There’s a good chance that you have paid an overdraft fee at least once in your life. American banks collect approximately $15 billion in overdraft fees each year which is equivalent to every single person in the United States paying out $46 per year in overdraft fees!
The average for each overdraft is $24, with some banks charging as much as $34 each time you overdraft.
What Can You Do About It?
The best thing you can do is to create a cash flow plan for your life and money. Instead of waiting for your account to go negative only to pay out expensive overdraft fees, you would actually set up a plan for your money before you actually spend any of it.
We have a free tools and resources for you to set up your own cash flow plan here if you decide to go that route.
You can also make the wise decision to switch to a bank that charges less or even better; doesn’t charge at all when it comes to hefty overdraft fees.
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Overdraft Fees Are Confusing On Purpose
There are many different fees associated with overdraft fees.
Each bank and credit union has different policies on how much they charge per overdraft and how often. Some banks may charge the fee up to six times per day, which means you could owe up to $144 in bank fees just to get your account balance back to zero.
And don’t forget, only the first portion of your next bank deposit will reimburse the overdraft fee and your account shortage.
Listed below are all the well known and not-so-well-known types of of overdraft fees and how they work.
Overdraft Fee
The bank charges an overdraft fee when you withdraw more money than the current account balance. The average bank overdraft fee is $24, but some banks won’t charge a fee if the overdraft is less than $5.
Extended Overdraft Fees
An extended overdraft fee is a second overdraft fee that banks can charge if you don’t pay the fee and overdrawn amount within a predetermined amount of time, usually within five business days. Some banks will refer to this as a “continuous overdraft fee”.
This fee is becoming less common but many banks still charge them.
Non-Sufficient Funds Fee (NSF)
You get charged this fee when there isn’t enough money in your account to cash a check that you wrote or scheduled on online bill pay, you’re charged a non-sufficient funds (NSF) fee. This fee is usually higher than the overdraft fee and cost around $30 to $40 per returned check.
With this fee, your bank and the depositor’s bank can both charge the non-sufficient funds fee.
Overdraft Protection Fee
If you have a savings account or credit card linked to your checking account, the bank may try shifting the cash shortage from another account to complete the transaction. If there’s enough money, you’re charged an overdraft protection fee which is usually $10 per transaction.
When the balance shortage is charged to your linked credit card, you will also pay the cash advance interest rate until you repay the difference.
Monthly Service Fee
You might consider this an indirect overdraft fee. Some banks don’t charge you a monthly service fee if you maintain a minimum daily balance, like $500. If your daily balance goes below $500 at any point in the monthly statement period, you’re charged a monthly service fee.
You still have plenty of money to cover the transaction and won’t be charged an actual overdraft fee, but the monthly service fee can still cost $10 on average.
The Best Banks For Avoiding Overdraft Fees
To avoid overdraft fees, your best bet will be banking with an online bank. Because their operating expenses are significantly lower than traditional banks, they don’t rely on overdraft fees as a source of revenue.
If a traditional brick-and-mortar bank is the only realistic option for your banking needs, you can also compare the fees from your local bank options. Keep in mind that credit unions are also an affordable alternative if you don’t need a bank with a national presence.
The following online and traditional banks have the best overdraft fee policies. If you don’t need the capability to handwrite checks or need in-person concierge services, online banks are an excellent option.
As you will see, the online banks with the lowest overdraft fees are online banks that don’t offer a paper checkbook. Some online banks still provide a paper checkbook for you to write handwritten checks, but your overdraft fees will usually be higher.
If you’re serious about switching banks to avoid overdraft fees, you need to avoid the traditional “big name” banks with a national presence:
- Bank of America
- Chase
- Citibank
- Well Fargo
Even if you can get waived overdraft fees, you may have to pay a monthly account fee or maintain a high account balance. Either of these two requirements can be a drag on your finances and building your net worth.
1. Chime
Overdraft Fee: $0
You won’t pay any bank fees with Chime either because your debit card transactions will only be withdrawn if there are sufficient account funds. You can also send checks for free with Chime’s electronic checkbook.
Another cool reason to consider Chime is that you can get your paycheck two days earlier!
2. Axos Bank
Overdraft Fee: $0 on select checking accounts
You won’t pay an overdraft fee on the following Axos Bank checking accounts:
- Essential Checking
- Rewards Checking
It’s also possible to get unlimited ATM fee reimbursements and earning interest on your payments.
3. Simple
Overdraft Fee: $0
Simple is an online-only bank that doesn’t charge any overdraft fees or any fees for that matter. The reason why is you only get a debit card and not a checkbook. For those times you need to write a check, you can enroll in their free bill pay service or request a cashier’s check.
If there isn’t enough money to complete a debit card purchase or ATM withdrawal, the transaction won’t complete. To help you prevent a rejected card transaction, Simple also offers these free tools:
- Trackable spending
- Savings goals
- Safe-to-Spend
With Simple’s Safe-to-Spend feature, you can easily find out how much free cash you have to spend. Simple subtracts your current account balance from your savings goals to ensure you don’t overspend.
You may also consider banking with Simple because they partner with BBVA Compass. Your deposits will earn 0.01% and you can make fee-free withdrawals from any BBVA ATM or any Allpoint ATM network.
4. Varo Bank
Overdraft Fee: $0
When you open a Varo bank account you will get access to an online checking account with no monthly fees or minimum balance. You also don’t have to worry about overdraft fees with Varo and they have a savings account with a savings rate of 1.82% – 2.80%; among one of the highest savings yields I have seen.
5. KeyBank
Overdraft Fee: $0
With the KeyBank Hassle-Free Account, you won’t pay an overdraft fee or non-sufficient funds fee, you still might be charged a fee by the recipient’s bank. KeyBank will automatically decline al insufficient ATM and debit transactions and not charge a fee. You can’t write paper checks, so you only have to make sure your electronic bill pay checks have sufficient funds when you issue them.
6. Bank5 Connect
Overdraft Fee: $15
Overdraft Protection: FREE
Bank5 Connect offers some of the most affordable overdraft fees for an online bank. You’ll only pay $15 per overdraft transaction and overdraft protection is free when you link a savings account. You will also get the first $15 in monthly ATM fees reimbursed and your deposit earns interest when your account balance is at least $100.
7. Navy Federal Credit Union
Overdraft Fee: $20 on withdrawals above $15
As the nation’s largest credit union, Navy Federal Credit Union assess a $20 overdraft fee on overdrafts greater than $15. You can transfer between your Navy Federal accounts for free. Certain checking accounts even qualify for ATM fee rebates.
8. CIT Bank
Overdraft Fee: $25
When you open up a high-yield savings account with CIT Bank, you can make six monthly withdrawals and earn 1.55% interest on your entire account balance. If you use your debit card sparingly and want to earn a high interest rate, a money market account can be a good alternative to a checking account.
9. Ally Bank
Overdraft Fee: $25
Overdraft Protection: FREE
Ally Bank charges a $25 overdraft fee once per day. However, you can sign up for free overdraft protection and Ally will transfer money in $100 increments from your Ally Savings account to your checking account. Since this is a high-yield savings account with six free monthly transactions, each transfer counts towards your monthly limit.
10. Charles Schwab Bank
Overdraft Fee: Up to $25
Overdraft Protection: FREE from linked brokerage account
If you want to bank and invest at the same place, Charles Schwab Bank offers a few unique fee-free checking account benefits:
- Overdraft transfers
- Unlimited ATM withdrawals
- Stop payments
When there isn’t enough money to cover an overdrawn balance on written checks, you will pay $25 per returned check. Schwab offers free overdraft protection and will transfer the necessary funds from your Schwab savings or brokerage account.
11. Nationwide Bank
Overdraft Fee: $25
Overdraft Protection: FREE from linked brokerage account
Nationwide Bank offers an interest-bearing online checking account with $25 overdraft fees. Overdraft protection transfers from your Nationwide savings and money market accounts are free.
You can also earn additional premier member benefits when you own another Nationwide banking or insurance products. Yes, this is the same Nationwide that you see auto insurance tv commercials for.
12. USAA
Overdraft Fee: $25 with overdraw greater than $5
Overdraft Protection: FREE
USAA offers two different checking accounts with a $25 overdraft fee if overdraw by at least $5. The overdraft transfer protection is free when transferring money from your other USAA accounts, but you will pay cash advance interest on any credit card transfers in $100 increments.
13. First National Bank
Overdraft Fee: $28 (on overdraft greater than $20)
First National Bank waives overdraft fees when the shortage is $20 or less. If you transfer money from another account, you will pay $5 per transfer.
14. TIAA Bank
Overdraft Fee: $30
You won’t pay an overdraft fees on ATM or debit transactions, but you can still be charged a non-sufficient funds fee for bad checks. You can save additional money with unlimited ATM withdrawals. The one downside to having an TIAA Bank checking account is that you must make a minimum initial deposit of $5,000 to open an account.
15. Discover Bank
Overdraft Fee: $30
Overdraft Protection: FREE
A Discover Bank Cashback Checking account offers free overdraft protection if you need to transfer funds from a linked account. You will pay $30 for an overdraft fee if you have insufficient funds. You can also earn 1% back on the first $3,000 monthly debit card purchases too.
16. Capital One 360 Checking
Overdraft Fee: Up to $35 (24 hour grace period)
Overdraft Protection: FREE
Capital One offers four different overdraft fee options with their 360 Checking platform:
- Auto-decline ($0 fee)
- Free savings transfer
- Overdraft line of credit
- Next day grace
With the “Next Day Grace” option, you have one full business day to cover the overdrawn amount until you’re charged the $35 overdraft fee. If you don’t want to risk paying an overdraft fee ever again, choose the auto-decline protection option so your debit card transactions are declined when you have insufficient funds.
17. HSBC
Overdraft Fee: Up to $35
HSBC only charges the $35 fee on checks, withdrawals, and electronic funds transfers when the balance is overdrawn by at least $10 at the end of the business day. ATM withdrawals and debit transactions will be automatically declined. To avoid the $3 monthly account charge, you might consider applying for an HSBC Choice Checking account.
18. BB&T Bank
Overdraft fee: $36
Overdraft Protection: $12.50
If you typically overdraft by $5 or less, BB&T will waive the $36 overdraft fee. If you opt-in to the overdraft protection services, each transfer costs $12.50.
19. BBVA Compass
Overdraft Fee: $38 ($32 in California) when the account is overdrawn by more than $1
BBVA Compass offers a free checking account that gives you a physical checkbook, access to local branches, and free access to 39,000 ATMs. You will pay a $12 fee ($7 in California) if you transfer money from another BBVA account and $38 there are insufficient funds. You can also opt-out of these services at any time.
Secrets on Avoiding Overdraft Fees
With minimal effort, there are several different ways you can avoid overdraft fees.
Receive Account Alerts from Trim
Trim is a free service that monitors your spending and renegotiates your monthly bills when a lower rate is available.
You can link your bank accounts to Trim and receive various alerts including:
- Large transactions
- Balance updates
- Minimum balance alerts
These alerts let you know if you’re close to getting charged an overdraft fee on your next purchase. Think of these three alerts as your “radar” to prevent overdraft fees. You can customize the alerts to reflect your spending habits.
Although Trim lets you know when your bank charges an overdraft fee, you should set a minimum account balance alert.
For example, Trim sends me an alert when my checking account balance is less than $200. You can also set an alert when your account balance reaches $0, but it might be too late by then!
Create a Monthly Plan for Your Money
The old saying what gets measured gets managed has a lot of truth to it. You and I would never take a drive across the country without a fuel gauge, but this is exactly what most of us do with our money each month.
Over 70% of people are living paycheck-to-paycheck, which means more than 70% of people do not have a plan for the money in their lives. A cash flow plan will allow you to stop guessing and actually set up a plan of action for every dollar in your life.
You can set up your own cash flow plan in 15 minutes or less here (free).
Balance Your Checkbook Regularly
Maybe you don’t write checks on a regular basis, but you have a ledger.
Write your check and debit transactions in the same ledger. Once a week, compare the written transactions to the processed transactions.
There might be a discrepancy between your ledger and the current available balance if somebody hasn’t cashed their check yet. Because you know you still have cash hanging out that’s technically been spent already, you know there’s not as much money in your account as your bank thinks.
In most cases, you have probably overdrafted your account by $20 or less. If you had balanced your checkbook on a regular basis, would you still have paid an overdraft fee?
When balancing your checkbook ledger, here are a few transactions to include in your account:
- Handwritten checks
- Debit card transactions
- Automated bill payments
- Direct deposits from your employer
Your bank might automatically withdraw any payments you make in their Bill Pay program, even if the company hasn’t deposited the check yet. If so, this makes your task of balancing the ledger a lot easier.
Make Deposits Before Withdrawals
Before you make an account withdrawal, make your deposits first. If you’re waiting for your employer to deposit your paycheck, don’t make a purchase until it shows deposited in your account.
Banks charge overdraft fees in real-time, not at the end of the day. Waiting a few minutes can literally mean the difference between paying an overdraft fee or not.
Build a Financial Cushion in Your Bank Account
The few times my wife and I paid an overdraft fee were when we didn’t create a cash flow plan. Usually for our family, there would always be enough money in our account during a normal month, however there were those few of those expensive months where life happened and we would pay out few mistake dollars in overdraft fees.
This is usually the case for most people. It seems like you have enough money to book your summer vacation or buy a new sofa, but you forget that your monthly mortgage payment hasn’t been withdrawn yet. Hey, it happens to the best of us…in fact it happens to to the tune of $15 billion per year.
Instead of spending blindly, sit down and make a budget. List your regular monthly expenses and compare the total amount to your monthly income. Trimming any unnecessary spending where possible and use those savings to build a bank account safety cushion like $100.
If your balance dips into your safety balance, you won’t be charged an overdraft fee but make sure you replenish the balance as soon as possible.
Opt-Out of Overdraft Protection
Each bank has different overdraft protection policies. For some banks, overdraft protection is completely free as long as there’s enough money in your linked accounts and you don’t exceed daily transfer limits. Other banks let you link your bank accounts for free, but you are charged an overdraft protection fee for each transfer.
You will need to check the overdraft protection policies of your current bank. By not enrolling in overdraft protection, your debit card transactions will not process when there isn’t enough money in the account to cover the total purchase amount. While you will be temporarily embarrassed, it’s better than paying a fee.
Canceling overdraft protection doesn’t mean you can avoid fees for writing a bad check. You can still be charged a returned check or non-sufficient funds fee.
Asking Your Bank to Waive the Overdraft Fees
Depending on your standing with the bank, you might be able to waive the overdraft fee. You will have the best chance of getting the fee waived if you mention these facts:
- You rarely or never overdraft
- You’re a loyal long-time customer
- Ask the bank how to avoid fees in the future
During the conversation be polite, but don’t be afraid to say no to services that you don’t want to sign up for. If the first customer service representative isn’t helpful, you can try calling again and talking to a different representative.
A phone call won’t guarantee that your overdraft fee will be waived, but it can’t hurt. If the fee isn’t waived, the only additional cost is your time for making the call.
Remember, you always attract more bees with honey than with vinegar.
Switch to a Bank That Doesn’t Charge Overdraft Fees
As the list explains above, not all banks are the same and some are more lenient than others when it comes to overdraft fee policy. It’s also a great idea to look for any bank promotions which may add extra money to your pocket if you’re making the switch anyway.
FAQs
Do Big Banks Ever Waive Overdraft Fees?
Some big banks waive overdraft fees if you own a special account or have a large account balance. The one condition to owning a special account–usually called a SafeChecking or Hassle-Free account–is that you usually have to pay a monthly account fee. If you’re not paying a monthly account fee right now, changing your spending habits can help you avoid overdraft fees without paying a monthly account fee.
What is Free Overdraft Protection?
Since the Dodd-Frank Act was passed in 2010, bank customers have had to opt-in or opt-out of overdraft protection coverage. If you opt-out, your bank will automatically decline any debit or ATM transactions that will overdraw your account.
By opting-in to overdraft protection services, you may pay an account transfer fee. Some banks and credit unions offer this service completely free, but many banks still charge a fee.
This fee is still cheaper than an overdraft fee if you want the peace of mind knowing that your debit transaction won’t be declined or you don’t want a check to bounce and be charged a non-sufficient funds charge.
What’s the Best Way to Avoid Overdraft Fees?
The best way to avoid overdraft fees is a two-part answer:
- Make a budget and keep a reserve balance in your checking account
- Use a bank with low overdraft fees and no monthly account fees
Overdraft fees are an easy way for banks to make money because people don’t take the time to properly manage their finances. We’re all prone to make a mistake from time to time, but being proactive about managing your money and using a low-fee bank is the best solution.
How Soon Do Banks Charge Overdraft Fees?
Most banks charge an overdraft fee immediately. And, they might charge the fee up to six times per day. A few banks give you until the end of the current business day to make a deposit to cover the shortage before they charge the fee, but this is the exception to the rule.
However, they may only charge the fee you overdraft by at least $1. Some banks may let you overdraft up to $20 before you’re charged the fee.
Summary
There are a few measures you can take to avoid overdraft fees regardless of where you bank. Switching to a bank that has a lenient overdraft policy can also help you save money in overdraft fees and other common bank fees.
