The Consequences of Overdrawing a Checking Account

Even if you regularly check your online bank balances, it is possible that your account may accidentally fall into a negative balance. It’s called discovered your account. This can happen if you forget to write a check to someone who doesn’t immediately deposit it. A debit card the transaction may not have cleared quickly and your balance was larger than it should have been. Or, a deposit might have been delayed, leaving you with insufficient funds to cover your withdrawals.

Whatever the reason, the consequences of an insufficiency or Insufficient funds (NSF) in your checking account are entirely dependent on your bank’s policies. Whether you opted for overdraft protection or your bank has you covered with a linked savings accountyou may or may not be charged a fee if you tap into a negative balance.

Key points to remember

  • An overdraft occurs when your account drops below $0.
  • Your bank will let your account go negative if you have overdraft protection or may make one-time exceptions, but may charge you for each transaction.
  • Federal regulations require bank customers to subscribe to overdraft protection programs.
  • Your bank may close your account and send you for collection if you are still overdrawn and/or do not update your account.
  • Monitoring your account closely and linking your checking account to a backup savings account can help you avoid overdraft fees.

Consequences of overdraft

Your bank may offer overdraft protection. This is an option that banks offer to their customers. It acts as a kind of insurance policy, which allows transactions to be carried out even if you have no money in your account up to a certain limit. It’s like a short-term loan so depending on the bank and the type of account and features you have, you may be charged a fee and/or interest to use the service.

In some cases, your current account can be linked to another account. If your balance is overdrawn, funds are automatically transferred to your checking account to cover the difference. In other cases, the bank won’t return the transaction and process it, which means you’ll be charged a fee until you deposit money to cover the difference.

If you go over your account, there’s a good chance you’ll have to pay a fee. Going overdrawn can lead to more serious consequences, such as having your account closed.

Overdraft protection and fees

Regardless of the circumstances surrounding your account, you may end up paying several fees for using these services. Your bank may charge you in the following cases:

  • Fees for each transaction until your balance is restored or each time it transfers money from your backup savings account to your checking account.
  • There may also be monthly service charges and daily charges for each day your account is negative.
  • If a check is NSF, you may have to pay a returned check fee. All of these costs can add up quickly.

Should you register?

Federal regulations require bank customers to subscribe to overdraft protection programs. This means that your bank cannot automatically enroll you when you open an account. Although these programs may seem like a safety net, they can lead to an avalanche of fees.

Not registering also has a cost. If you don’t have overdraft protection and you try to complete a transaction that you don’t have funds to cover, it will usually be declined. If you try to withdraw money from a ATM (ATM) is a disadvantage. But if you’ve written a check and it’s NSF, the bank may charge you an NSF check fee. In addition, the party receiving the no founding check may require reimbursement of returned check fees.


The average overdraft fees in the United States in 2020.

Account closures

Remember that overdraft protection (whether you have it in your account or your bank decides not to return your transactions) is simply meant to be used in emergencies only, such as when you forget you wrote that check.

Banks can close your account if you are constantly in a negative balance or dip below $0 and stay there without updating your account. Your account terms and conditions outline the consequences, so it’s a good idea to take a look at the disclosure. You can also check with your bank for details on what happens if your bank balance is regularly overdrawn.

Debt recovery

If your bank closes your account, you are not out of harm’s way. You will receive a notice of the action. You will also be informed of the outstanding balance, which you will have to pay. It’s like a loan: your bank authorized the realization of your transaction(s) by lending you when you did not have it.

The notice should tell you how to rectify your account and what happens if you don’t pay it back. In most cases, the bank will attempt to collect the balance itself. When all else fails, you may be sent to a third party Recovering agency. And in some cases, it can be documented in your credit history, which will affect your credit score and any future attempts to obtain credit.

Some banks have eliminated overdraft fees altogether, including Capital One, Ally, and a number of smaller banks and credit unions. These institutions offer other options, such as automatic transfers, grace periods to cover negative balances, and trade-downs if there are insufficient funds in a customer’s bank account.

What to do if you exceed

Mobile banking makes it easy to keep track of your banking activity and account balance. And many banks now notify you when you’ve reached a certain threshold on your account. So you shouldn’t have any trouble knowing where you are. If those aren’t options, keeping accurate records will help you maintain control of your account.

But life happens and there may be times when your balance actually goes into the red. So what are you doing? There are several things you can and should do when your account is overdrawn.

  • Make a to pay. If you have money in another account, make a transfer. Bring the account to a positive balance or as close to it as possible as quickly as possible. This can limit fees and show the bank that you are trying to work things out.
  • Do not use your account. The more you use it, the more you will be in the red. You may find it harder to recover your balance above $0. And that can mean more expense.
  • Check with your bank to see if this can give up all or part of the costs. You don’t know if you don’t ask, do you? Chances are your bank will be more than happy to help, especially if this is a rare occurrence.

How much are you charged for overdrafting a checking account?

The amount charged for the overdraft of a current account depends on the bank. The national average in 2020 was $33.47, although fees may be higher. Account holders may also have to pay additional fees on top of overdraft fees if their accounts dip into a negative balance. Some banks, however, have eliminated overdraft fees altogether and are offering other options to their banking customers.

How can I stop overcharging my checking account?

There are several things you can do to make sure your checking account is never overdrawn. Check your balance regularly and keep up-to-date records of pending transactions and withdrawals. Sign up for transaction and account balance alerts so you know where you stand. You can also link your account to another so that if you go overdrawn, funds are automatically transferred to update you. If your account is overdrawn, don’t use it and replenish the balance immediately to avoid going further into the red.

Can you get in trouble for discovering your checking account?

You can’t have any problems for having your account discovered, especially if it rarely happens to you. You may run into trouble if you’re always overdrawn or simply don’t update your balance. Your bank may close your account and send you for collection until you pay off the balance.

The essential

Overdrafting your account can become extremely expensive. To avoid paying overdraft fees, the Federal Deposit Insurance Corporation (FDIC) recommends that you regularly monitor your account balance and link your checking and savings accounts so that any shortfall is covered by an overdraft protection program. (It may cost money, but it’s probably less than paying overdraft fees.)

Banking apps allow you to keep an eye on your balance, and many banks offer notifications such as SMS reminders when your balance is low. If you’re hit with an overdraft or returned check fee, and it’s the first time, it’s worth calling your bank to ask for it to be waived. Either way, top up your account to cover the difference as soon as possible, which can help keep fees from skyrocketing.