How much does an overdraft cost?

Overdraft fees vary significantly by bank, and some banks have reduced or eliminated them in recent years for certain account types. Because the amount and structure of these fees differ so much between institutions, checking a specific bank’s fee schedule is a dependable way to know what to expect.

Can I avoid overdraft fees entirely?

Many banks allow opting out of overdraft coverage for debit card transactions, meaning a purchase would simply be declined rather than triggering a fee. Setting up low-balance alerts, linking a savings account for automatic transfers, and checking a balance before a scheduled payment or transfer are all practical ways to reduce the risk.

Will an overdraft affect a money transfer I’ve already sent?

If a transfer has already been processed and sent, an overdraft on the account afterward doesn’t typically reverse or affect that transfer. The overdraft relates to the account balance and any fee the bank charges, which is separate from the transfer itself.

Back to Glossary

Overdraft: what happens when you spend more than your balance

Key takeaways
- An overdraft happens when a transaction takes an account balance below zero.
- Banks often charge a fee for covering an overdraft, and repeated overdrafts can add up quickly.
- Overdraft protection⁠(opens in new window) can link a checking account to a savings account or line of credit to help cover a shortfall.
- Timing an international transfer around an account balance helps avoid triggering an overdraft.
- Not all banks handle overdrafts the same way, so checking a specific bank’s policy is worth doing before it happens.

An overdraft happens when spending exceeds an account balance, and it can trigger fees that add up quickly. Here’s how it works and how to avoid it, particularly for anyone managing a regular transfer schedule alongside everyday expenses.

What is an overdraft?

An overdraft occurs when a transaction, such as a debit card purchase, an automatic bill payment, or a scheduled transfer, takes a bank account⁠(opens in new window) balance below zero. Depending on a bank’s policies, the transaction may still go through, with the account showing a negative balance, or it may be declined instead. Many banks charge a fee when they cover a transaction that results in an overdraft.

Overdraft protection: benefits, limitations, and what to watch for

What can work well:

Covering an unexpected shortfall. If a bill or transfer processes before an expected deposit arrives, overdraft coverage can prevent a missed payment.
Linking accounts for automatic coverage. Some banks allow connecting a savings account or line of credit to automatically cover a shortfall, often at a lower cost than a standard overdraft fee.
Avoiding a declined transaction. For a time-sensitive payment, overdraft coverage can be the difference between a payment going through and being rejected.

What to watch for:

Overdraft fees can be disproportionate to the shortfall. A fee charged for a small overdraft can end up costing far more than the amount that triggered it.
Multiple overdrafts in a short period compound quickly. If several transactions post before a low balance is noticed, fees can stack up across each one.
Not all overdraft coverage is free. Even linked-account protection sometimes carries its own transfer fee, though typically lower than a standard overdraft fee.
Opting in isn’t always required, but isn’t always avoidable either. Federal rules require⁠(opens in new window) explicit opt-in consent before a fee can be charged on a one-time debit card purchase or ATM withdrawal, but banks can still charge one for a check or a recurring electronic payment even without that consent, so confirming which applies to a specific account is worth doing.

Overdrafts and international money transfers

For senders funding a transfer directly from a checking account⁠(opens in new window), an overdraft is a real risk worth planning around, particularly if a transfer is scheduled close to other automatic payments like rent or a loan installment.

Because a transfer funded from a bank account can take a little time to process through the ACH network⁠(opens in new window), it’s possible for the debit to post at a moment when the balance is lower than expected, especially if another payment cleared first. Checking an account balance before initiating or scheduling a transfer, and building in a small buffer above what’s being sent, reduces the chance of triggering an overdraft.

If an overdraft does happen in connection with a transfer, the fee is typically charged by the sender’s own bank, since it relates to the account balance at the time of the debit rather than the transfer itself. Reviewing a bank’s specific overdraft policy, including whether it requires opting in to coverage, helps in understanding what to expect if a balance runs low.

Opting out of overdraft coverage entirely

Some banks allow opting out of overdraft coverage for debit card purchases entirely, meaning a transaction that would overdraw an account is simply declined rather than approved with a fee attached. For anyone specifically trying to avoid overdraft fees, this opt-out option, when available, can be a more predictable alternative to standard overdraft protection.

How overdraft fees can compound quickly

A single overdraft fee might seem manageable, but if multiple transactions post before a negative balance is noticed, each one can trigger its own separate fee, compounding quickly into a considerably larger cost than the original shortfall. Monitoring a balance regularly, rather than checking only occasionally, helps in catching a developing overdraft situation before it multiplies.

Grace periods some banks offer before charging a fee

A number of banks now offer a small grace period, sometimes a day or a small dollar cushion, before an overdraft fee is actually charged, giving a short window to deposit funds and avoid the fee entirely. Checking whether a specific bank offers this kind of grace period is worth doing before assuming every overdraft results in an immediate charge.

Why understanding your bank’s specific overdraft order matters

Banks vary in how they process multiple transactions when a balance runs low. Some process the largest transaction first, others process transactions in the order received, and this specific order can affect how many separate overdraft fees get charged in a single day, worth understanding for a specific bank.

Common questions about overdrafts

How much does an overdraft cost?

Overdraft fees vary significantly by bank, and some banks have reduced or eliminated them in recent years for certain account types. Because the amount and structure of these fees differ so much between institutions, checking a specific bank’s fee schedule is a dependable way to know what to expect.
Can I avoid overdraft fees entirely?

Many banks allow opting out of overdraft coverage for debit card transactions, meaning a purchase would simply be declined rather than triggering a fee. Setting up low-balance alerts, linking a savings account for automatic transfers, and checking a balance before a scheduled payment or transfer are all practical ways to reduce the risk.
Will an overdraft affect a money transfer I’ve already sent?

If a transfer has already been processed and sent, an overdraft on the account afterward doesn’t typically reverse or affect that transfer. The overdraft relates to the account balance and any fee the bank charges, which is separate from the transfer itself.

In Summary

An overdraft can happen to anyone managing multiple payments against a single balance, and the fees involved can add up faster than the original shortfall. Understanding a bank’s specific overdraft policy, and keeping a small buffer in an account, especially around the timing of a scheduled transfer, helps in avoiding an unwelcome surprise.

This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.