Overdraft fees can be a significant and unnecessary expense, particularly if you have to pay them often. That doesn’t have to be the case though. There are easy actions you can take to avoid them and ways you can negotiate to get them waived if you are charged.

Here’s what you need to know about overdraft fees, what are they exactly and how can you avoid them? Read on to get answer to these are other questions.

• What is an Overdraft Fee?
• How can you Avoid Overdraft Fees?
• How to Get Overdraft Fees Refunded
• How Many Overdraft Fees can you get?
• What Happens if I Remove Overdraft Protection?
• Advantages and Disadvantages of Overdraft Protection
• Do Overdraft fees Affect Your Credit Score?
• How Long can I have a Negative Balance?
• How to Get Your Money Back From a Negative Balance

What is an Overdraft Fee?

The name says it all. An overdraft fee is what a bank charges you any time you withdraw more money from your account than what you have in it.

Read Also: How to Switch Banks Smoothly Without Missing a Single Payment

Even if you do your best to keep tabs on your money, sometimes accidents happen. You lose track and make a payment, or forget that you have a bill set up on auto-draft, and you withdraw more than the amount you have in your account.

If you are covered by your bank’s automatic overdraft service, the bank will cover the charge and it will still get paid. Your account balance will dip below zero and you will have a negative balance representing the amount you now owe to the bank.

Part of that negative balance is the amount of the payment the bank paid on your behalf. Essentially the bank loaned you the money, and it will expect to get the money back.The rest is an overdraft fee the bank charged for covering the payment.

Suppose you have $50 in your account, but use your debit card, make an online payment or write a check on that account for $75. You are $25 short, but the bank would loan you the $25 and the payment would clear. Now assume your bank charges you a $30 overdraft fee. The $25 overdraft plus the $30 fee would give you a negative balance of $55.

Overdraft fees have risen over the last 20 years. They vary from bank to bank, with an average overdraft fee of $33.36, according to Bankrate’s 2019 checking account and ATM fee study. That can add up to a significant amount if you keep piling them on.

Here’s a sample of the overdraft fees charged by some popular financial institutions:

Bank Fee:	Overdraft/NSF	Overdraft Protection	Extended Overdraft
Wells Fargo Bank	$35.00	$12.50	$0.00
Chase Bank	$34.00	$10.00	$15.00 every 5 days
Bank of America	$35.00	$12.00	$35.00 every 5 days
US Bank	$36.00	$12.50	$25.00 weekly
PNC Bank	$36.00	$10.00	$7.00 daily
BB&T	$36.00	$12.50	$8.00 daily
Regions Bank	$36.00	$15.00	$0.00
SunTrust Bank	$36.00	$12.50	$36.00 every 5 days
The Huntington National Bank	$37.50	$0.00	$25.00 every 5 days
TD Bank	$35.00	$10.00	$20.00 every 10 days
Fifth Third Bank	$37.00	$12.00	$0.00
KeyBank	$34.00	$10.00	$28.50 every 5 days
Citizens Bank	$35.00	$12.00	$30.00 every 3 days
M&T Bank	$38.50	$12.50	$38.50 every 5 days
Capital One	$9.00	$0.00	$0.00
Citibank	$34.00	$10.00	$0.00

How can you Avoid Overdraft Fees?

Now that you know that an overdraft i and how much it might be costing you, is there a way to avoid it? Check out the five tips mentioned below on how to avoid them.

1. Opt out of automatic overdrafts

While overdrafts are meant to help you avoid embarrassing and inconvenient unpaid payments, you don’t have to accept the service. When you open a new account, part of the paperwork you fill out addresses whether or not you want to take advantage of this service.

You can simply opt-out of automatic overdrafts to avoid the fees altogether. If you opt-out of overdraft coverage, your bank won’t cover you if you overdraw your account and will return any payments that you can’t make as unpaid.

2. Use an account that doesn’t charge you

Some accounts don’t charge overdraft fees. Varo has No Fee Overdraft, which will cover any overdrafts you make up to $50 without charging you an overdraft fee. SpotMe, a service from Chime, gives you the ability to overdraft your account by up to $100 without an overdraft fee.

3. Sign up for bank alerts

A simple way to help yourself avoid unexpected overdrafts and save fees is to set up an alert to notify you when your account balance falls below a certain amount.

For example, you could have your bank send automatic notifications any time your account balance drops to $250, $500 or whatever amount keeps you comfortably away from an unexpected overdraft based on your spending habits. When you get the alert, you can decide to stop spending or deposit more money into the account.

4. Overdraft protection

It may sound similar, but overdraft protection is different from automatic overdrafts. With automatic overdrafts, your bank covers any overdraw on your behalf by automatically loaning you the money and making the payment. With overdraft protection, the bank will transfer money from one of your other accounts to cover an overdrawn amount.

For example, if you overdraw your checking account but have overdraft protection set up with a savings account, the bank would automatically move money from your savings account to your checking account. The bank may charge you for this service, however.

5. Keep a cushion balance

Try keeping a little extra in your account to cover those forgotten or unexpected charges. “One mistake consumers often make in this area is forgetting about recurring transactions like subscriptions or automatic monthly payments,” says debt expert Jackie Beck.

“One way to avoid overdraft fees is to make sure you keep a cushion in your checking account above and beyond what you normally spend each month.”

The envelope system helps you keep track of your expenses for anything.

And it’s simple: At the beginning of each month, you allocate cash for things like going out, groceries, gas, and whatever else into envelopes. Once you’ve spent the money in those envelopes, you’re done spending for the month.

Of course, if there’s an emergency you can definitely dip into other envelopes — but that only means you have less money to spend in those areas.

You can set up your envelope system in three steps:

1. Decide how much you want to spend in each major category each month.
2. Put money into each envelope (e.g., $200 for groceries, $150 for eating out, $60 for entertainment).
3. Spend the money — but when the envelopes are empty, that’s it for the month.

You don’t even need to use physical envelopes. One of my friends used to track her spending with a separate bank account and debit card, while opting out of overdraft protection.

When the month started, she’d transfer around $200 into the account — and when she went out, she would only spend that money. Once the money was gone, she’d stop spending.

Whatever system you decide to use, you just need to make sure to decide how much you’re willing to spend in each category

How to Get Overdraft Fees Refunded

It’s a common scenario: you didn’t check your debit account balance recently and make a small purchase, only to find out that you’re getting hit with a $30 overdraft fee for the $4 you just spent. 

Even those who diligently track their money every month can be blindsided by a late check or a forgotten automatic payment that takes their checking account close to or under a $0 balance.

Without an instant ping to inform you the moment this happens, it can be easy to forget the pending money and make that one transaction that will accidentally put your account in the red.  

How do you fix this annoying scenario? We have a few tips to help you, from getting bank fee refunds to avoiding overdraft situations in the first place.

Talking with Your Bank About Overdraft Fee Refunds

Once you see the numbers on the paper, it may seem impossible to get overdraft fee refunds from your bank. Depending on the bank, the associate you speak with (and what they may have had for breakfast that morning), you may be outright told that bank fee refunds are unavailable.

Don’t be defeated just yet if that’s the case: a polite but firm approach can get you more than you might think.

YOu are a Long-Time Customer

If you don’t have a history of making late payments or overdrafting your account, you’re more likely to get a positive response when requesting that the bank offer you overdraft fee refunds.

While the standard practice may be to discourage customers from getting refunds, certain banks may already have forgiveness policies for first-time offenses. 

Don’t be afraid to leverage your time with the bank or your history of diligent payments to encourage some leeway that may land you a refund.

It costs banks a lot more to get a new customer after losing you than it does to handle an overdraft fee to keep you, so don’t be afraid to politely use this fact to your advantage.

If you’re told no outright, you can try something along the lines of, “I’ve been a reliable client since [when you started banking] and I wouldn’t want to lose that experience over one overdraft fee. What can you do to help me get a refund?”

Remaining firm but mindful of your tone can help encourage the bank you’re working with to reconsider their approach.

Speaking Persuasively

There are a few things you can do while on the phone to tip a favorable response your way. Keep these talking points in mind when addressing a service representative from your bank:

• Be Straightforward, not rude: The person you’ll be talking to is just one part of a larger machine. They don’t write the bank policies and sometimes don’t have the power to make a refund on their own authority. If they can’t help you with the refund process, ask to speak with a supervisor instead.
• Be Succinct: The situation surrounding your overdraft and why it happened isn’t relevant to getting your refund. Focus on your value as a customer and the process of getting a NSF fee refund.
• Ask Focused Questions: Asking “What can you do for me?” leaves a lot of room for an unproductive response. Stick to direct questions, such as “Can you refund this overdraft fee?” While these tactics might not always work, they can certainly get you further than not making a call at all.

How Many Overdraft Fees can you get?

While most banks charge similar amounts for each fee, they sometimes apply slightly different rules to the way each fee works and when it is charged.

The multiple fees involved in an overdraft represent some of the highest checking account fees that banks charge. Besides the standard overdraft fee, you may encounter the non-sufficient funds (NSF) fee, the overdraft protection fee, and the extended overdraft fee.

Overdraft Fee

The most obvious fee involved in an overdraft is the simply-named overdraft fee, which occurs each time the bank approves a transaction that exceeds your available balance. Typically, banks do not charge the overdraft fee when you overdraw by less than $5.

Every bank and credit union has its own limit on the number of overdraft fees it will charge in one day. You can commonly expect banks to charge a maximum of 4 to 6 overdraft fees per day per account, though a few outliers do allow as many as 12 in one day.

NSF Fee

The nonsufficient funds (NSF) fee occurs each time the bank chooses to reject a transaction that overdraws your balance. Practically every bank charges the same amount for overdraft and NSF fees, and the two are often printed as one figure in your schedule of fees.

Since a bank must choose between approving and declining an overdraft, a single overdraft will cost you either an overdraft fee or an NSF fee, but never both.

However, a few banks do distinguish between the two fees when they count up the daily maximum. U.S. Bank, for example, will only charge up to 4 overdraft fees per day, but counts the limit on NSF fees separately, so that you can end up paying eight separate penalties in a day.

Overdraft Protection Fee

Also called the overdraft transfer fee, the overdraft protection fee is charged for every time the bank arranges a transfer from another one of your accounts —usually a savings account —to cover the overdraft. Legally, banks cannot include overdraft protection as automatic account service, so customers must opt into activating the feature.

Online banks often provide overdraft protection for free, but if you are at a standard bank, you can expect to pay anywhere from $10 to $12.50 per transfer.

While this can save you money in comparison to paying overdraft or NSF fees, if the bank’s policy does not include mandatory notifications for each overdraft transfer, you can end up draining your savings before you realize what’s happening.

Extended Overdraft Fee

The final fee in the arsenal of overdraft penalties is the extended overdraft fee. This fee is sometimes called a sustained overdraft or extended overdrawn balance fee, and it comes into play when you leave your account balance in the negative for a certain number of days.

In most cases you have 5 business days or 7 calendar days to fix your balance before the extended overdraft fee takes your account even deeper into the red.

Some banks charge this fee once every 5 days, while others go so far as to assess the fee every day until you bring your balance back above zero. The maximum number of extended overdraft fees you can incur varies by bank.

What Happens if I Remove Overdraft Protection?

Without overdraft protection, your bank can still charge a non-sufficient funds (NSF) fee that can be comparable to an overdraft fee if there isn’t enough money in your account to cover the debit.

In addition, the party receiving the bad check can demand reimbursement for the returned check fee and report you to ChexSystems, which is like a credit report for your banking history. 

As of September 2019, the typical overdraft fee was $35 per item, according to a NerdWallet.com study. These fees can add up quickly if you make several transactions before you realize your account is in the red.

If you are making a small purchase—or if you have another source of funds—don’t write a check or use your debit card if you’re even a little unsure whether your funds will cover the purchase.

Terms and conditions for overdraft fees vary significantly from one bank to another. If your bank’s overdraft fees are high, you may find it less expensive to pay using a credit card.

This is different from linking your overdraft protection directly to a credit card, which can be pricey because the credit card treats the linked transaction as a cash advance with a high-interest rate and no grace period.

Checks and other debit transactions clear when you sign up for overdraft protection, even if your account lacks sufficient funds. In exchange for this service, your bank may charge hefty overdraft fees. Is this protection worth having? Here is a look at the advantages and disadvantages.

Advantages and Disadvantages of Overdraft Protection

When you sign up for overdraft protection, your bank will use a linked backup source that you designate—a savings account, credit card, or line of credit—to pay for transactions whenever the checking account lacks the needed funds.

Advantage: Your transaction will happen

Even if you don’t have enough money in your checking account, the check will clear, the ATM will give you cash, or the debit card transaction will go through. No more bounced checks, with the inconvenience and embarrassment that can come with them.

Disadvantage: You will pay fees and interest

One downside is that the bank will charge an overdraft transfer fee even if your own money is covering the shortfall. In the case of an overdraft line of credit, you’ll pay interest on the amount you borrow until you pay it back.

Consumers who opt in to overdraft protection pay more in overdraft fees than those who choose not to, according to the Consumer Financial Protection Bureau (CFPB).

Disadvantage: Transactions may not clear if your backup source is low or empty

Another disadvantage: Your transactions still won’t clear if you don’t have enough money in the linked account to cover the shortfall.

It might not be a big deal to have a transaction declined, but in an emergency it’s nice to have a source of backup funds. However, if your backup funding source is tapped out as well, you still won’t be able to complete the transaction.

What’s more, if you know you can’t rely on overdraft protection in an emergency, you have to carry extra cash or a credit card, just in case. Paying cash for emergencies is your least expensive option. Using a credit card could be more or less expensive than overdraft protection, depending on the agreement and conditions.

Do Overdraft fees Affect Your Credit Score?

There is one instance in which an overdraft can hurt your credit: if it’s sent to collections. If you pay the fees and negative balance after an overdraft, you’ll be fine. But if you don’t pay back what you owe, the financial institution can send that debt to collections. Once a collection agency creates an account for you, it can go on your credit report.

Anytime an account goes to collections, no matter how big or small, it’s indicated on your credit report as a delinquency and will stay there for seven years. So make sure to pay back the overdrawn balance and fees as soon as possible to avoid this scenario.

Avoiding collections and knowing what other factors affect credit can keep your finances in good shape:

• Payment history: This makes up the biggest part of your credit score, so any late or missed payments will negatively affect your credit.
• Credit utilization: Creditors prefer that you not use more than 30% of your available credit at any given time, so try to keep your balances reasonably low.
• Credit mix: Diversity in your account types, such as credit cards and loans, shows your history with various kinds of debts and can help your credit score.
• Hard inquiries: These appear on your credit report when you’ve applied for credit and a lender has checked your report. These inquiries can temporarily ding your credit score, especially if you have many of them in a short time.
• Negative information: Items like charge-offs, foreclosures, bankruptcies and debts in collections can bring down your credit score.

How Long can I have a Negative Balance?

A negative balance is, like the example shown in the image above, a situation with your credit card account where you do not owe any money. In fact, you are owed money by your card issuer.

Attaining a negative balance doesn’t usually mean that you did anything wrong or made a mistake with your account, although it could sometimes be the result of a mistake, such as an incorrect refund amount or fees being canceled in error. 

There are several valid reasons why you might have a negative balance on your card: 

• You got a refund on a previous purchase, but you had already paid off the balance on a previous month’s credit card statement. This situation might be happening recently to various people who, months earlier, had booked plane tickets and accommodations for long-planned trips, had already paid off their credit card bills and then had to suddenly cancel their travel plans due to the coronavirus pandemic.
• You had credit card fees canceled (such as interest charges, annual fees or late fees) after you had already paid down that amount of your balance.  
• You had a fraudulent charge removed or a mistaken transaction corrected after previously paying the disputed amount. Sometimes this happens when people pay off their credit card balances in full without looking too closely at the statements. Try to pay close attention to what is on your credit card statement each month, so you can correct errors or dispute fraudulent charges and get those transactions removed before spending your cash.  
• You have received a statement credit. Some credit cards offer rewards, cashback credits or new signup bonuses for new customers. You might encounter situations where you have already paid off what you thought was the full balance due, only to realize that you get some extra credit on your card. 

Seeing a big minus sign on your credit card statement might feel surprising, but is it a good thing or a bad thing? Should you actively try to have a negative credit card balance more often? Is having a negative balance the same thing as having extra money in the bank? 

First of all, having a negative balance on your card generally does no harm. It doesn’t help your credit score, but it also doesn’t hurt: Having a negative balance on a credit card still gets reported as a zero balance to the credit reporting agencies.

For the purposes of building your credit or trying to improve your credit score, having a negative balance is no better for your finances than having a zero balance. 

However, even if it doesn’t hurt your finances or damage your credit score, having a negative balance is still not an ideal situation. If you have a significant amount of money tied up on your credit card in the form of a negative balance, that money isn’t easily accessible if you need it.

It’s in a strange netherworld of the financial system where it’s not helping your credit score or helping you build wealth or earn interest. 

Instead of letting that negative number linger on your credit card statement, you should put that money in a high-yield online savings account or a certificate of deposit or otherwise put that money to work for your longer-term financial goals.   

How to Get Your Money Back From a Negative Balance

If you have a negative balance on your credit card, there are a few options for how you can resolve this situation: 

Leave the Balance Alone and Decide Later

Having a negative balance on your credit card is not a bad thing, and you don’t have to make any immediate choices. If you want, you can just leave your negative balance alone: You can go through a month or a few months with the negative balance on your card and treat it like “layaway” or forced savings to use for a future purchase. 

If you struggle to save money, or if you like the idea of having some “extra money” on your credit card, just leaving your balance untouched might be a good option. In times of uncertainty like the current coronavirus pandemic, some people may want to have a few different places where they can stash some extra money.

If you feel safer or more comfortable with a negative balance on your card, feel free to use that as a savings tool. 

Note: If you leave a negative balance on your card for more than six months, your card issuer is required by law to make a good faith effort to refund the money to you. Often this means that you will be mailed a check.

Use Your Credit Card for Additional Purchases

This option might be easiest, especially if the negative balance is small. For example, if you have a negative balance of $200, you could just spend that money on groceries and everyday purchases, and by the time you’ve accrued some additional purchases onto your card, your balance will be back to zero. 

There’s nothing wrong with this approach—after all, it’s your money. However, one risk of “spending away” a negative balance is that you might overspend, run up additional credit card debt or run the risk of missing a credit card payment and accruing late fees, interest charges and damage to your credit score. 

If you use your credit card for a lot of everyday spending and you’re used to paying off your balance each month, then go ahead and spend the negative balance.

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But if you don’t use that card as often, if you’re not as organized at making your payments on time or if you might not get around to spending the money anytime soon, you might want to ask for a refund.    

Get Your Money Back as a Credit Balance Refund

If you don’t want to leave the negative balance on your credit card, you can ask your card issuer for a credit balance refund. This will give you better control over your money—instead of being “forced” to spend the money on your card, you can put it into a cash savings account or invest it for the future. 

If you want a refund of your negative balance, call your credit card company and talk to customer service. Explain the situation and ask for your options for getting a refund.

Most credit card issuers will be able to give you a refund via check, money order or direct deposit to your bank account. Exact details will depend on the terms of your cardholder agreement.

But in general, unless your credit card issuer has some particularly strict rules about negative balances, you should be able to get a full refund and get access to your cash within a few business days. 

Finally

Keep in mind that you have a right to your negative balance. It’s your money, it’s owed to you, and you are entitled by law to get it refunded.

Even if you don’t happen to check your credit card statements or even if you ignore your credit card account for several months, the card issuer is required by law to make a good faith effort to refund any negative balance that remains in your account for more than six months. 

Don’t feel bad about having a negative balance and don’t feel like you’re inconveniencing your credit card issuer by asking for a refund. Call your issuer’s customer service team and ask how you can get the money back.

Or if you want, you can treat the negative balance like a prepayment to your credit card issuer for upcoming purchases.