Steer clear of overdrafts to your checking account

January 03, 2022

Checking accounts are great for potential rewards and quick access, but they still require practicing smart spending habits.

Access to your money 24/7 can make everyday life easier, but it can also make it easier to lose track of exactly how much money is in your account — especially if you don’t regularly check your balance.

Simple things, such as using your debit card for online shopping or forgetting to budget for a check you sent that hasn’t been cashed, can cause account balances to dip. And if your account drops below zero, you could be charged an overdraft fee. Luckily, overdrafts and related fees can usually be avoided.


How do overdrafts work?

One of the more common fees associated with checking accounts, overdraft fees are penalties for withdrawing more funds than you have in your account. When your purchase or withdrawal puts your checking account balance in the negative, the bank covers the amount over your account balance, then typically charges a fee.

The fee amount will vary by bank, but it can also vary based on the amount overdrawn or the number of days with a negative balance. Leaving your account with a negative balance can result in more fees or even account closure.


Overdraft coverage or protection?

Banks might offer overdraft coverage or overdraft protection services to help provide a buffer against overdrawing your account, but some options may carry feeds. Consider carefully whether you want one in place.

Overdraft coverage: Most consumer checking and money market accounts come with Standard Overdraft Coverage. Under Standard Overdraft Coverage your bank will authorize and pay overdrafts for these types of transactions at the bank’s discretion:

  • Checks and other transactions using your checking account number
  • Automatic bill payments
  • Recurring debit card transactions, for example setting up your debit card to automatically pay a monthly gym membership

If the bank pays these transactions into overdraft, it may charge an Overdraft Paid Fee.

ATM and debit card overdraft coverage: Upon opening a consumer checking OR money market account, you may receive a notice advising you of your choice to say ‘Yes’ or ‘No’ to ATM and debit card overdraft coverage.

  • If you say ‘Yes’, you allow your bank to authorize and pay ATM and everyday debit card transactions (purchases made with your debit card on a day-to-day basis) that may cause the available balance in your account to become negative. If this happens you may be charged an overdraft paid fee.
  • If you say ‘No’, you do not allow your bank to authorize and pay ATM and everyday debit card transactions into a negative available balance. If the bank does not authorize and pay an overdraft your transaction will be declined and you will not be charged a fee. In limited circumstances, your ATM or everyday debit card transaction may be processed, resulting in your available balance becoming negative.

Overdraft protection: This option includes an automatic transfer from another account (like a savings or credit line) to your checking account if your balance goes below zero. There may be limits or fees associated with overdraft protection, so check with your bank for available options that work best for you. 


Track transactions and spending regularly 

Regardless of your checking account features, the best way to help avoid overdraft fees is to keep track of all of your transactions—withdrawals and deposits—and budget accordingly.

One smart practice is to make use of any online or mobile tools your bank offers to help track earning and spending, and check your balance once a day or once a week. Many tools allow you to set up automated email or mobile alerts that notify you if your account reaches a certain balance or goes negative.

Not spending more than you have in your checking account is a core principle of sound money management. By changing a few habits, you can take overdrafts out of the equation.


Learn more about how U.S. Bank can help protect your money with overdraft protection. If you're a U.S. Bank customer, check out Digital Explorer to learn how to add alerts to help track your balance or deposits.

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