Overdraft fees are the fees banks charge when you spend more than you have available in your checking account. But it comes at a great cost. The average overdraft fee is approximately $35 and some banks charge a daily fee until your account balance is positive again.
According to the Consumer Financial Protection Bureau (CFPB), banks earn approximately $17 billion annually from overdraft fees and insufficient funds fees. And these fees most hurt vulnerable populations who are more likely to overdraft frequently.
In theory, avoiding overdraft fees should be as simple as not spending more than you have in your account, but it’s not always that easy. Thanks to the growing use of modern technology to move money, many people now have money coming and going from their account throughout the month – direct deposit paychecks, bills on autopay, payments to and from friends through apps like Venmo and PayPal, etc.
With so much to keep track of, it’s often difficult to know exactly how much you have available, which can make it incredibly easy to overdraft your account. Thankfully, there are a few simple ways to avoid overdraft fees.
1. Opt Out of Overdraft Protection
Banks provide overdraft protection so that even if you don’t have sufficient funds in your account, you can make a purchase without being declined. While there are benefits to this service, if you’re consistently being charged fees, it may not be worth it. The good news is that overdraft protection plans are optional, which means you have the ability to opt-out. If you choose to opt-out, when you attempt to make a purchase and you have insufficient funds, the purchase will be declined.
Before opting out of an overdraft protection plan, you’ll want to check your bank’s policy on declined purchases. Some banks charge a fee, often known as an non-sufficient funds (NSF) fee, when a purchase is declined. If your bank charges for declined purchases, opting out of the overdraft protection plan may not save you any money.
More >> The Best Banks That Don’t Charge Overdraft Fees
2. Link a Credit Card or Savings Account
Depending on your bank and the type of account you have, your options may not be limited to having a purchase declined (and potentially paying a fee) or over-drafting your account (and paying a fee). Some banks allow you to link a savings account or credit card to your checking account. When you spend more than the available balance in your account, the remaining funds will be taken from the savings account or put on the credit card.
Linking a credit card or savings account may save you from paying overdraft or non-sufficient fund fees, but it should also be used cautiously. When you know that you have access to more money it can be easy to spend more than you need. If you think you’re the type of person who may find a linked credit card too tempting, linking a savings account may be a better option.
3. Know Your Balance
One of the reasons it’s so easy to overdraft your account is that you may misunderstand how much you have available. Let’s say you want to make a $75 purchase but aren’t sure you have enough money in your checking account. So, you log into your bank’s mobile app and check your balance. You see that you have $150… more than enough to cover your purchase. You go ahead and make the purchase, but the next time you log in to your account you see you were charged an overdraft fee. What happened?
The problem is that your actual balance and your available balance aren’t always the same thing. Your actual balance is the amount of money sitting in your account. It may not include pending transactions or checks you wrote that are still outstanding. On the other hand, your available balance is how much money you have available to spend and includes holds on your account, such as a debit card transaction that hasn’t been posted yet. This is why even though your balance may show that you have enough money, you may still end up over-drafting your account.
4. Track Your Transactions
Tracking all your transactions may not sound like the simplest option, but with so many different apps that can help, it’s actually fairly easy. The benefit of tracking your transactions is that it can provide you with more information than simply checking your balance. Tracking your transactions includes keeping up with when bills set on autopay come out of your account, how long it takes certain transactions to post, etc.
5. Set Up Low Balance Notifications
Another way to use technology to your benefit is to set up low-balance notifications. This allows you to receive an automated notification any time your account drops below a certain amount. For example, you could choose to receive an email or text message any time the balance of your account drops below $100, though the alert amount you choose is up to you. This is an incredibly simple way to avoid spending more than you have in your account and avoid overdraft fees. The exact steps for setting up low balance notifications will depend on your bank, but can usually be completed in under a couple of minutes through online banking or through your mobile app.
6. Keep A Checking Account Cushion
Not everyone has the ability to leave money in their account, but if you do, it’s a great way to help avoid over-drafting your account. For example, you may choose to leave $100 in your checking account as a cushion. This way, even if you accidentally spend more than you realize, you won’t end up with overdraft fees. If you choose to do this and at any point you dip into the cushion, either accidentally or on purpose, you’ll want to replenish that amount as soon as you’re able. If $100 is too much, smaller amounts, such as $50 or even $25 may also help. The idea is to avoid bringing your account balance down to zero unless absolutely necessary.
7. Find A Bank Without Overdraft Fees
Finally, one of the simplest ways to avoid overdraft fees is to open an account with a bank that doesn’t charge overdraft fees. These banks aren’t always easy to find, but they do exist. Here’s are our top 3 “No Overdraft Fees” banks.
Winners: The Best Banks That Don’t Charge Overdraft Fees
Chime is a fast-growing internet-only financial company.And, best of all, Chime accepts almost all customers who apply. Even if you have bad or poor credit or have been blacklisted by ChexSystems or the credit bureaus.
Features include mobile deposits, direct deposit, online bill payment, NO monthly or annual fees, NO overdrafts fees1, NO credit check, and NO CheckSystems. Opening an account is super easy. It takes about 2 minutes and you don’t have to make an initial deposit. Here’s what we like:
No Monthly Fees
For the past couple of years, Chime’s huge growth has come at the expense of the big banks and their outrageous fees. And it’s one of the best features of a Chime account. There are no monthly or annual service charges, no minimum balance requirement, no foreign transaction fees, no fees at over 60,000 ATMs2, and no fees for mobile and online bill pay.
Smart Technology
Unlike big banks, Chime was created during the smartphone era and, therefore, features an app that is more than just a way for customers to review their bank accounts.
You can transfer funds to friends and family, Chime members or not… and they can claim their money instantly3 without any additional apps. The Chime app also has a series of notifications that you can turn on or turn off so you stay in complete control. Misplaced or lost your card? You can instantaneously turn off your card using the app. No wonder over 300,000 customers have given the app a 5-star review.
Customers First 
Chime was one of the first to offer a “round up” option. If you use your Chime card on a purchase of $10.65, Chime gives you the option of automatically rounding up to $11.00 and putting the remaining $.35 in your free Chime savings account. And that adds up over time! Plus, Chime pays 0.50% Annual Percentage Yield (APY)4 in interest on that savings account.
If you use direct deposit with your Chime account, you can get your paycheck up to 2 days early5. And Chime is just saying no to big bank NSF charges with a fee-free overdraft program up to $200. Finally, Chime just recently launched their Credit Builder credit card with no interest and no annual fee. We don’t think there is another company innovating for their customers like Chime.
Get a Chime Account Today!
Chime is a financial technology company, not a bank. Banking services and debit card issued by The Bancorp Bank or Stride Bank, N.A.; Members FDIC. See additional disclaimers below.
Nearside is a fast-growing company built specifically around business banking solutions for entrepreneurs and small business owners. In addition to dramatically streamlining the application process, Nearside requires no minimum deposit, doesn’t check your credit, and has no monthly maintenance fees. Here’s a recap:- FREE business Mastercard debit card
- FREE access at over 55,000 ATMs nationwide
- FREE online and mobile app
- FREE cashback and rewards program
- NO minimum deposit is required when you apply
- NO monthly fee
- NO NSF fees
- NO card replacement fees
- NO ACH transfer fees
Banking Services
Transferring money is easy with Nearside using ACH, bill pay, or paper check. And you can deposit checks using the Nearside app. Need cash? Get it at over 55,000 ATMs. We also like that there are no NSF fees on the account. If you lose your debit card, Nearside will replace it free of charge. Finally, you can link your Nearside debit card to Apple Pay or Google Pay and monitor all your transactions from the Nearside app.
Rewards Program
Cashback and rewards programs can save you a ton of money when you use your Nearside debit card. You can save 5% cashback on car rentals, 4% on hotels and dining, 3% on business vendor spending, and 1% on gas. Nearside Perks is a discount program offered when you use such services as Quickbooks, Constant Contact, Yelp, Indeed, Square, and many more.
Application Process
Nearside targets account approvals within one business day. Information required to open an account includes name, address, and social security number or tax identification number. If applicable, Nearside may ask for a copy of your business license and business formation documents. They do not check your credit or use ChexSystems.
Nearside is one of the most competitive business bank accounts for entrepreneurs and small business owners. Their combination of services and offerings, the fast application process, and customer support create an outsized competitive advantage for both the bank and its customers. Every small business owner understands how critical that is for success.
Current is another web-only national bank that has some really great features… and has become one of the fastest-growing checking accounts for consumers who want it all without all the costs and hassles.Why are we featuring Current on our website? It’s simple: they don’t use ChexSystems or your credit report to open a new account. Sign-up takes about 2 minutes and Current has extremely high acceptance rates. But what’s really cool are the incredible features offered with this account:
- NO minimum balance
- NO overdraft fees when you overdraw by up to $100 with Overdrive™
- NO fees at over 40,000 ATMS in the U.S.
- Get your paycheck up to 2 days early with direct deposit
- Earn points for unlimited cashback at participating retailers
- Send money instantly for free
- An elegant but simple smartphone app
- 24/7 member support
Current offers a really unique service it calls Gas Hold Removals. What’s a gas hold? Some gas stations may apply a hold from $50 to $100 when you use a debit card to pump gas. If you only pumped $10 of gas, but the gas station places a $100 hold on your funds, you won’t have access to the $90 difference for up to 3 business days! The Current debit card will immediately refund the hold so you have access to all your funds. We haven’t found that benefit anywhere in the marketplace.
Here’s what’s really important, though. Deposits are FDIC-insured up to the highest possible amount allowed: $250,000. We love the features, we love the smartphone app, and we love Current. That makes us think you’ll love them too.
Conclusion
Overdraft fees can be a drain to your financial health, but managing these fees doesn’t have to be complicated. And you can do it with any budget or account balance. Basic precautions such as checking your account balance and setting up account alerts can help you avoid the majority of instances where overdraft fees kick in. Perhaps the best way to avoid overdraft fees is to open an account with a bank that does not charge such fees.
Knowing how you spend your money is a trait that will save you thousands over your lifetime.
Chime is a financial technology company, not a bank. Banking services and debit card issued by The Bancorp Bank or Stride Bank, N.A.; Members FDIC. Credit Builder card issued by Stride Bank, N.A.
1Eligibility requirements apply. Overdraft only applies to debit card purchases and cash withdrawals. Limits start at $20 and may be increased up to $200 by Chime. See chime.com/spotme.
2Out-of-network ATM withdrawal fees may apply except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM. Cash deposit or other third party fees may apply.
3Sometimes instant transfers can be delayed. The recipient must use a valid debit card to claim funds. See your issuing bank’s Deposit Account Agreement for full Pay Friends Transfers details
4The Annual Percentage Yield (“APY”) for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of November 1, 2021. No minimum balance required. Must have $0.01 in savings to earn interest.
5Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.