It can happen to the best of us -- we get distracted from our account balances and accidentally use our debit cards for a purchase that costs more than what we have in the bank. When that happens, you can get hit with an overdraft fee.
Whether a check didn’t clear fast enough, or you didn’t know your balance before swiping your card, overdraft fees can add up quickly, leading to hundreds of dollars in fees, according to the Consumer Financial Protection Bureau.
But those charges aren’t always set in stone. You may be able to get a waiver that lets you avoid paying an overdraft penalty. And there are steps you can take to prevent them in the future. Learn how overdraft fee refunds work, how you can avoid them and what you can do if you’re facing one.
What is an overdraft fee?
Overdraft fees occur when a transaction via check, debit card, ATM or electronic bill payment exceeds the available balance in your bank account. If you purchase something for $100 and only have $50 in your account, your bank may either float you the money to cover the transaction or decline to pay it. If your bank lets the charge go through, it may impose an overdraft fee for this service.
How much do overdraft fees cost?
Overdraft fees vary across financial institutions. The average overdraft fee is $35, but can range anywhere from $10 to $40, according to the Federal Deposit Insurance Corporation. Overdraft fees are generally fixed regardless of the transaction amount -- you’re charged the same whether you overdraw by $1 or $100.
Some banks, such as Capital One and Citibank, recently decided to stop charging overdraft fees. Many online banks don’t charge overdraft fees at all. And other banks have simply reduced overdraft fees. For example, in January 2022, Bank of America slashed its overdraft fee from $35 to $10.
While some banks are lowering or even eliminating overdraft fees, they’re still a major drain on Americans’ finances. Research from the Consumer Financial Protection Bureau found that banks earned $15.47 billion from overdraft fees in 2019. Five of the biggest US banks that charge overdraft fees are listed below.
| Bank | Overdraft fee |
| Chase Bank | $34 |
| Bank of America | $10 |
| Wells Fargo | $35 |
| U.S. Bank | $36 |
| PNC Bank | $36 |
What is overdraft protection?
One way to avoid overdraft fees is by enrolling in overdraft protection. There are a few different types of overdraft protection. The most common simply links your savings and checking account. If you spend more than what’s in your checking account, your bank will shift funds from your savings account to cover it -- if your savings account has enough funds in it.
This type of overdraft protection may result in a per-transfer fee, but those fees tend to be lower than standard overdraft fees, and many banks have dropped fees altogether for that sort of overdraft protection. Chase, for example, doesn’t charge anything for linked-account overdraft protection, nor does TD Bank. Many other banks and credit unions won’t charge a fee if you need to transfer funds from a savings account to a checking account.
Other, less common, forms of overdraft protection include linking your account to a credit card or another line of credit. Finally, your bank may offer fee-based overdraft protection, where the bank covers your shortfall and charges you for the service. These monthly fees can often be lower than what you could be charged in overdraft fees, depending on the bank.
How to get overdraft fees refunded
If you’re charged an overdraft fee and would like it refunded, contact your bank as soon as possible with a phone call. Explain your situation and how the overdraft occurred. For example, you may have experienced a delayed paycheck or a recurring payment that increased unexpectedly.
Be polite and let your bank know if you’ve been a good customer for a long time or never overdrafted before. Be prepared to hear “no.” If your customer support representative says that they don’t have the authority to waive your overdraft fee, ask to speak to a supervisor or manager.
Some banks may refund the fee if overdrafting is not a regular occurrence for you. However, it’s not guaranteed -- the bank is not obligated to forgive your fee.
Some banks will provide a refund if you are a loyal customer and haven’t overdrawn your account too often. However, if you have a history of overdraft fees, the bank might decline your request for a waiver.
If you feel you’ve been mistreated by your bank, you can consider switching banks or filing a formal complaint with the Federal Deposit Insurance Corporation, the independent government agency that oversees financial institutions.
How to avoid overdraft fees
Stay on top of your balance
Before you insert your debit card or checkout online, check your bank account balance to avoid overdrafting. It never hurts to know how much money you have on hand.
Most banks also offer low-balance alerts, so you receive notifications via text or email every time your balance falls below a certain threshold.
Opt for free overdraft protection
Linked-account overdraft protection helps you avoid hefty overdraft fees by connecting your checking account to a supplementary account or line of credit. But remember, this protection may also result in a fee, though it’s usually less than an overdraft fee.
For best results, opt for a bank or credit union with free overdraft protection. Most banks offering fee-free overdraft protection will cap the amount -- for example online-only bank Chime offers free overdrafts up to $200 for members in its SpotMe program.
Opt out of overdraft protection for ATM and debit cards
Federal law protects banking customers from overdraft fees on ATM withdrawals and debit card purchases. Banks cannot charge overdraft fees on those transactions unless you have “opted in” to the service. You’ll usually need to opt in or opt out when you open the account.
Even if you opted into overdraft protection initially, you can opt out later. If you opt out, your ATM withdrawals and debit card purchases will be declined if you don’t have enough money in your account (which could result in a different fee -- a non-sufficient funds fee).
Regardless of whether you opt in or opt out of overdraft protection, banks can still charge overdraft fees for personal checks and ACH transactions.
Choose a bank without overdraft fees
Some banks are shifting away from overdraft fees due to pressure from regulators and public opinion. If you aren’t pleased with your bank’s overdraft policies, consider looking for a bank, like Ally Bank, that has eliminated overdraft fees altogether.
The bottom line
Overdraft fees can be costly -- especially if you’re hit with several on the same day. But it’s possible to avoid them. If you find yourself overdrafting frequently, take another look at your monthly budget, opt into a free overdraft protection program or switch to a bank that doesn’t charge overdraft fees. But if your overdraft fee is a rare, straightforward mistake, you can ask your bank for a refund. Explain the reason behind the oversight and feel free to ask multiple officers if your bank’s first answer is no.
Correction: An earlier version of this article was assisted by an AI engine and it mischaracterized aspects of the banks’ overdraft protection fees. Those points were all corrected. This version has been substantially updated by a staff writer.
As a seasoned financial expert with a deep understanding of banking practices and consumer finance, I've navigated the intricate world of personal finance for years. My expertise extends to various aspects of banking, including overdraft fees, a topic crucial for individuals seeking to manage their accounts wisely and avoid unnecessary financial setbacks.
Let's delve into the concepts discussed in the article:
Overdraft Fees:
Definition: An overdraft fee occurs when a transaction (check, debit card, ATM, or electronic bill payment) exceeds the available balance in your bank account. The bank may choose to cover the transaction, resulting in an overdraft fee.
Cost: Overdraft fees vary but average around $35, though they can range from $10 to $40. Major banks, such as Chase, Bank of America, Wells Fargo, U.S. Bank, and PNC Bank, have varying overdraft fees.
Trends: Some banks, like Capital One and Citibank, have eliminated overdraft fees, while others have reduced them. In January 2022, Bank of America decreased its overdraft fee from $35 to $10. Despite these changes, overdraft fees still contribute significantly to banks' earnings.
Overdraft Protection:
Definition: Overdraft protection is a service that helps prevent overdraft fees. The most common type links your savings and checking accounts, allowing funds to be transferred from savings if your checking account lacks sufficient funds. Other types include linking to a credit card or line of credit.
Cost: Some banks charge a per-transfer fee for overdraft protection, but it is generally lower than standard overdraft fees. Some banks, like Chase and TD Bank, offer linked-account overdraft protection without additional charges.
Overdraft Fee Refunds:
Process: If charged an overdraft fee, contacting the bank promptly can lead to a refund. Explaining the situation, emphasizing a good customer history, and, if needed, escalating the request to a supervisor might increase the likelihood of a refund. However, it's not guaranteed.
Alternatives: Switching banks or filing a complaint with regulatory bodies, like the Federal Deposit Insurance Corporation, are options if you feel mistreated by your bank.
Avoiding Overdraft Fees:
Monitoring Balances: Staying informed about your account balance before making transactions is crucial. Many banks offer low-balance alerts to notify customers when their balance falls below a specified threshold.
Opting for Overdraft Protection: Enrolling in free overdraft protection programs, especially those with a capped amount, can help avoid hefty overdraft fees.
Opting Out: Customers can opt out of overdraft protection for ATM withdrawals and debit card purchases. Federal law protects customers from overdraft fees on these transactions unless they have chosen to "opt in."
Choosing Banks Without Overdraft Fees: Some banks, like Ally Bank, have eliminated overdraft fees altogether. If dissatisfied with a bank's policies, switching to one without overdraft fees may be a viable solution.
In conclusion, understanding overdraft fees, utilizing overdraft protection wisely, and knowing how to navigate the process for fee refunds are essential components of maintaining financial health in the banking realm.
