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Written by

Brian McKay

| Fact checked | Published May 1, 2023 | Updated September 28, 2026 | 5 min read

Overdraft Fees: How to Avoid Them and What to Do When They Hit

Q: How can I avoid overdraft fees?

Opt out of debit card and ATM overdraft coverage so transactions are declined instead of covered; link a savings account for automatic low-cost transfers; set up low-balance alerts; maintain a cash cushion of $100 to $200; and consider switching to a bank or credit union that does not charge overdraft fees.

Q: What is the difference between an overdraft fee and an NSF fee?

An overdraft fee is charged when the bank covers the payment despite insufficient funds. An NSF fee is charged when the bank returns the payment unpaid. Both are typically $25 to $35, but an NSF means the payee did not receive the funds, which can result in additional fees from the recipient.

An overdraft fee is the charge, commonly around $25 to $35, that a bank collects when it pays a transaction your balance cannot cover. You can avoid it by opting out of debit card overdraft coverage, linking a savings account for overdraft transfers, setting low balance alerts, or banking at an institution that has eliminated overdraft fees. Money you do not need for spending earns an average of 1.97% APY in a high yield savings account, verified by MonitorBankRates as of October 13, 2026.

An overdraft happens when you spend more than your available balance and your bank covers the transaction anyway, then charges you a fee for doing so. At most traditional banks, that fee runs $25 to $35 per item. Multiple transactions can trigger multiple fees in a single day, turning a small shortage into a significant penalty before you notice the problem.

The good news: overdraft fees are largely avoidable. Federal rules give you the right to opt out of debit card overdraft coverage, and a growing number of banks have reduced or eliminated overdraft fees following years of regulatory pressure. This guide covers every option available to you.

High yield savings

1.97%

avg APY

Standard savings

0.81%

avg APY

Money market

3.07%

avg APY

12 month CD

2.94%

avg APY

MonitorBankRates national averages as of October 13, 2026, computed from rates published by more than 8,000 banks and credit unions.

Key facts

Typical OD Fee: $25 to $35 per transaction
Opt-Out Right: Federal law, debit & ATM
Linked Account Transfer: Often $0 to $10 vs. $35 OD fee
No-OD-Fee Banks: Most online banks & credit unions

How Overdrafts Work

When a transaction hits your account while your balance is insufficient, your bank makes a choice: pay it and charge an overdraft fee, or decline it and possibly charge an NSF fee. Which outcome you get depends on the type of transaction and whether you have opted into overdraft coverage.

Debit card and ATM transactions: Federal Regulation E requires your bank to get your affirmative consent before covering these transactions and charging a fee. If you have not opted in (or if you opt out) your debit card is simply declined when funds are insufficient. No fee, just a declined transaction.
Checks and ACH payments: The opt-in requirement does not apply to checks or automated payments like bill pay. The bank may pay or return these at its own discretion, and its overdraft or NSF fee policy applies regardless of your debit card opt-in status.
Stacking fees: Most banks can charge multiple overdraft fees in a single day, one per covered transaction. Five transactions on a low-balance day can mean five separate fees.

Your Options for Reducing or Eliminating Overdraft Fees

1. Opt Out of Debit Card and ATM Overdraft Coverage

The simplest action is to opt out of debit and ATM overdraft coverage. With opt-out in place, your card is declined when you lack sufficient funds instead of the bank covering the transaction and charging you. A declined card is inconvenient but free. Contact your bank through your mobile app, online settings, or by phone; federal law requires your bank to honor opt-out requests promptly, and you can change your decision at any time.

2. Link Your Checking Account to a Savings Account

Many banks offer overdraft transfer protection that automatically moves funds from a linked savings account to cover a shortfall. The transfer fee is typically $0 to $10, far less than the $35 overdraft fee it prevents. This keeps the transaction going through without the full penalty cost.

3. Use a Line of Credit for Overdraft Backup

Some banks allow you to link a line of credit or credit card as overdraft backup. When your checking account is short, the bank draws from the credit line instead. You pay interest on the borrowed amount but the per-transaction overdraft fee is typically eliminated or reduced, far cheaper than a $35 fee on a $5 shortage.

4. Switch to a Bank With No Overdraft Fees

Following sustained pressure from the CFPB, many online banks and credit unions have eliminated overdraft fees entirely, either declining transactions when funds are insufficient or allowing small negative balances at no charge. If you regularly pay overdraft fees, switching to a free checking account at a no-OD-fee institution may be the most impactful change you can make. Compare your options on our checking account rate tables.

Practical Steps to Prevent Overdrafts

Set up low-balance alerts: Most banks offer free email and text alerts when your balance drops below a threshold. Set it at $100 or more to give yourself a buffer before transactions process.
Track scheduled automatic payments: Know when rent, utilities, subscriptions, and loan payments debit your account. A simple calendar note of debit dates and amounts prevents surprise shortfalls.
Understand deposit availability: A check deposited today may not be fully available until tomorrow or the following business day. Never assume a deposit is accessible until confirmed. Our guide to deposit holds covers the federal rules in detail.
Maintain a cushion: Treat your real minimum as $100 to $200 above zero. This absorbs timing differences between transactions and deposits. Our budget calculator can help you identify the right cushion for your spending patterns.
Review your statement monthly: Regular review catches patterns that lead to overdrafts and reveals unauthorized transactions before they compound.

Transaction Order Can Work Against You: Many banks process large transactions before small ones in a batch, which maximizes the number of overdraft fees when a low balance is involved. Understanding that checks and ACH payments may not clear in the order you wrote or scheduled them is essential for avoiding unexpected overdrafts on days when your balance is close to zero.

When a Fee Hits: What to Do

Call your bank immediately. Ask for a waiver. If it is your first or second overdraft in the past year, most banks will waive it as a one-time courtesy. Be direct and polite.
Restore your balance promptly. Many banks charge extended overdraft fees if your account stays negative for more than a few days. Getting back to positive stops the clock on additional charges.
Update your settings. Use the event as a trigger to opt out of debit overdraft coverage, set up account alerts, or link a savings account if you have not already done so.
Compare your options. If your bank refused to waive the fee, that tells you something useful. Use it as motivation to compare credit union checking accounts and online bank checking accounts that offer better overdraft policies.

Find a Better Checking Account

Compare accounts at banks and credit unions with lower or no overdraft fees.

Compare Checking Rates Free Checking Accounts

Frequently Asked Questions

What is an overdraft fee? ▼

An overdraft fee is charged when your bank covers a transaction that exceeds your available balance. Traditional banks charge $25 to $35 per covered item, and multiple fees can stack on a single day if several transactions hit while your account is negative.

How can I avoid overdraft fees? ▼

Opt out of debit card overdraft coverage so transactions decline instead of triggering fees; link a savings account for low-cost automatic transfers; set up low-balance alerts; maintain a cash cushion; and consider switching to an institution that does not charge overdraft fees.

Can I opt out of overdraft coverage? ▼

Yes. For debit card and ATM transactions, federal Regulation E requires your bank to obtain your affirmative consent before charging overdraft fees. Opting out means transactions are declined at no charge when your balance is insufficient. You can change this setting at any time. Opting out does not affect how the bank handles checks and ACH payments.

Which banks have no overdraft fees? ▼

Many online banks and credit unions have eliminated overdraft fees, either declining transactions or allowing small negative balances without a charge. Comparing checking accounts at online institutions is the fastest path to finding a no-overdraft-fee option.

What is the difference between an overdraft fee and an NSF fee? ▼

An overdraft fee means the bank paid the transaction despite insufficient funds. An NSF fee means the bank returned the payment unpaid. Both are typically $25 to $35, but an NSF also means the payee did not receive the money, which can generate additional fees from them on top of your bank's charge.

This article is for general information and is not financial advice. Rates shown are market averages, not offers; terms and fees are set by each institution.