What happens when you overdraft your account
An overdraft occurs when you spend more money than you have in your account, and your bank covers the difference. If your balance is $200 and you make a $250 purchase, your account goes to -$50. The bank pays the $250 and you now owe them $50 plus an overdraft fee.
The bank does not have to let this happen. Whether your account can go negative depends on whether you have overdraft protection set up, and what type of protection it is. Some accounts allow overdrafts automatically. Others require you to opt in. Some accounts do not allow overdrafts at all and will simply decline your transaction instead.
The key thing to understand: overdrafting is not free. Every time your account goes negative, you pay a fee—usually $25 to $35 per transaction, though this varies by bank. If multiple transactions post while you are negative, you can be charged multiple fees in a single day.
Key Takeaways
- Overdraft protection is a feature you can turn on or off in your account settings, and whether it is on by default depends on your bank and account type.
- When you overdraft, your bank covers the shortfall but charges you a fee for each transaction that posts while your account is negative.
- Overdraft fees typically range from $25 to $35 per transaction, and multiple fees can stack up in a single day if several transactions clear while you are overdrawn.
- You can avoid overdrafts by declining the overdraft protection feature, linking a savings account as backup, or setting up low-balance alerts on your phone.
- If you overdraft by accident, contact your bank within a day or two—many banks will reverse one or two fees per year as a courtesy.
How to turn overdraft protection on or off
Most banks let you control overdraft protection through your online account or mobile app. Log into your account, find the settings or account details section, and look for "overdraft protection" or "overdraft options." You will usually see a toggle to turn it on or off, or a choice between different types of protection.
If you cannot find it online, call your bank's customer service number on the back of your card. Tell them you want to know what overdraft protection you currently have and ask them to explain your options. They can turn protection on or off over the phone in a few minutes.
Be aware that some banks turn overdraft protection on by default when you open an account. If you do not want overdrafts, you need to actively turn it off. If you want it but do not have it, you need to turn it on. Neither happens automatically at every bank.
Types of overdraft protection
Banks offer different ways to cover overdrafts. The most common is overdraft coverage, where the bank simply lets your account go negative and charges you a fee. This is the most expensive option because you pay a fee for each transaction that posts while you are overdrawn.
A better option, if your bank offers it, is overdraft transfer. This links your checking account to a savings account or credit line. When you overdraft, the bank automatically transfers money from the linked account to cover it. You may pay a small transfer fee (often $0 to $10) instead of a large overdraft fee. This only works if you have money in the linked account.
Some banks also offer overdraft lines of credit, which work like a small loan. If you overdraft, the bank lends you the money at an interest rate rather than charging a flat fee. This is cheaper than overdraft fees if you stay overdrawn for more than a few days, but more expensive if you pay it back quickly.
What overdraft fees actually cost
Overdraft fees are not one-time charges. Each transaction that posts while your account is negative triggers a separate fee. If your balance is -$50 and three more transactions clear before you deposit money, you will be charged three more overdraft fees.
A typical overdraft fee is $25 to $35 per transaction. Some banks charge less (as low as $15), and some charge more (up to $40). A few banks cap the total overdraft fees you can be charged in a single day—often at two or three fees maximum—but not all do.
If you overdraft by $100 and four transactions post while you are negative, you could pay $100 to $140 in fees alone, on top of the $100 you owe back. This is why overdrafts are expensive: the fee is often larger than the amount you actually overspent.
How to avoid overdrafting
The simplest way is to turn off overdraft protection entirely. If your bank declines transactions instead of covering them, you cannot overdraft. You will be embarrassed at the register, but you will not pay fees. Many people prefer this because it forces them to stay aware of their balance.
If you want the safety net of overdraft protection, set up a linked savings account with overdraft transfer instead of overdraft coverage. Keep $200 to $500 in that savings account as a buffer. When you overdraft, the bank transfers from savings instead of charging a fee. You can rebuild the savings account slowly over time.
Another tool is a low-balance alert. Most banks let you set a threshold—say, $100—and send you a text or email when your balance drops below it. This gives you a warning before you overdraft. You can then transfer money in or stop spending.
Finally, check your balance before large purchases. A few seconds on your phone app can prevent a $35 fee. Many people overdraft because they forget about pending transactions that have not cleared yet. Your available balance (what you can spend right now) is often lower than your current balance (what you have in the account).
What to do if you overdraft by accident
First, deposit money into your account as soon as you can. The longer you stay overdrawn, the more fees you will accumulate. Even a small deposit stops the bleeding.
Second, call your bank within a day or two and ask them to reverse the overdraft fees. Many banks will reverse one or two fees per year as a courtesy, especially if you have been a customer for a while and do not overdraft regularly. They will not reverse all of them, but they may reverse some. It costs nothing to ask.
If your bank refuses, ask to speak to a supervisor. Explain that it was an accident and that you have corrected it. Some supervisors have more authority to reverse fees than the first representative you speak to.
Overdrafts versus declined transactions
If you do not have overdraft protection, your transaction will simply be declined. The store will not process the payment, and you will not be charged a fee. You will be embarrassed, but your account stays at zero or positive.
With overdraft protection, the transaction goes through, your account goes negative, and you pay a fee. The transaction succeeds, but it costs you more in the long run.
Which is better depends on your situation. If you are living paycheck to paycheck and cannot afford to have a transaction declined in public, overdraft protection feels safer. If you want to avoid fees and do not mind the embarrassment, declining transactions is cheaper. Many people choose to turn off overdraft protection and use a low-balance alert instead—that way they get a warning before they run out of money.
Frequently Asked Questions
Can I overdraft my account on purpose to get a short-term loan?
Technically yes, but it is an expensive way to borrow money. A $35 overdraft fee on a $100 overdraft is a 35% cost for a few days of borrowing. A payday loan or credit card cash advance is usually cheaper. If you need short-term money, a personal loan from your bank or a credit union is even better.
Will overdrafting hurt my credit score?
Overdrafting itself does not show up on your credit report. However, if you stay overdrawn for a long time and the bank sends your account to a collection agency, that will hurt your credit. Overdraft fees are expensive, but they do not directly damage your credit unless the debt goes unpaid for months.
What is the difference between overdraft protection and overdraft coverage?
Overdraft protection is the general term for any feature that lets your account go negative. Overdraft coverage is one type—the bank covers the shortfall and charges you a fee. Overdraft transfer is another type—the bank pulls money from a linked account instead. Ask your bank which type you have.
Can I get overdraft protection if I have bad credit?
Yes. Overdraft protection is tied to your checking account, not your credit score. Your bank decides whether to offer it based on your account history with them, not your credit history. Even people with no credit or poor credit can have overdraft protection on a checking account.
How long do I have to pay back an overdraft?
You do not have a set deadline. Your bank expects you to bring your account back to zero or positive as soon as you can. If you stay overdrawn for weeks or months, the bank may close your account and send the debt to a collection agency. Most people deposit money within a few days and resolve it quickly.