We all like to keep our bank balances high enough to cover the transactions we made. Unfortunately, there may come a time or two when that's not the case. Maybe you weren't keeping up with your balance and accidentally overspent or perhaps you thought a deposit would clear sooner than it did. Many banks will do you a favor and pay these overdraft transactions for you, but this courtesy isn't free. Each time the bank pays a transaction that exceeds the amount of your checking account balance, you'll be charged an overdraft fee for the courtesy.
Bank overdrafts are expensive, costing up to $40 for each overdraft transaction. And to make it worse, some banks charge an additional fee each day your account balance remains negative. If you don’t take care of the overdraft right away, you risk getting deeper and deeper in debt with the bank. Fortunately, some banks limit the number of overdraft fees you'll be charged in a single day and the number of days you'll be charged a fee for having a negative balance.
You can't just leave your account with a negative balance. Your bank will likely close your account if the balance remains negative for several weeks. When that happens, you’ll lose your checking account privileges and you’ll still owe the bank. Worse, the bank may report your delinquent account to a consumer reporting agency, a move that will make it tougher for you to get a checking account with another bank.
Some banks may be willing to waive one or two overdraft fees if it’s the first time you've overdrafted. Unfortunately, this courtesy may not be available for bank customers who habitually overdraft. If the bank waives your overdraft fee you’ll still have to reimburse the bank for the transaction that caused your account to overdraft. But, with the overdraft fees waived, it will be a little easier to bring your account balance positive again.
Deposit cash into your account as soon as possible to avoid daily negative balance fees and to prevent additional overdraft fees. You’ll need to deposit at least enough to cover the negative balance and any transactions you have pending. Deposit more than that, if you can afford to, so you can continue using your account without the risk of overdrafting again.
Without access to any extra cash to deposit into your account, then you’ll have to wait until your next payday. Keep in mind that any amount deposited into your account will cover the negative balance first. You'll be able to spend what's leftover. If you can't clear up the overdraft right away, avoid using your checking account until you’ve taken care of the overdraft balance.
Call and talk to your bank’s customer service if you can’t afford to take care of the overdraft right away. Knowing your options is better than assuming you’re powerless to fix the situation.
Here are a few strategies to help you avoid overdraft fees in the future:
- Monitor your checking account balance regularly and reduce or eliminate your spending once your balance gets low.
- Opt-out of overdraft transactions. When you do this, the bank will decline debit card transactions that would cause you to overdraft.
- Sign up for overdraft protection. Overdraft protection connects your checking account to a backup source of funding – a savings account or credit card – that can be used if your account balance is too low to cover a transaction. Of course, your savings account balance or credit card available credit needs to be large enough to cover the transaction. Otherwise, you’ll still overdraft.