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How does an overdraft work?  Great question! An overdraft is like getting an automatic loan from the bank when your balance goes below zero. An overdraft allows you to make a payment or purchase even if you are out of money.

Overdraft Fees

Banks charge interest and fees on the money you borrow (the money used beyond what you have in your account). A standard fee is $35. Some banks charge you an overdraft fee every time you make an overdrawn transaction. Despite the expensive nature of the fees, bank overdrafts are often still a good alternative compared to payday loans.

Overdraft Protection

In order to be receive overdraft “protection” from your bank you need to opt into the banks “overdraft protection” program. In fact, there is a good chance that you are already enrolled in the program without remembering, or even understanding what it does. According to a 2016 CFPB report more than 50% of overdraft coverage enrolled consumers, do not remember signing up for the service. You can opt out of the program, if you opt out, you will not be able to make purchases if your account balance is zero, however, you save yourself from $35 overdraft fees.

Overdraft Limits

Every bank has a different overdraft policy. For example, the overdraft limit at Wells Fargo is a maximum of 4 times per day. Chartway Federal Credit Union, has an unlimited overdraft policy. Overdraft terms often depend on your bank account history. It is more likely for you to get better terms if you usually pay off the insufficient funds quickly.

Here’s a list of overdraft limits for the major US banks: How much can I overdraft my checking account?


Depending how you look at it, overdraft protection can be a good, or bad thing. They can be good because in a pinch they keeps your debit card from getting rejected. On the other hand a $5 purchase ends up costing you $40. Statistics show that avoiding overdraft fees can help you save more than $400 every year.

Now, If you end up getting hit with fees despite your efforts, there’s a way to get them waived: How to Get Overdraft Fees Waived.

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