Anyone who’s been slapped with an overdraft fee knows how expensive and frustrating it can be. An overdraft fee is one of the most expensive fees that a bank can charge you. And, the irony of getting charged a hefty overdraft fee for not having enough money in your bank account is why it’s the object of scorn for so many consumers.

The next check that you write could come with an expensive fee if you don’t have enough money.

According to a June 2015 banking analysis by MyBankTracker.com, the average overdraft fee for each transaction that resulted in a negative account balance was $35.20 at the 10 largest U.S. banks. The highest fee, $36, was charged by PNC and SunTrust Bank while the lowest fee, $34, was charged by Chase and Citibank — still quite expensive.

See how your bank compares by exploring the table below.

Overdraft Fees at Top 10 Banks

BanksOverdraft fee
Bank of America$35
Wells Fargo$35
U.S. Bank$36
PNC Bank$36
Capital One$35
TD Bank$35

Overdraft Fee vs. Non-Sufficient Funds Fee

Most banks charge the same fee amount for overdrafts and non-sufficient funds, which can confuse consumers into thinking that the terms are interchangeable. However, there are subtle differences between the two based on your transaction and the type of service you receive.

An overdraft fee is assessed when the bank pays an overdraft for an item that you charged to your account without having enough available funds to cover the purchase. It will cause your account to go into the red and result in a debit balance on the account.

A non-sufficient funds fee differs from an overdraft fee because the bank does not pay for the overdraft item. Rather, the NSF fee is accessed when the bank returns an item unpaid due to insufficient funds.

Although you might be charged the same amount in both situations, overdraft coverage will give you an added layer of protection from acquiring any additional late charges and help you avoid the humiliation of bouncing a check.

When you’re not charged an overdraft fee

Ultimately, your bank decides whether your transactions will be covered by overdraft or if you’ll be assessed a non-sufficient funds charge. Note: the bank is not required to cover any overdraft charge by law. You also have the option of opting out of all overdraft services. In that case, instead of an overdraft fee, you will be charged with an insufficient funds fee for payments you make without enough money in your account.

Certain transactions, such as ATM withdrawals, may be declined if you don't have enough money. Photo: Flickr
Certain transactions, such as ATM withdrawals, may be declined if you don’t have enough money. Photo: Flickr

Banks may pay overdrafts on authorized automatic bill payments, checks, and transactions made using your checking account number. On the other hand, banks will not authorize and pay overdrafts for ATM and debit card transactions — and you will simply be declined at the point of sale or at the ATM.

Another case in which you might be pardoned from an overdraft fee is when the account is overdrawn below the overdraft balance threshold amount, usually $5.00 or less, as many banks may choose to honor these low-risk charges. The overdraft balance threshold allows a customer to have a negative balance up to a certain amount without worrying about overdraft fees. For example, PNC Bank has an overdraft balance threshold at $5, which means you will not be charged an overdraft fee as long as your negative balance is less than $5.

Banks also have daily fee limits for overdraft and NSF fees, where the account holder is protected from being charged more than five of these charges within one business day.

How to avoid overdraft fees

Overdraft fees commonly occur due to lack of funds or confusion about when those funds will actually be available to you.

Either way, it’s a costly mistake that can be avoided by monitoring your accounts, tracking your payments and planning ahead to ensure that you don’t exceed your available balance.

One way to protect yourself and avoid overdraft fees is by keeping an extra layer cash in your account that can act as a buffer to prevent you from dropping to a negative balance. Admittedly, it won’t be easy, but it could prevent you from getting charged hefty fees.

If you're still going to spend when you don't have enough funds, remember to pay back any funds as soon as possible. Photo: Shutterstock
Take steps to know your balance at all times to avoid overdrawing your account. Photo: Shutterstock

You can also set up alerts (via email or text) through your bank to remind you when funds drop below a certain amount, like $25. Lastly, using cash, your credit card or debit card can prevent you from over withdrawing on your account.

Account Balance vs. Available Balance

It is important for you to realize that there is a big difference between your account balance and available balance. Your current account balance takes into account all of the transactions you have made up to that point.

On the other hand, your available balance is your current balance without all the holds you have on your funds — including any deposits on hold, debit card holds for pending purchases, and payments using your debit card.

The account balance shows the entire amount posted to your account, including funds that have yet to clear, while the available balance shows the immediate amount that is accessible to you for use or withdrawal. Confusing these two numbers may cause you to spend more than you actually have in your account.

What to do after an overdraft charge

If you’re protected by an overdraft service, you should make it your priority to repay it as soon as possible by depositing or transferring the necessary funds into your account. Be sure to add enough money to cover the current overdraft fees, any other fees, and the overdraft amount.

If you don’t clear your overdraft within the bank’s required timeframe, you will be charged an extended overdraft fee. It is assessed when your account has a negative balance for five consecutive business days. If you accrue more than five overdrafts within a one year period, some banks may charge an additional fee for each overdraft or returned item on your account.

To prevent yourself from having to pay such expensive fees, consider signing up for the overdraft protection service offered by your bank.

Overdraft protection

In addition to the basic overdraft services that are covered through many checking accounts, some banks also offer overdraft protection services. These services guarantee that your charges will be paid for and you will not incur a non-sufficient funds charge.

Many banks offer overdraft protection services — automatically transferring available funds from a linked savings account, credit card, or line of credit designed especially to cover overdraft charges. The big advantage of the overdraft protection service is that it’s usually less expensive than standard overdraft fees.

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Ask a Question

  • Theresa Kim

    Has anyone been hit with more than one overdraft fee at once? What happened?

    • Dawn Turner

      I debited a transaction at a store and overdrafted by a little under $2. It was around the same time that I had an automatic payment scheduled and so I got charged with another overdraft fee the following day. I double checked my account to make sure this was the case and it was. I had to deposit money so I could get out of the negative. I learned my lesson and signed up for the overdraft protection service at my bank.

  • Katja

    I don’t make that much money, and I just got hit with three overdraft fees in one day for three transactions that were all less than $5. Bank of America basically stole my entire paycheck and I am livid.

    • Theresa Kim

      I’m so sorry to hear that happened. I can’t get past the fact that banks are charging such a hefty fee to customers who do not have enough money in their accounts!

      I would try calling Bank of America to see if they can waive at least one overdraft fee for you. Given the unfair circumstances of this situation, they may be able to work something out for you — especially if you’re in good standing with Bank of America.

      Good luck and let us know what happens! Thanks for sharing!

  • Lynn Carter

    I was charged, by Bank of America, $315. for overdraft fees and the amount that started this snowball effect was for $15.! I called them and said that this was insane and that I would never catch up. (They will keep tacking on fees after 5 days!) The rep told me that there was nothing that they could do because I asked, when this all started a week prior, to help lower the fees, they did (2) but it did not help me. They even charged me $35. for transfering money out of my savings to help with this issue! They have taken my entire disability check for overdraft fees. I’m beside myself. I will, withdraw everything and close my accounts. This is the worst example of “customer appreciation”, and I’ve been with them since they were just infants.

    • Simon Zhen

      Wow. That is quite a stack of overdraft fees there. It is true that Bank of America charges an “Extended overdrawn balance charge,” which is $35 when the account is overdrawn for 5 consecutive days or longer.

      I’d suggest that you argue against the $35 to transfer money from your savings because this type of transfer (called an overdraft protection transfer) should only cost $10 each time.

      If these overdrafts are due to debit card charges, you can opt out of overdraft coverage so that these charges do not cause overdrafts – something to also do if you decide to switch banks.

  • Julie Garisto

    Wasn’t there a class action lawsuit brought against Bank of America? Seems that they’re up to their old pilfering. What is the status of lawsuits such as the one brought against BofA, and is there a chance that fees will be charged more fairly?

    • Simon Zhen

      Yes, many big banks were hit with lawsuits regarding overdrafts because of the way that they ordered transactions to increase the likelihood of overdrafts (posting large transactions first to drain funds, so that smaller transactions will trigger multiple overdrafts).

      Here’s a story to explain more about it: http://www.mybanktracker.com/news/2012/09/28/getting-money-from-overdraft-lawsuit-settlements/

      Bank of America has already changed the way that transactions are posted. The current transaction-posting policy will debit the accounts based on the time that they occurred.