In This Section
From the ABA Foundation
When you ...
... for more than the amount in your checking account, your bank has the choice to either pay the amount or not. If it pays even though you don’t have the money in your account, you may be charged an "overdraft fee" in addition to owing the overdraft amount the bank advanced to honor your transaction. If your bank returns your check without paying it, you may be charged a "nonsufficient funds" or NSF fee.
The person or company that you wrote the check or made an electronic bill payment to—for example, a store, your landlord, or the phone company—may charge you an additional fee. If your bank refuses to pay your debit card purchase for lack of funds in your account, you will need to find another way to pay the merchant for the goods on the counter you were expecting to purchase.
Avoiding overdrafts may be the lowest-cost way to protect your hard-earned money. But if you want overdraft protection to cover occasional mistakes or temporary funds shortfalls, then ask your bank about the plans or services it offers that provide the benefit you need at a cost you are willing to pay.
To deal with occasional overdrafts, banks generally have some type of overdraft accommodation practice.
The choice is yours. Consider the costs when choosing protection against overdrafts.
Ways to Manage Overdrafts | Example of possible costs for each incident* |
---|---|
Do not overdraw | $0 (it costs you nothing when you avoid overdrafts) |
Link to savings account | A small transfer fee per overdraft (and lost interest on amount by which savings is reduced) |
Overdraft line of credit | Often an annual fee + small transfer fee per overdraft + an interest charge until the credit line is paid off |
Standard overdraft services | A fee per overdraft (usually same as NSF fee) + possible additional fees for staying overdrawn for several days |
Bounced check | Both a bank NSF fee and a merchant bounced check fee per overdraft + more fees if the merchant tries to redeposit the same check unsuccessfully. |
*These are examples only and actual costs will differ from bank to bank. Ask your bank about its fees and the fee structure for overdraft services and plans it offers.
Good account management means understanding your options and making an informed choice about how to conduct your transactions.
By reviewing your periodic statement you will be able to track what you pay each month and throughout the year for nonsufficient funds fees and overdraft fees. Use this and other information to evaluate your overdraft protection experience. Banks are flexible and will help you if you want to change your choice about coverage. It is your right to opt-out of debit card overdraft services and still keep your debit card.