Overdraft Fees and Protection: What You Need to Know

Have you ever wondered what happens when you try to spend more money than you have in your bank account? This is called an overdraft, and it can cost you money in fees. Let's talk about what overdrafts are, how to avoid them, and what to do if you're having trouble with them.

What Is an Overdraft Fee?

An overdraft happens when you spend more money than you have in your bank account. Let's say you have $50 in your checking account. You go to the store and try to buy something that costs $75. What happens next depends on your bank.

If your bank allows it, they might let the purchase go through anyway. But now your account has −$25 (negative $25). The bank charges you a fee, called an overdraft fee, for letting you spend money you didn't have. This fee is usually between $25 and $35 per overdraft.

A Real-Life Example

Meet Sarah. She checks her bank account on Friday morning and sees $200. She uses her debit card to buy $50 in groceries. Then she pays $15 for lunch and $60 for gas. Her math was wrong, she actually spent $125 total, but she thought she only spent $100.

When she gets paid on Monday, $100 is automatically taken out for her car payment (from a previous authorization). Now her account should have $100 left. But wait, the bank is now showing her balance as very negative. Why? Because they charged her a $35 overdraft fee for when she went over. Now instead of having $100, she has $65. And if she gets another overdraft, she'll be charged another fee.

Banks vs. Credit Unions: What's the difference and how do average overdraft fees compare?

Not all financial institutions charge overdraft fees the same way and as of 2026, there is no cap on overdraft fees, so it pays to compare institutions.

Banks

Banks are for-profit businesses. They make money by charging fees and earning interest. The average overdraft fee at a bank is about $31. Banks often charge a fee every time you overdraft, which can add up quickly if you're not careful.

Credit Unions

Credit unions are not-for-profit organizations. This means they exist to help their members, not to make a lot of money. The average overdraft fee at a credit union is about $27. Credit unions often:

• Send you alerts when your balance is low

• Give you a grace period to add money before charging a fee

• Offer financial education to help you manage your money better

• Sometimes waive your first overdraft fee each year

How to Protect Yourself from Overdraft Fees

The best way to avoid overdraft fees is to not overdraft in the first place. Here are some ways to protect yourself:

• Keep track of your balance – Check your account regularly so you always know how much money you have

• Use overdraft protection – Link a savings account to your checking account so money automatically transfers if you overdraft

• Say no to overdraft coverage – You can ask your bank not to allow overdrafts

• Set up balance alerts – Most banks let you get an alert when your balance drops below a certain amount

• Be mindful of automatic payments – Remember that bills, subscriptions, and transfers will come out of your account

What to Do If You're Having Trouble

If you've been charged overdraft fees and you think it's unfair, you have options:

1. Talk to Your Financial Institution First: Call your bank or credit union and explain the situation. Many will waive one or two overdraft fees if you ask, especially if it's your first time. Don't be shy about asking, the worst they can say is no!

2. File a Complaint with the CFPB: The Consumer Financial Protection Bureau (CFPB) is a government agency that helps people with financial problems. If your bank or credit union charged you unfairly, you can file a complaint online at consumerfinance.gov or call 855-411-2372. The CFPB will investigate and require the bank to respond within 60 days.

3. Switch to a Credit Union: If your current financial institution charges high overdraft fees, consider switching to a credit union. Many credit unions have lower fees and consumer-friendly policies. Some even offer free checking with no overdraft fees at all. Not sure what credit union(s) you are eligible to join? Click here to find one in three easy steps!

Key Takeaways

• Overdraft fees happen when you spend more than you have in your account

• Banks charge an average of $31 per overdraft; credit unions charge about $27

• Credit unions tend to be more helpful and charge lower fees than banks

• You can protect yourself by tracking your balance and setting up alerts

• If you're having trouble, talk to your bank, contact the CFPB, or switch financial institutions