Overdraft

Banking & Credit

An overdraft occurs when you spend more than your checking account balance. The bank can either (1) decline the transaction, (2) cover it and charge a $30-$35 overdraft fee per item, or (3) pull from a linked savings account or line of credit (typically with a small fee). Federal law requires you to opt into debit card overdraft coverage; opt out and your card is simply declined when overdrawn. Avoid overdraft fees by maintaining a buffer balance, opting out of overdraft 'protection' for debit cards, and linking a savings account as overdraft protection. Many neobanks (Chime, Ally) offer fee-free overdraft up to small limits.