]

How much are overdraft fees?

The amount you are charged through an overdraft fee will vary depending on the bank or credit union issuing it, but many financial institutions charge $30 or more for each transaction.

You could also incur multiple overdraft fees in one day, as you can be charged an additional fee for each transaction. However, some banks and credit unions will set daily limits. ^[1]

How to avoid overdraft fees

If you pay overdraft fees regularly on your bank account, there are some options you could consider to reduce or avoid them entirely.

• Keep track of your balance and transactions - Being aware of how much money you have in your account, and when automatic payments will be going out can help you make sure you don’t overdraw and end up with a negative bank balance.
• Set up notifications from your bank - Some banks may give you the option to receive an email or text notification if your balance drops below a certain level.
• Keep a buffer of money in your checking account - If you’re able to, keeping a cushion of extra money in your checking account to cover any unexpected expenses can help you avoid overdrawing and having to pay overdraft fees.
• Opt out of overdraft coverage - If you don’t have overdraft coverage on your account, your debit card will typically be declined if you don’t have enough money for a purchase or an ATM withdrawal. Because the payment or withdrawal won’t go through, you won’t be charged overdraft fees.
• Find out if you’re eligible for a line of credit - One way to bridge a short-term gap in cash is to link overdraft coverage to a credit card or credit line, if this is an option on your account. You might still have to pay a fee and you’ll pay interest on the fund you borrowed, but it can be cheaper than an overdraft fee.
• Link a savings account to your checking account - By doing this, any amount you overdraw on your checking account will be taken from your savings account, instead of your bank or credit union covering the difference. There may be a transfer fee involved, but it will cost less than an overdraft fee.
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What is overdraft protection?

Overdraft protection is a service offered by some banks and credit unions that links a checking account to another account, such as a savings account, credit card, or line of credit, to cover transactions when the balance falls short. When an overdraft occurs, funds are automatically transferred from the linked account to cover the difference, which can help account holders avoid a standard overdraft fee.

How it works

For example, let’s imagine you’re picking up groceries and the amount comes to $50, but you only have $30 in your account. Without overdraft protection, your card would either be declined, meaning you can’t pay for your groceries, or your bank will process the transaction anyway and charge you an overdraft fee.

With overdraft protection via a savings account, your bank will transfer the extra $20 into your checking account so you can pay. If you have a credit card linked, the extra $20 will come as a cash advance from your credit card. This option usually comes with cash advance fees as well as interest charges on the $20, potentially making it the most expensive choice. In this situation, you may have been better off paying for the groceries with your credit card.

Overdraft protection fees

However, overdraft protection is not always free. Some institutions charge a transfer fee each time funds are moved from the linked account, though this fee is generally lower than a standard overdraft fee. The terms and costs of overdraft protection vary by institution.
Account holders typically need to opt in to overdraft protection, and the availability of the service depends on the bank or credit union and the type of account held. ^[3]

Bottom line

Overdraft fees are charges that banks and credit unions may apply when a transaction causes an account balance to drop below zero, and the costs can add up quickly if multiple transactions are processed against an account with insufficient funds in a single day.

Understanding the options available to manage or avoid these charges can help account holders make more informed decisions about their checking accounts.

Sources

1. CFPB, “Know Your Overdraft Options” https://www.consumerfinance.gov/consumer-tools/bank-accounts/know-your-overdraft-options/ Accessed April 30, 2026
2. ABA, “Eight Ways To Avoid Overdraft Fees” https://www.aba.com/advocacy/community-programs/consumer-resources/manage-your-money/8-ways-avoid-overdraft-fees Accessed April 30, 2026
3. Bankrate, “What is Overdraft Protection?” https://www.bankrate.com/banking/checking/overdraft-protection-what-is-it/ Accessed April 30, 2026

About the author

Becca has over 10 years of experience as a content writer, working across various industries including finance, digital marketing, education, travel, and technology. Her work has been featured in publications including Forbes, Business Insider, AOL, Yahoo, GOBankingRates, and more.