How to avoid overdraft fees and other checking account fees
What an overdraft is, how opt-in coverage works for debit cards and ATMs, which checking account fees are common and practical ways to avoid them.
Quick answer
An overdraft happens when you spend more than you have in your account. Under Regulation E, your bank needs your consent (opt-in) before charging overdraft fees on ATM withdrawals and one-time debit card purchases. Linking a savings account and turning on low-balance alerts helps you avoid them.
Key takeaways
- Banks need your opt-in to charge overdraft fees on debit and ATM.
- Link savings as a backup.
- Turn on low-balance alerts.
- Watch your available balance, not just your current balance.
Your checking account is your everyday account: it receives your paycheck and pays rent, bills and debit card purchases. Set up well, it is free or nearly free; set up poorly, it can cost you a lot in fees.
What is an overdraft?
An overdraft happens when a payment is larger than the money in your account. The bank can:
- Decline the transaction (and in some cases charge a non-sufficient funds, or NSF, fee), or
- Pay it and charge an overdraft fee, leaving your balance negative.
A small purchase can end up costing far more than its price if it triggers an overdraft fee.
Overdraft coverage is optional for debit cards and ATMs
Under Regulation E, the bank needs your consent (opt-in) before charging overdraft fees on:
- ATM withdrawals
- One-time debit card purchases
If you did not opt in, those transactions are usually declined when funds are short, with no overdraft fee. You can revoke consent at any time.
This rule does not cover checks or recurring automatic payments (ACH); those can trigger fees under your bank’s policies.
Cheaper alternatives
- Link a savings account: the bank moves money from savings to cover the shortfall, sometimes for a smaller fee or none.
- Low-balance alerts by text or app.
- Buffer programs: some banks do not charge for small overdrafts or if you cover them the same day. Ask about your bank’s policies.
Other common checking account fees
| Fee | How to avoid it |
|---|---|
| Monthly maintenance | Meet the requirements (direct deposit, minimum balance) or choose a no-fee account |
| Out-of-network ATM | Use your bank’s ATMs or a surcharge-free network |
| Paper statements | Switch to electronic statements |
| International transfers | Compare the total cost, including the exchange rate, with other services |
| Returned checks | Keep a cushion and check your balance before writing checks |
Banks must give you a fee schedule when you open an account. Ask for it and keep it.
Deposit holds
When you deposit a check, the bank may hold part of the funds for a few days before they are available. If you spend counting on that money, you could overdraw. Check your available balance, not just your current balance.
If you have trouble opening an account
Some people are turned down because of past banking history. “Second chance” accounts and low-cost basic accounts exist for people starting out or rebuilding their relationship with a bank. Many banks accept identification such as a passport or, in some cases, an Individual Taxpayer Identification Number (ITIN); check each institution’s requirements.
A 10-minute setup
- Check whether you opted in to overdraft coverage and decide if you want it.
- Link your savings account as a backup.
- Turn on low-balance alerts.
- Confirm how to waive the monthly fee.
To decide when to use debit or credit, read debit card vs. credit card.
Frequently asked questions
What is an overdraft?
Spending more than you have in your account. The bank may decline the payment or pay it and charge a fee, leaving your balance negative.
How do I avoid overdraft fees?
Do not opt in to debit and ATM overdraft coverage if you do not want it, link savings as a backup, turn on alerts and track your available balance.
Can I opt out of overdraft protection?
Yes. Under Regulation E, coverage for ATM and one-time debit purchases requires your consent, and you can revoke it at any time.
Can I open an account if a bank turned me down?
Yes. "Second chance" and low-cost basic accounts exist for people rebuilding their banking history.
Sources
- Regulation E, §1005.17 Requirements for overdraft services eCFR
- Bank accounts (consumer tools) Consumer Financial Protection Bureau
This article is general and educational; it is not personalized financial, legal or tax advice. Financial product terms change: always confirm current terms with the institution.