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How much can I overdraft my checking account?
Will your bank let you spend more money than you have in your checking account? If you have overdraft protection, the answer could be "yes."
Overdraft protection, which is a feature available for most checking accounts, lets you spend more money than you have in your account. Of course, you'll have to pay it back, plus fees.
How much can you spend beyond your account balance? It depends on the bank's policies. Their overdraft limit may range anywhere from $50 to $2,500, but there's usually a fee when you pass $50.
What does it mean to overdraft?
An overdraft is a transaction that puts your bank account balance into the negative. In other words, it's what happens when you don't have enough money to cover a transaction, but the bank covers the difference for you.
Some people overdraft intentionally when they need help covering an expense, but most don't realize that they're essentially taking out an ultra-high-cost loan.
For example, let's say you have $500 in your checking account and you make a $600 purchase. If the bank allows the overdraft, your account balance will drop to -$100. Then, you'll typically be charged $35 per day until you pay back the overdraft.
But even if you pay the money back in just one day, the fee on that $100 loan is equivalent to 12,774.99% APR. By comparison, the average APR on a personal loan is around 12%.
Even worse, if you don't pay back the negative balance and the fee, the bank can shut down your account. According to a 2023 report from the CFPB, half of all bank accounts that were closed involuntarily were closed for this reason.
Overdrafts and account closures can hurt you even further if they appear on your ChexSystems or Early Warning Services (EWS) reports, since banks use them to determine if you qualify to open a new account.
Read more:
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What is ChexSystems, and how do you find out if you're listed?
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What is Early Warning Services, and what’s in your EWS report?
What is overdraft protection?
The term “overdraft protection” is a bit misleading. This account feature, which you can opt to enable on most checking accounts, gives the bank permission to allow overdrafts (and charge fees for them) instead of declining transactions that exceed your available balance.
But even if you have overdraft protection, the bank can still choose to decline transactions at their discretion. Many banks also have separate overdraft protection features that only apply to debit cards, checks, or ACH payments, so you may not have coverage for all types of transactions.
Read more: What is overdraft protection and how does it work?
How much can I overdraft my checking account?
Your overdraft limit is the amount of money you can withdraw beyond what you have available in your bank account. It might be difficult to pinpoint your limit since banks can set different limits for different customers. And they can change the amounts at their discretion.
Depending on the account and the type of overdraft protection you've opted into, you may also have different limits on checks, ACH, and debit card transactions.
Instead of looking for your overdraft limit, consider looking for the maximum amount you can overdraft without incurring a bank fee. For several major banks, it's $50.
Here are a few examples of major banks and their overdraft policies.
Can I increase my overdraft limit?
If you have a one-time expense coming up, you can try requesting a higher overdraft limit for the transaction. Otherwise, banks typically increase (or decrease) these limits at their own discretion.
You're more likely to have an increase to your overdraft limit if you meet the following requirements:
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Positive account history, including limited record of overdrafts
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Frequent deposits for amounts sufficient to cover a high overdraft limit
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Your other accounts with the bank are in good standing
How to avoid overdrafting your checking account
It's no surprise that the bank accounts with the lowest balances have been found to have the highest rate of overdraft fees. But what might surprise you is that most transactions that lead to overdraft fees are for $50 or less.
In other words, you might be able to prevent overdrafting by making small-dollar changes to your budget or to the way you manage your bank account. Here are some ways to avoid an overdraft and the high fees that usually come after:
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Understand your account policies: Read your deposit account agreement and fee schedule to make sure you understand your overdraft protection options, including whether or not there's a grace period where you can deposit funds after overdrafting to avoid fees.
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Forego overdraft protection: Choose a bank account with no overdraft protection, or just don't opt in. People who do opt into overdraft protection end up paying as much as $155 more per year in fees, on average. If you already have overdraft protection, contact your bank to opt out.
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Link an account: Check to see if you can link your savings account to your checking account, so the bank can pull funds from savings to prevent an overdraft, if needed. You may still be charged a fee, but it's usually less than an overdraft fee.
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Review your available balance: Look at the available balance in your checking account before making a purchase. Keep in mind that even if you see money available, there may be less in the account by the time your transaction is processed.
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Keep a cushion: Create your own form of overdraft protection by keeping a set amount of money in your checking account that you never plan to spend, even if it's just $50.
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Set up account alerts: You can create email or text alerts that notify you when your checking balance drops below a certain threshold.
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Choose other forms of credit: Instead of overdrafting intentionally, look for cheaper ways to cover your expenses. This might include a small personal loan or a payday alternative loan.
