Understanding Overdraft Protection and Fees - Money Under 30
Overdraft fees can feel like a kick when you’re already down, but avoiding them is pretty easy. Not all banks offer all of these options, so consider going through your credit card.
Having overdraft protection on your Consumer Financial Protection Bureau (CFPB).

While the prospect of paying a punitive fee for overdrawing your account is scary, there are plenty of ways to avoid it, including using your credit card.

In this guide, you’ll learn more about how overdraft protection works, why it’s essential to avoid them, and what options you have to do so.

How overdraft protection works

Having a check bounce or your debit card declined isn’t just embarrassing. It can also have other adverse consequences. For example, a lender could assess a late fee, and an insurance company could threaten to cancel your policy.

Overdraft protection makes it possible to overdraw your checking account, so you avoid these situations. You have to opt-in for this service, either when you first sign up for the checking account or later on.

And while many people may think they’ll never actually need overdraft protection, the numbers tell another story. The CFPB estimates that consumers pay $17 billion annually in overdraft and non-sufficient fund fees.

Why you should avoid overdraft fees

In 2014, the CFPB found that the majority of debit card overdraft fees are incurred on transactions of $24 or less. Also, consumers repaid most overdrafts within three days.

To give you an idea of how insane that is, if you were to take out a $24 loan and repay it in three days, a $34 overdraft fee would represent an APR of 17,000 percent.

If you’re constantly overdrawing your account because of financial issues, paying the fee over and over again can make it hard to get back on your feet.

Fortunately, some banks have softened their overdraft policies, opting not to charge an overdraft fee on smaller purchases. Wells Fargo, for instance, won’t charge an overdraft fee if you overdraw your account by less than $5.

But if you find that you’re consistently overdrawing your account or you don’t want to have to deal with a potential overdraft fee, there are other solutions.

4 ways to eliminate overdraft fees

There are four main ways banks make is possible to avoid overdraft fees. Not all banks offer these alternatives, though, so you may need to switch to a different bank to get the flexibility you want.

1. Apply for an overdraft line of credit

Instead of charging a fee every time you overdraw your checking account, some banks offer a revolving credit line instead. You’ll typically pay an interest rate on your negative balance, but if you pay it off within a few days, you’ll pay just pennies.

The only drawback to this option is that you need decent credit to get approved. Also, the bank will run a hard credit check to determine whether you qualify, which could affect your credit score.

2. Opt-in for an automatic savings transfer

Some banks allow you to use your savings account to cover a shortfall caused by an overdraft. You have to set it up through the bank, but many banks don’t charge a fee to do it. If you don’t bring your account in the black by the end of the day, the bank will initiate the transfer.

Just keep in mind that federal laws require banks limit you to six withdrawals from any savings account each month. So, if an overdraft savings transfer pushes you beyond that limit, you may be on the hook for that fee.

3. Get a bank with no overdraft fees

Big banks aren’t likely to give up overdraft fees anytime soon, but some online-only banks are starting to eschew the charge.

Chime Bank, for example, doesn’t charge any overdraft or any other fees you’ll typically find with a traditional bank.

4. Connect your credit card

Some major banks that offer both deposit accounts and credit cards allow you to connect your credit card to your checking account for overdraft protection.

If you already have these types of accounts with one bank, you don’t have to apply for an overdraft line of credit or worry about issues with savings withdrawal limits. Here are a few banks that offer this feature:

  • Bank of America
  • U.S. Bank
  • Wells Fargo

Just remember, your checking account and credit card need to be from the same bank. Also, your credit card interest rate may be high, so pay off the balance before the due date to avoid interest.

Credit cards that can provide overdraft protection

If you’re thinking about using a credit card to provide overdraft protection without a fee or interest (as long as you pay it off before the due date, that is), here are a couple to consider.

With the Bank of America® Premium Rewards® credit card, you’ll earn two points for every dollar you spend on travel and dining purchases, plus 1.5 points per dollar on everything else. You can boost those points by as much as 75 percent if you’re a Bank of America Preferred Rewards client.

When you first get the card, you’ll also receive 50,000 bonus points after you spend $3,000 in the first 90 days. Other perks include:

  • A $100 annual airline incidental fee credit
  • Up to a $100 credit towards your application fee for Global Entry or TSA Precheck.
  • Trip delay insurance
  • Trip cancellation and interruption insurance
  • Baggage delay insurance
  • Lost luggage reimbursement
  • Emergency medical evacuation and transportation insurance
  • No foreign transaction fee

See card details/apply or read our full Bank of America® Premium Rewards® credit card review

Wells Fargo Cash Wise Visa® card

Disclaimer – The information about the Wells Fargo Cash Wise Visa card has been collected independently by fzcjhy.com. The card details have not been reviewed or approved by the card issuer.

The Wells Fargo Cash Wise Visa® card offers 1.5% cash back on all purchases, plus during the first year, you can enjoy 1.8% cash rewards on qualified digital wallet purchases, like Apple Pay® or Google PayTM.

You’ll also earn a $150 cash rewards bonus after you spend $500 in purchases in the first three months. Here are some other highlights:

  • 0% for 15 months intro APR on purchases and qualified balance transfers
  • Up to $600 in protection for your cell phone against damage and theft when you pay your phone bill with the card (with a $25 deductible).
  • $0 annual fee

Apply now or read our full review of the Wells Fargo Cash Wise Visa® credit card.


Overdraft fees can feel like a kick when you’re already down, but avoiding them is pretty easy. Because not all banks offer all of these options, though, you may be limited to what your bank provides.

If that’s the case, consider switching your bank to the institution you have a credit card with or changing banks to one that offers one of the other solutions we provided. Getting rid of overdraft fees for good will not only be good for your wallet, but it can also provide you with more peace of mind.

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Ben Luthi is a personal finance and travel writer who covers credit cards, debt, credit, investing, and more. He's currently studying to become a CFP® and trying to keep up with his two young kids. You can connect with Ben on Twitter or his website.
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rein says:

So if i say I have a $100 deduction for an OVERDRAFT PROTECTION, does this mean I have a spare of $100 that the bank keep just in case i dont have enough on the checking account.?

David Weliver says:

Good point, Honey. I have this option set up on my account, although oddly enough there is still a $5.00 fee if I were to use it (certainly better than $35). That linked savings account ends up being just for OD protection because it has such a low interest rate.

The other options that some banks offer are overdraft lines of credit. They require a credit check and instead of charging a flat fee, they simply charge interest on the amount your are overdrawn. If you repay ovedrafts quickly, that easily the least-expensive option.

Honey says:

Whatever happened to linking a savings account to your checking account and using that as overdraft protection?


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