So You Got Hit With an Overdraft Fee … Now What?

Overdraft protection is like a net; it’s there to catch you when you fall. But once you’ve been hit with an overdraft fee, here’s what you can do to pick yourself up again.

When you’re living paycheck to paycheck, keeping track of your checking account balance can be tricky, especially during those last couple days before payday. If you’re not careful, you could end up overdrawing your account and getting hit with an overdraft fee.

While this might spare you the embarrassment of having your debit card declined, having to deal with that extra charge comes with real financial consequences. In fact, overdrawing your account too often and racking up all those fees isn’t all that dissimilar from relying on high-interest payday loans and cash advances to make ends meet.

Ending up with a negative balance in your checking account is a situation you definitely want to avoid—and we’ll touch on how you can do so later on in the piece. If you’ve already been hit with an overdraft fee, you’ll want to take the proper steps to make sure you get your finances back on track.

How do overdraft fees work?

Overdraft protection is a service offered by most financial institutions on their checking accounts. If you don’t have sufficient funds in your account to cover a transaction, the bank or credit union will cover it on your behalf, but they will charge a fee in order to so do. If that transaction were to result in a bounced check, overdraft protection would help you avoid hefty Non-Sufficient Funds (NSF) fee and a black mark on your banking history.

“Oftentimes, the financial institution will debit the fee from the checking account at the time of occurrence,” said Adam Marlowe, principal experience officer for Georgia’s Own Credit Union (@georgiasown). “In our case, we ask that you pay the fee and bring the balance current (to a zero balance at minimum) within 15 days. We do extend that time to 30 or 45 days depending on individual member circumstances.”

While the average overdraft fee is $30, the amount you’ll be charged will vary from institution to institution. Overdraft fees have been on the rise over the past decade, with Americans racking up over $34 billion in overdraft fees in 2017, the most they had paid since 2009.

There are a couple of different types of overdraft protection available. The first is an overdraft line of credit, which will simply cover the cost of your overdraw and charge the fee to your account. The other common form of overdraft protection will link your account to a related savings account or credit card. Funds will be transferred from that second account to cover your overdraw and a transfer fee will be charged.

Check for errors and ask for help.

The first thing you should do when you get with an overdraft is to check whether or not that fee was correctly charged. If it was made in error, then you should immediately contest it.

“If you’ve been hit with an overdraft fee, the first step is figuring out what went wrong,” said Megan Hanna, a senior business analyst at (@FitSmallBiz). “If the fee was the result of a bank error, then your first order of business is asking the bank to reverse the charge. There’s no reason for you to pay a fee for an error caused by the bank.”

Even if the overdraft fee was charged correctly, you should still contact your financial institution to see if the charge can be waived. According to Marlowe, Georgia’s Own encourages its members to contact them if they have fallen on hard times and need a little help.

“Often times financial institutions will refund the fees as long as it is not a normal occurrence. We all make mistakes,” said Marlowe. If this is the first time you’ve overdrawn your account—or it’s been a long time since you’ve done so—the odds are better that they’ll make an exception.

“Sometimes, banks will be willing to waive the fee if it’s your first overdraft, you keep a lot on deposit with the bank, and you take measures to prevent it from happening again in the future,” said Hanna.

“However,” she added, “if you had it within your power to prevent the overdraft, then in most cases, you’ll need to pay the fee.” While there’s no harm in asking, you need to be prepared to have your request denied.

Here’s how to prevent overdraft fees in the future.

Since many banking institutions prioritize processing large transactions before smaller ones, you could find yourself incurring multiple overdraft fees that add up to way more than the amount you overdrew. Imagine having to pay $150 because you had five different purchases that added up to a total of $15. That’s an APR of 1,000 percent—higher than all but the priciest bad credit loans.

And while overdraft protection can help you avoid an NSF fee, overdrafts are oftentimes also recorded on your Chexsystems report. Too many overdrafts will cause serious damage to your Chexsystems Consumer Score, which is like a credit score for your banking history. If your score drops low enough, you could be unable to open a checking account for up to five years.

As such, steering clear of overdraft fees starts with keeping a close eye on your money.

“The easiest way to avoid a fee is to maintain a checking account register,” said Marlowe. “Each time you authorize an item or debit something from the account, record it in the ledger and maintain a running balance. This allows the member to always have an account of how much money is in their account, thereby avoiding authorizing a transaction that could cause an overdraft.”

You can also set up alerts on your checking account in order to receive texts or emails when your account balance is getting low. This will let you curtail your own spending and also pause or delay recurring bill payments that might tip you over the edge. And if those recurring bills are falling on an inconvenient date, then try changing it!

“The best way prevent overdrafts is to keep track of what you’re spending, and make sure you’re aligning any automatic payments with when you’ll be depositing funds into your account,” said Hanna. “As an example, if you know your phone bill is always due on the 11th of the month but you don’t get paid until the 15th, you can see if your provider will change the due date to the 15th or 16th of the month.”

Hanna also recommended keeping a month cushion in your checking account in order to cover all your bills, even when they don’t perfectly align with your pay schedule.

“Lastly, you should monitor your checking account regularly to quickly identify and stop fraud,” she said. “In so doing, if you see someone has stolen your account number and is withdrawing funds from your bank account, you can quickly tell the bank what happened and get it fixed before it’s gone too far.”

Should you sign up for overdraft protection?

“I would highly recommend signing up for overdraft protection,” said Marlowe. “In most cases, the financial institution will pull money from an associated savings account to cover the difference and assess a small fee (in our case $6/transfer).”

The type of overdraft protection you sign up for is key. The transfer fees for overdraft protection from a linked savings account are going to be much smaller than the overdraft fees from a straight line of credit. While building up savings can be difficult when you’re living on a tight budget, that extra financial cushion will pay off time and time again.

If you find yourself overdrawing your account repeatedly, that’s the situation where overdraft protection is probably a bad idea. Even though it will be difficult, consider turning off the service until you can get your finances in order. Until then, you’ll just keep racking up fees and putting yourself further and further behind.

Overdraft protection is like a net; it’s there to catch you when you fall. Your goal should be to stop falling in the first place. If you want to achieve the financial stability neccesary to put overdraft fees and costly no credit check loans behind you, it’s going to take some work. To learn more about how you can turn your finances around, check out these other posts and articles from OppLoans:

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Megan Hanna is a Senior Business Analyst at (@FitSmallBiz). Megan earned an MBA with an emphasis in finance and has spent much of her career in commercial banking.
Adam Marlowe is the Principal Market Development Officer for Georgia’s Own Credit Union (@georgiasown). With nearly 20 years of experience in the financial services industry, Adam has elevated the member experience at credit unions of all sizes throughout his career. He is charged with making sure all Georgia’s Own teams stay aligned with the credit union’s brand and culture and recently received his second masters in business administration from Georgia Southern University.

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