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If you make a transaction that tips your checking balance into the red, known as an overdraft, your purchase will likely be rejected, and you could incur a charge. Banks offer programs to help you out in the event of an overdraft, but they carry fees of their own — sometimes steep ones.
Here’s a look at different overdraft programs and fees across major banks and credit unions.
At most bigger financial institutions, a checking account usually comes with three overdraft options:
- Opting out. You can decide not to participate in any overdraft program, meaning that any transaction you make that exceeds the funds available in your account will be rejected. You won’t have to pay an overdraft fee, but you might still face a nonsufficient funds (NSF) fee and/or a returned-item fee for bouncing a check.
- Overdraft transfer. Also called “overdraft protection,” this service links your checking account to another account, such as savings or a second checking account. Some banks even let you link to a line of credit or credit card. If your checking balance is too low to handle a transaction, the bank automatically transfers money from the linked account
to your checking. Banks typically charge a fee, such as $10, for such transfers.
- Overdraft coverage. Under the most expensive option, you can have the bank cover a transaction with what amounts to a short-term loan when your balance isn’t high enough to handle it. This typically results in a fixed overdraft fee, at a median cost of $34. and additional charges may be added if your balance isn’t replenished to cover the transaction for days or weeks.
Waived overdraft fees
If you opt into an overdraft program, you might not be charged fees for using it when the amount is small. Many financial institutions are beginning to waive overdraft fees if you overdraw your account by $5 or less.
Depending on the bank or credit union, this threshold of $5 may apply to the total overdrawn balance at the end of the day. For example, if you bought a $3 coffee with $2 in your checking account, no fee would be charged. But if you also bought a $10 sandwich that day, your negative balance would be $9, so an overdraft fee would be applied.
Some banks use other ways to cover demands that exceed your balance and don’t charge any penalties.
Institutions with no overdraft fee
Capital One 360
The online bank Capital One 360 offers an overdraft line of credit to cover your account. Instead of a fixed fee, you just pay interest on the amount used to cover the transaction that caused the overdraft. There’s no fee for signing up and it is an opt-in service.
Discover doesn’t offer an overdraft service. If you overdraw a checking account, you can be charged a $30 insufficient funds fee per day until that charge is paid, and the transaction won’t be processed. A $15 deposited item return fee, such as when you write a check that bounces, can also apply.
Pentagon Federal Credit Union
This credit union also doesn’t offer an overdraft service, so if your balance is too low to cover a transaction or if you bounce a check, you’ll accrue a nonsufficient funds fee of $30.
Overdraft fees by financial institution
Although the median cost of an overdraft nationwide is $34, the exact amount varies by financial institution. Here’s a comparison of overdraft fees across 20 larger banks and credit unions: