If you’re here, you probably spent some time pondering why it makes sense to pay money for not having enough money. Well, in the world of consumer banking this is just how things work. Luckily, there are quite a few banks with no overdraft fees that asked themselves the same question and created a new kind of checking accounts which helps consumers avoid overdrafts completely. Not all of them are entirely fee-free, but they are definitely better than the penalty prone alternatives.
Before we dive into the fees structure of these checking accounts let’s make sure we have a basic understanding of all the types of fees banks may charge when you overdraft:
- Overdraft fee – the $20 – $35 fee you pay for taking your balance below zero. Usually they can charge it more than once a day, depending on the number of transactions you made while having a negative balance.
- NSF fee – “Non-sufficient funds”. This fee is charged when your overdraft protection is off. In this case, when you try to make a purchase which takes your balance into the negative, it will get rejected and you’ll pay the NSF fee.
- Account transfer fee – in most overdraft protection programs, you have the option to link a Savings account or a Money Market account to your checking account. This way, whenever your main checking account goes into overdraft, money is automatically taken out of the linked account to cover you up. Guess what? They charge you an account transfer fee whenever this happens.
Banks that allow overdrafts
Ranked from best to worst:
- Capital One 360
- Schwab Bank
Capital One 360
With Capital One 360, you get a line of credit for overdraft protection instead of paying a fee each time your balance runs low. They don’t have an overdraft fee, but rather make you pay an interest on money “borrowed” from your Capital One account in order to cover your purchase.
If you prefer standard overdraft protection, you can still choose to pay the $35 fee per overdraft – and even then, they give you one day to cover the purchase before charging the fee.
This service is completely free and worth checking out: https://www.capitalone.com/bank/checking-accounts/online-checking-account/
Discover is another well-known bank. It also allows you to link a money market and a savings account to your checking account. If you have insufficient funds in your checking account, it will automatically trigger a transfer from your linked account free of charge.
If you do go overdraft, you will be charged $30, but here is the difference: Discover only charges $30 a day for overdraft fees, rather than $30 per item. That can result in hundreds of dollars in savings.
Schwab is an investment brokerage, but you can have a checking account with them. If you have a Schwab One brokerage account, or open a Schwab savings account, you can link it to your checking account with Schwab. It will make automatic transfers free of charge to cover insufficient funds. It also has the standard overdraft protection which will cost you $25 per item, with a limit of $100 a day.
This bank offers a line of credit to cover your overdrafts. It has a variable interest rate, and you only pay interest on the amount used to cover your negative balance. You don’t pay any fees to sign up, but if you are late with your interest payment you’ll have a $25 late payment fee. You can also link a savings account to your checking account for free. In addition, they have the regular overdraft protection option available for $30 per over-withdrawal.
Simple is simply that – there is no overdraft program that you might accidentally get enrolled in. This means that if you have insufficient funds, your debit card will be declined. Period. There are no account fees and it gives you a “Safe-to-Spend” amount which automatically subtracts scheduled payments or scheduled savings deposits. Apparently, this account does not provide written checks.
Chime will not allow you to overdraft your bank account and as a result it does not have any overdraft or NSF fees. It simply rejects all payments and withdrawals that would create a negative balance. On the one hand, this can save you a lot of money, however on the other hand, if you get stuck with no cash for gas you might find yourself in a problem.
While all of the banks provide a much-needed service, it is easy to see that you are going to have to pay, at some point, if you consistently spend more money going out than you have coming in.
Overdraft fees waived
If you don’t want to change bank or go through the process of opening a new checking account, another way to tackle the problem is to get your overdraft fees waived. It doesn’t work all the time, but you could be surprised of the results.