What are Overdraft Fees?

Overdraft Fee Definition

Overdraft fees are fees charged by your bank when you have too low a balance to cover a payment you’ve made.

To avoid the transaction being cancelled, the bank provides what is called an ‘overdraft protection service’ in which they cover the balance difference for you, but also charge a fee for doing so.

Overdraft fees are generally around $30, although this will vary based on your individual bank.

For someone who is frequently over-drafting on their account, that can add up to hundreds of extra dollars per year.

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How to Avoid Overdraft Fees

How can I avoid overdraft fees?

As a part of Federal Law, the government requires financial institutions to obtain your permission before adding overdraft protection to your account.

This allows the bank to apply a fee if you accidentally remove too much cash from your account.

While the goal is to not overdraft your account at all, this protection service is useful and can save you some potential embarrassment by preventing your debit or credit card from getting declined!

  • Sign up for online banking – online banking allows a person to track their spending and account balances much easier and on the go, making it much less likely for you to overdraw your account
  • Set up balance alerts – most banks offer an option to send you an alert if your balance is running low. This can be a helpful reminder if you know you have upcoming payments to be made
  • Keep a cushion in your account – by keeping some extra money in your account to protect against unexpected expenses, you can help eliminate overdraft fees and save yourself more money in the long run

How Much is an Overdraft Fee?

An overdraft fee is typically around $35 dollars, but it varies by banking institution.

According to the Consumer Financial Protection Bureau, overdraft fees cost Americans almost 17 billion dollars annually.

With a few easy steps you can make sure that you are easily preventing this unnecessary pocketbook expense.