What Is an Overdraft Fee?
5 Min Read | Published: April 25, 2025
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Learn how overdraft fees work, why banks charge them, and how to minimize them with smart strategies like setting alerts or switching to a fee-free bank.
At-A-Glance
- Overdraft fees can occur when a bank covers a transaction that exceeds your account balance.
- Non-sufficient funds (NSF) fees are similar to overdraft fees but may be charged if the bank declines the transaction instead of approving it.
- You may be able to save on overdraft fees by setting up low balance alerts, linking a savings account, or switching to a bank with no overdraft fees.
Say you’re out to dinner with friends the day before payday. You think there’s probably about $20 in your bank account, but you don’t stop to check before swiping your debit card for your $30 meal.
Fortunately, the bank may cover that transaction, so you won’t know any difference that night. But as you look the next day to see if your paycheck hits, you might notice a charge that’s more than the $10 you spent.
It turns out that the $10 difference could end up costing you quite a bit more if your bank charges overdraft fees. To save on overdraft fees, it’s important to understand what they are, when they’re charged, and how they work.
What Is an Overdraft Fee?
An overdraft happens when a bank transaction causes your account balance to fall into negative territory. While some banks let the transaction go through instead of declining it, they may charge an overdraft fee to cover the inconvenience. The amount of an overdraft fee varies by bank, but they may range from $15 to $37. It’s also possible to incur multiple overdraft fees on the same day.1
It’s worth noting that not all banks charge overdraft fees, or if they do, the cost could be relatively low. Banks that do charge overdraft fees do so because it covers the cost of processing the account overdraft.
The good news is overdrafts may not affect your credit score. But problems can arise if you fail to get your account balance back into positive territory promptly.
Overdraft Fees vs. NSF Fees
While overdraft fees happen when a bank approves a transaction that causes your account balance to become negative, a non-sufficient funds (NSF) fee may be charged when a bank denies a transaction that would create a negative account balance.
NSF fees are less common than overdraft fees, and they cost consumers less on average.2 According to Bankrate’s 2024 checking account and ATM fee study, the average overdraft fee was $27.08 in 2024, while the average NSF fee was $17.72.3
What Is Overdraft Coverage?
Overdraft coverage, also known as overdraft protection, is a service that you can opt-in for when you open a checking account. By opting in, you give permission to your bank to cover transactions when you don’t have enough money. In exchange for doing so, they’ll charge an overdraft fee or perform an automatic transfer from a linked account to bring in enough money to cover what’s due.
If you don’t opt in, the bank can decline those charges instead. While it might seem like a no-brainer, before you agree to overdraft protection, read the terms and conditions and see if you might be better served by putting your own preventive measures in place instead.
How to Avoid Overdraft Fees
If your bank charges overdraft fees, there are a few steps you can take to protect against them:
- Set Low Balance Notifications
Thanks to online banking and apps, you can set up real-time notifications for any number of financial transactions, including when your balance falls below a certain threshold. Setting up a reminder when your checking account falls below $200 or $100 can give you enough time to cease future transactions or transfer money from another source to cover what needs to leave your account in the coming days. - Link a Savings Account for Easy Transfers
Transferring money from savings to your checking account can help you avoid an overdraft fee. And having an account already linked makes this transaction easy. For convenience, you may also want to open a savings account with the same bank that has your checking account. - Keep Extra Cash in the Account
One of the simplest ways to steer clear of overdrafts is by keeping a cash cushion in your account. This can help absorb the impact of unforeseen expenses and protect your balance from going into the negative. Keep in mind it might take you several months to build up this cash cushion, but the effort can be well worth the peace of mind. - Regularly Monitor Your Finances
People used to keep a balanced checkbook so they’d know exactly how much money was going into and flowing out of their checking accounts. These days, it’s up to you to balance your digital checkbook by keeping a close eye on your finances. Understand how many debits (transactions you’re paying to others) and credits (money coming to you) are happening in your account. You might choose to do this manually using pen and paper or do a financial review each month to monitor your transactions. Once you know what money is going in and coming out, it gets a lot easier to manage transactions to save on overdraft fees. - Switch to a Bank With No Overdraft Fees
Similar to how you might shop around to find the best credit card for travel or to secure the best rate on a personal loan, it can be a savvy financial move to research banks with checking account features that meet your needs. For instance, you may want to opt for a bank account that doesn’t charge overdraft fees, like an American Express® Rewards Checking account, that doesn't charge overdraft or NSF fees.
Frequently Asked Questions
If you overdraft and have no money to transfer to your checking account, it’s important that you contact your bank right away. Your bank may be able to work with you to help you find a solution. Check with your bank to see what they offer.
How long your bank will let you be overdrawn depends on several factors, including your bank’s terms and how much money you’ve overdrawn. You may have a grace period to transfer money to your account before your bank issues an overdraft fee, but contact your bank to verify how they handle your account being overdrawn and when they assess fees.
Depending on your bank, you may get charged an overdraft fee every day until you bring your balance positive. Check with your bank to understand specific terms and your account’s fee structure.
The Takeaway
While many banks are opting to do away with overdraft fees, you’ll want to check with your bank to see what their policies are. If they do charge overdraft fees, there are actions you can take to protect your account from overdrafts, including keeping a cash buffer, setting notifications, or even finding a new bank that doesn’t charge overdraft fees.
1 “What Are Overdraft Fees?,” Experian
2 “What Are Nonsufficient Funds Fees?,” Experian
3 “Survey: ATM fees reach 26-year high while overdraft fees inch back up,” Bankrate
Brooke Joly is a writer on a mission to unravel the mysteries of personal finance and make them accessible to the everyday reader. When she’s not behind the keyboard, you can find her enjoying the outdoors in Charleston, SC.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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