Overdraft fees are among the heftiest fees banks charge, so it makes sense that most people want to avoid them as much as possible. Fortunately, there are a number of banks that either don’t charge overdraft fees or waive them under certain circumstances.
If you want to avoid overdraft fees entirely, you can find a number of banks that don’t
charge them. Here are 12 banking options to consider when you’re trying to stay away from insufficient funds fees.
#1. Chime Bank
Chime is an online-only bank that offers free overdraft protection on debit card purchases through its SpotMe program. With SpotMe, customers can get up to $200 in no-fee overdraft protection as long as they sign up for at least $500 in direct deposits each month.
The SpotMe program works on a sliding scale that depends on how long you’ve banked with Chime and whether you’ve maintained a positive banking history. Initially, you can overdraft your account up to $20 without paying any fees, and this protection goes up to $200 as you build a positive history with Chime.
Axos offers banking with no overdraft fees with its Essential and Rewards checking accounts. You can avoid overdraft fees by opting out of overdraft protection, in which case Axos will simply decline transactions, or you can sign up for one of Axos’s overdraft protection options.
If you choose overdraft protection, you can either link your savings account to your checking account and get automatic free transfers anytime your checking account balance dips below zero, or you can sign up for an Axos line of credit, which has an 18% annual percentage rate (APR).
#3. BBVA (Formerly Simple)
Part of BBVA since March 2021, Simple was an online-only bank that didn’t charge any overdraft fees. Instead, it simply declined any debits a customer’s account couldn’t cover.
All Simple accounts transitioned to BBVA in March 2021, and while BBVA charges $32 per nonsufficient funds item, it also offers two types of overdraft protection.
To avoid overdraft fees, BBVA customers can either link a second BBVA account to their main checking, or they can enroll in a BBVA line of credit. However, there is a once-daily $12 fee any time a customer needs to tap either of these options.
Discover both does and does not charge overdraft fees, depending on whether you’ve linked a Discover savings or money market account to your checking. If you haven’t linked a separate account, Discover imposes a once-daily $30 fee when you overdraft your account.
Fortunately, you can link your savings or money market account to your checking, and Discover will pull from those accounts without charging any fees. This means any nonsufficient funds items are free as long as you’ve got enough money in your back-up accounts to cover them.
#5. Capital One
Capital One offers three types of overdraft protection. You can opt out of protection and Capital One will decline the transaction, you can enroll in a free savings transfer if you have a savings account, or you can sign up for the Next Day Grace program.
With Next Day Grace, Capital One will notify you any time your account is overdrawn, and then you have one full business day to deposit money before you’re charged a $35 nonsufficient funds fee.
#6. Charles Schwab
If you have a Schwab One brokerage account or Schwab Bank savings account, you can link it to your Schwab Bank High Yield Checking account and the bank will automatically pull from your back-up source to cover any nonsufficient funds transactions free of charge.
Ally lets accounts holders avoid overdraft fees with its Overdraft Transfer Service, which automatically transfers money from a second account in $100 increments. Ally doesn’t charge a fee to do this, but you must have at least $100 in your back-up account, otherwise Ally will charge you $25 once a day for every day your account is overdrawn.
TIAA offers a couple different overdraft protection options. You can link a second account and get free overdraft transfers, or you can sign up for a personal line of credit, which has a 9.15% APR.
While the personal line of credit has no annual fee, there is a $25 late payment fee. It’s also important to avoid carrying a balance, as you must pay interest on each amount advanced from the transaction date.
Fidelity lets you avoid overdraft charges with an opt-out option that means Fidelity will simply decline any charges that exceed your balance. You can also link your checking account to a Fidelity savings or brokerage account and Fidelity will automatically transfer back-up funds for free.
With its Spend & Save account, Aspiration doesn’t charge for any “accidental overdrafts.” Really, what this means is that Aspiration will simply decline any charges that exceed your account balance.
However, Aspiration notes that it charges $4.50 per returned item if your account is somehow overdrawn. According to its list of terms and conditions, it will not assess this fee in the event of a “rare overdraft occurrence.”
Varo stopped offering its No Fee Overdraft program in April 2021. It now offers a product called Varo Advance, which lets you get up to $100 with fees that start at $0 and go up to $5 depending on how much you borrow.
To qualify for Varo Advance, your Varo bank account must be at least 30 days old and you must have a minimum of $1,000 in direct deposits to your savings, bank account, or both within the past 31 days.
The fees for a Varo Advance are as follows:
Acorns has no overdraft fees because it declines purchases that exceed your available account balance. Acorns has a bit of a different business model compared to banks in that it charges a monthly subscription fee for its accounts.
The Lite account is limited to investments and is $1 a month, whereas the Personal account gives you access to investments, retirement, and checking for $3 a month. There is also a Family account for $5 a month that includes everything in the Personal account plus investment options for kids.
What Is an Overdraft Fee?
When you have a checking account, you can only spend what’s in the account. This is different from a credit card, which allows you to spend now and pay back the money you owe later.
If you spend more than you have in your checking account, your bank can either front the money on your behalf or reject the transaction altogether. Either way, the bank can decide to charge you a fee for nonsufficient funds, which usually ranges between $10 and $38 per overdraft depending on the bank.
As you can imagine, these fees can quickly add up, causing financial difficulties. If you can’t pay them back or you rack up too many fees, you can also end up with a negative banking history that makes it difficult to open a new checking account in the future.
Some banks offer overdraft protection, which works like a short-term loan that you pay back. In other cases, a bank will waive an overdraft fee if you’re otherwise a good customer.
How Does a Bank Overdraft Work?
How banks handle an insufficient account balance is up to them, and you’ll find various policies from bank to bank. This is why it’s important to thoroughly research banks before you open an account, so you’re not blindsided by fees.
Depending on the bank, there are a number of ways banks deal with nonsufficient funds transactions. Some possibilities include:
- Let the overdraft go through – Some banks will simply allow an overdraft to process, which leaves the account holder with a negative balance. In this case, the bank might keep charging an overdraft fee for every transaction until the account holder deposits enough money to cover the fees and restore their account to a positive balance.
- Reject the transaction – Some banks won’t allow a transaction to go through if the account lacks the funds to cover it. In this case, the account holder typically isn’t charged a fee.
- Offer overdraft protection – Banks that offer overdraft protection typically have the account holder set up a separate account with a minimum balance that can cover the cost of any nonsufficient funds transactions. For example, if the account holder attempts to debit their checking account and the balance is too low to cover the transaction, the money might get pulled from the customer’s savings account instead.
Overdraft Protection Types
There are several types of overdraft protection options, and they vary from bank to bank. Here’s a look at some of the most common kinds of overdraft protection accounts banks offer.
- A separate account linked to your checking account – Some banks give customers the option to link a second account to their main checking account as a back up in the event of a withdrawal that’s larger than the main account’s balance. This second account is usually a savings account, but it can also be a checking account.
- Line of credit – You can find banks that offer overdraft protection in the form of a line of credit, which is essentially a short-term loan from the bank. There is usually a fee involved, and you’ll have to pay interest on any balance.
- Link a credit card to your account – Some banks will let you link a credit card to your checking account, so any nonsufficient funds draw from your credit card. This can come with a cash advance fee, however, which can be pricey.
- Opt-in overdraft protection – Prior to 2010, banks could automatically enroll customers in overdraft protection programs, which meant the bank would permit nonsufficient funds transactions to keep going through, charging a fee each time. According to the Consumer Financial Protection Bureau (CFPB), federal law now requires banks to give customers the right to opt in or opt out of this protection.
Tips for Avoiding Overdrafts in Your Account
There are several ways to avoid overdraft fees when you bank. In addition to practicing good money management, here are six tips to keep in mind.
- Opt out of overdraft protection – Many banks offer overdraft protection that covers nonsufficient funds items for a fee. You can avoid these fees by saying no to the coverage, which means your bank will simply decline purchases if you don’t have enough money in your account to cover them.
- Check your balance often – One of the best ways to avoid overdrafting your account is to keep a regular eye on your balance. Banks generally charge the same overdraft fee whether your transaction is $2 or $200, so it’s important to make sure you have enough money to avoid accumulating costly fees.
- Set up low balance alerts – Many banks let you set up notifications that will text or email you an alert any time your account balance falls below a certain amount.
- Deposit money as soon as you know your account is overdrawn – Don’t let an overdrawn account stay that way, as many banks charge a fee for every nonsufficient funds item that hits your account. Bring your account current as soon as you can to keep the fees to a minimum.
- Link to a back-up account – A common form of overdraft protection lets you link a savings or other account to your checking account. If your checking account falls below zero, your bank will automatically draw from your savings.
- Use a prepaid debit card – If you struggle with overdrafting your account, consider using a prepaid debit card. Unlike your bank account, these cards are preloaded with money, and you can’t make any purchases once the amount on the card runs out.
Overdraft fees can add up quickly, so it’s important to avoid them whenever you can. Fortunately, there are plenty of banks that offer no overdraft fees or overdraft protection options that help you keep more of your hard-earned money in your pocket.