How to Avoid Overdraft Fees at Your Bank

Like many other consumers, you probably use a checking account to manage your money and complete everyday transactions. However, if you make too many purchases, you can exceed the total amount of funds in the account. If purchases exceed the balance, many banks charge an overdraft fee to cover the transactions. Then, you must repay the bank for covering the transaction plus the assessed fee. Fortunately, it’s possible to skip this altogether. This is how to avoid overdraft fees at your bank.

Banking is just one part of your finances. A financial advisor can help you create a financial plan for your needs and goals.

What Are Overdraft Fees?

Overdraft fees are charged when your purchase amounts exceed the amount of money in your account. The bank covers the transaction but charges a fee for this service. Essentially, the bank lends you money to cover the cost and then you must repay the debited amount, plus the overdraft fee. If you’re not careful, overdraft fees can become a significant expense, especially if you overdraft your account often.

Overdraft fees can range from bank to bank. However, online banks tend to have lower overdraft fees than traditional brick-and-mortar financial institutions. Bank overdraft fees can range from $15 to $37, depending on your bank.

How to Avoid Overdraft Fees

There are some ways to avoid bank fees. These are a few ways to avoid overdraft fees from impacting your account.

Sign Up for Banking Alerts

Many banking institutions allow you to set up alerts for various reasons, such as when your account drops below a certain balance. For example, you could set up a checking account alert to inform you when your checking account balance drops below $200. Once you receive the alert, you can pause spending from that account or transfer more funds into it.

Establishing these banking alerts can help you keep tabs on your current balance so you can monitor your spending habits more closely.

Opt into Overdraft Protection

When you choose overdraft protection, your bank automatically transfers money from another bank account to your checking account when you exceed your balance. That way, you do not have to worry about covering the excess amount.

Remember, though, linked accounts usually must be from the same institution. Some banks may also charge a fee for this service. Be sure to check with your bank how much overdraft protection will cost.

Forgo Automatic Overdrafts

A woman managing her bank account in an effort to avoid overdraft fees.

While automatic overdrafts sound similar to overdraft protection, this feature functions slightly differently. When you open a new bank account, your bank allows you to opt into automatic overdrafts. This feature lets your bank cover the transaction on your behalf and charge the overdraft fee.

By opting out, the bank no longer covers your overdrafts automatically. Thus, it’s up to you to monitor your banking activity since the bank might decline charges if you don’t have enough cash to cover them.

Choose a Bank Account That Doesn’t Have Overdraft Fees

Certain banks, like Capital One and Ally Bank, don’t charge overdraft fees. Selecting an account that doesn’t charge these fees can help you save money over time.

Keep Extra Funds in Your Account

Keeping a cash cushion in your bank account can help avoid overdraft fees. That way, if you forget about an upcoming charge, you’ll have the extra funds to cover it.

It’s easy to forget recurring expenses like subscriptions or utility bills. Keeping extra funds in your account can help you plan for these forgotten expenses.

How to Get an Overdraft Fee Refund

If you get hit with an overdraft fee, it’s possible you won’t have to pay it. You can contact your bank’s customer service department, visit a local bank branch or start a chat session online to request a refund. If this is your first offense, the chances of the bank waiving the fee are high.

Staying polite and explaining your situation may increase your chance of success. Also, if you’re a loyal customer, you’ll want to highlight that point in your conversation. If the customer service rep or bank teller shares they don’t have the authority to waive an overdraft fee, request to speak to a member of management.

If all else fails and the bank is unwilling to waive the fee, this might be an excellent time to consider switching banks. When comparing different bank options, look at their overdraft fee policies so you can find an institution that is more suitable for your needs.

When Should You Switch Banks Over Overdraft Policies

If you find yourself a frequent victim of overdraft fees and your bank does not provide options to avoid them, it might be time to explore alternatives. Some banks continue to charge high fees even for minor overdrafts, and they may lack the helpful features to avoid them, such as balance alerts or linked account transfers. If your current bank does not offer ways to manage or prevent overdrafts, switching could improve your banking experience.

A growing number of banks, especially online-only institutions and credit unions, have introduced accounts with more forgiving policies or even no overdraft fees at all. These banks may offer features like a buffer for small overdrafts, same-day repayment windows or automatic transfers from savings to cover shortfalls. If your budget fluctuates, these services can help you avoid penalties while still covering your expenses.

When thinking about switching, review the overdraft terms of other banks. Look for accounts with free overdraft protection, fee caps or other tools to help monitor your balance. Choosing a bank with overdraft policies that match your financial habits can lead to fewer charges and better account management overall.

Bottom Line

A woman checks her bank account on her mobile app.

More and more banks are reducing or eliminating fees, like overdraft fees, altogether, so, hopefully soon, the overdraft fee will be no more. Until then, you can avoid overdraft fees at your bank by keeping close tabs on your funds and adding a cash cushion to your account. If you feel more comfortable working with a bank that does not charge overdraft fees, compare your options. Start by determining how you will use the bank. Then, compare how each institution’s services, costs, interest rates and other features stack up against your needs. Finally, consider comparative reviews to help you pinpoint a suitable option.

A financial advisor can help you build the right banking strategy for your needs.

Banking Tips

When comparing banks, consider partnering with a financial advisor to help you navigate your financial decisions. SmartAsset’s free tool matches you with financial advisors who serve your area. You can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Look for banks that offer promotions for opening a new account. You may be able to boost your new checking or savings account by several hundred dollars by signing up during a promotional period. But, you must meet the requirements to qualify, such as maintaining a minimum balance or processing a certain number of monthly transactions. While a cash bonus is a great incentive, you should also ensure the new bank offers services and features that are compatible with your needs.