What is an overdraft fee? Understanding banking charges in 2026

Overdraft fees can seem like pouring salt on a wound. After all, overdraft fees are assessed when you run out of money in your checking account. Getting charged a fee for not having enough money only makes the problem worse.

Not only do these fees tend to occur when people are most in need, but they are also a major part of the cost of banking. The Consumer Financial Protection Bureau (CFPB) found that overdraft charges make up more than half of the total fees charged to checking accounts.

What makes overdraft fees even more challenging is that those fees and the rules governing them keep changing. Most recently, a proposal to limit those fees was blocked by Congress, after which those fees began rising.

In other words, the trend is not in favor of bank customers. The best way for consumers to protect themselves is to find ways of avoiding overdraft fees. Fortunately, there are several ways you can do that.

What is an overdraft fee?

An overdraft fee is a charge assessed when you spend more money than you have in your bank account. Overdraft fees occur most often in accounts used for frequent transactions, such as checking or spending accounts.

Overdraft fees can be assessed on accounts that have overdraft protection. This means the bank will temporarily cover the shortfall when you spend more money than you have in the account. The benefit is that this allows your transaction to go through. However, in many cases, you’ll pay a steep price for that overdraft.

A related type of fee is a nonsufficient funds (NSF) fee. This is charged when you try to spend more money than you have in your account, but don’t have overdraft protection. In that case, your transaction won’t be covered, but you’ll still be charged a fee.

In either case, the cause of the fee is spending more than you have in your account.

Current trends in overdraft protection fees

Because overdraft fees are triggered when your account runs out of money, this can feel like they’re hitting you when you’re down. What’s worse, those fees are often large enough to hit hard.

Overdraft fee amounts

Until recently, the CFPB regularly tracked the overdraft fee policies of the 20 banks that charged the largest total amounts of those fees. According to the most recent data, the average overdraft fee was $25.20.

Eleven of those 20 banks charged more than $30 for overdrafts, with the highest fee being $37.

To put that in perspective, when a bank covers an overdraft, it’s essentially lending you the money — usually only for a few days. The CFPB found that among transactions that triggered an overdraft, the median size was $50. If you overdraft your account by $50 and pay the average overdraft fee of $25.20, that’s the equivalent of paying 50.4% to borrow the money for a few days. If this were converted to an annual percentage rate, the rate would be astronomical.

And it can get worse. People often make more than one transaction while their account is overdrawn. This can result in multiple overdraft fees in a single day.

Other overdraft policies

The size of the overdraft fee is not the only bank policy that affects how much you might pay. Here are some other key policies that affect how expensive overdrafts can be:

• Grace periods. Instead of charging an overdraft fee as soon as an account is overdrawn, some banks will wait until the next day. That extra time can give you a chance to fix the problem before a fee is charged.
  
• Minimum overdraft thresholds. Technically, an overdraft occurs if an account balance goes even a penny below $0. However, some banks give their customers a certain amount of cushion before they charge an overdraft fee. The size of those cushions varies. Some banks won’t charge a fee until an account is more than $50 overdrawn.
  
• Limits on the number of fees per day. It’s common for people to make more than one transaction before they realize their account is overdrawn. Some banks will charge you an overdraft fee for each one of those transactions. However, many banks contain the damage by limiting the number of overdraft fees they’ll charge on any one day, no matter how many transactions occurred after the account was overdrawn. A few banks will even limit overdraft fees to one per day.
  

When it comes to controlling the cost of overdrafts, these policies can be even more important than the size of a bank’s overdraft fees.

Who pays overdraft fees?

One reason overdraft fees are controversial is that they affect some consumers much more than others.

Naturally, the less money you have in your account, the easier it is to overdraft it. For example, if you’re down to the last few dollars in your account, a bank fee or an automatic payment can overdraw the account without you realizing it. So, lower-income consumers with smaller bank balances are often more vulnerable to overdraft charges.

In fact, a Federal Reserve survey found that people in the lower 40% of income levels had an average of less than $20 in their transaction accounts. That doesn’t leave much of a margin of error to avoid overdrafts.

Along with lower-income consumers, younger bank customers are also more likely to incur overdraft fees. According to CFPB data, 38.5% of bank customers aged 18 to 25 incurred at least one overdraft fee per year. This percentage drops steadily for older age groups. Bank customers aged 62 and older are less than half as likely as young adults to incur an overdraft fee.

Finally, what really makes overdraft fees a huge expense for some customers is that this burden is shared very unevenly. Some customers have a chronic problem with overdrafts, which makes it very expensive. The CFPB found that 8.3% of account holders have 10 or more overdrafts per year. Because their overdrafts are so frequent, these 8.3% of bank customers pay 73.7% of all overdraft fees.

Current regulatory environment for overdraft fees

Given the impact of overdraft fees on consumers, there has been some political pressure to limit those fees. Unfortunately, this has turned into a tug-of-war that has made the situation more confusing.

In the early 2020s, regulatory pressure on banks helped steadily bring down the cost of overdraft fees. After peaking at around $12 billion in 2019, the total dollar value of overdraft fees charged annually had dropped roughly in half by the end of 2023.

At one point, the CFPB wanted to go even further. In late 2024, it announced a new rule that would have capped many overdraft fees at $5 — well below the average of $25.20. This rule was planned to go into effect in Oct. of 2025.

However, before that could happen, Congress voted to overturn it under the Congressional Review Act, and President Donald Trump signed the resolution into law in May 2025. As a result, the $5 cap never went into effect.

Naturally, banking groups lobbied against the overdraft fee cap, but there was also debate over whether it actually would have helped consumers. Some people argued that forcing banks to charge artificially low overdraft fees could lead some institutions to close accounts that were frequently overdrawn or eliminate overdraft services altogether. In short, there was a possibility that the rule was so strict it could backfire and hurt the same consumers it was intended to help.

The good news is that even without a regulatory limit on overdraft fees, some banks and credit unions have reduced or limited those fees in an effort to gain a competitive advantage. If you’re concerned about overdrafting your account, you can seek out an institution with favorable overdraft policies.

Fintech alternatives to avoid overdraft fees

Besides banks and credit unions, fintech companies have expanded the choices available to consumers. These choices may help you avoid overdraft fees.

Fintech, short for financial technology, is a broad category. It includes some banks and credit unions, as well as nonbanks that provide some form of banking services. Some of these allow for no fee overdrafts. For example, Chime and Cash App provide checking accounts that allow overdrafts up to a limited dollar value, as long as you have a qualifying amount of direct deposits into their accounts each month.

Note that accounts provided by institutions that are not banks or credit unions do not directly provide federal deposit insurance. Some arrange for deposit insurance by holding customer funds at insured partner banks. However, there can be differences in how that coverage applies, so it’s important to understand how your deposits are protected.

How to avoid an overdraft fee

Here are several things you can do to avoid overdraft fees:

• Opt out of overdraft protection. Banks can’t charge you overdraft fees on most ATM and one-time debit card transactions unless you’ve opted into overdraft protection. Opting out would result in transactions being declined if you don’t have sufficient funds. You may incur other charges when that happens. However, having transactions declined might help you develop banking habits that avoid overdrafts.
  
• Shop for an account without overdraft fees. Most checking accounts charge overdraft fees, but there are exceptions. Citibank and Capital One offer no overdraft fee bank accounts under some conditions. Note that bank terms are subject to change, so you should check carefully before signing up for an account.
  
• Leave a cushion in your checking account. The closer to $0 you keep your balance, the greater your risk of overdrafting. If you get in the habit of leaving a dollar amount that you won’t go below — such as $50 or $100 — you can reduce that risk. This can also leave you some money in reserve for emergencies.
  
• Linked accounts. Some banks give you the option of linking to a savings account that will automatically cover overdrafts in your checking account. While this is convenient, there are drawbacks. You may incur fees for transfers to cover overdrafts. Also, this may cause you to draw down savings.
  
• Check your balance frequently. Banking apps and online access give you an immediate window into your account balance. Checking that balance before using your debit card can help you avoid overdrafts.
  
• Be aware of your automatic payment schedule. Automated payments can be a convenience, but they may also draw down your account balance before you realize it. If you use automated payments, be aware of the amount and timing of those payments so you can make sure adequate funds are available.
  

The bottom line on overdraft fees

While avoiding overdraft fees is important, the ultimate goal should be to avoid the overdrafts that cause them. After all, overdrafts may leave you without funds when you really need them. Repeated overdrafts also may cause your bank to cancel your overdraft protection or even terminate your account altogether.

Developing good banking habits, monitoring your balance regularly, and choosing an account with consumer-friendly overdraft policies can help you minimize fees and avoid unnecessary financial stress.

Frequently asked questions

What is the difference between an overdraft fee and an NSF fee?

An overdraft fee is a charge for drawing your account balance down below $0. This happens when you spend more money than you have in the account.

A nonsufficient funds (NSF) fee is typically charged when the bank declines or returns a transaction because there isn’t enough money in the account. Some financial institutions have eliminated NSF fees, so whether you’ll pay one depends on your bank’s policies.

How much is an overdraft fee?

According to the latest CFPB data available, the average is $25.20. However, this varies greatly depending on your bank.

Do you have to pay back an overdraft?

Yes, you will be required to pay back the overdraft promptly. Failure to do so may result in additional fees and having your account cancelled. There may also be legal consequences. Finally, when a bank terminates an account, it is recorded by an organization called ChexSystems. If your record shows this happening, you may find it difficult to open an account at another bank.