What Is an Overdraft? An overdraft occurs when you spend more money than is available in your checking account, resulting in a negative balance. When this happens, your bank may either cover the transaction and charge you an overdraft fee, or decline the transaction entirely. Understanding how overdrafts work can help you avoid unnecessary fees and maintain better control over your finances. How Overdraft Fees Work Most banks charge an overdraft fee each time a transaction is processed that exceeds your available balance. These fees typically range from $25 to $35 per occurrence. Some banks may charge multiple overdraft fees in a single day if several transactions process while your account is overdrawn, which can quickly add up to significant costs. In addition to the initial overdraft fee, many banks also charge an extended overdraft fee if your account remains negative for a certain number of consecutive days, usually five to seven business days. Types of Overdraft Protection Banks offer several types of overdraft protection to help you avoid declined transactions and excessive fees: Linked Savings Account: Money is automatically transferred from your savings account to cover the shortfall. There may be a small transfer fee. Overdraft Line of Credit: The bank extends a line of credit to cover overdrafts. Interest is charged on the borrowed amount. Linked Credit Card: The overdraft amount is charged to your credit card as a cash advance. Tips to Avoid Overdrafts There are several strategies you can use to avoid overdrawing your account: Monitor your account balance regularly using online banking or mobile apps Set up low balance alerts to notify you when your balance drops below a certain threshold Keep a buffer of extra funds in your checking account Track your spending carefully and reconcile your account with your bank statement Consider opting out of overdraft coverage for debit card transactions Your Rights Regarding Overdrafts Federal regulations require banks to obtain your consent before enrolling you in overdraft programs for ATM and one-time debit card transactions. You have the right to opt out of overdraft coverage at any time, which means transactions that would overdraw your account will simply be declined at no charge.