An overdraft fee is a charge imposed by a bank when a customer withdraws or spends more money than is available in their bank account, causing the account balance to go negative. Essentially, the bank covers the shortfall, allowing the transaction to go through, but charges a fee for this service
. Key points about overdraft fees include:
- They occur when a purchase, withdrawal, or payment exceeds the available balance in the account, and the bank permits the transaction anyway
- The fee is typically a fixed amount per overdraft transaction, averaging around $27 as of 2024, though this varies by bank
- Overdrafts function like short-term loans from the bank, often with associated interest and fees
- There are two types of overdrafts: authorized (pre-arranged limits) and unauthorized (unplanned spending beyond the available balance or overdraft limit)
- Overdraft fees differ from non-sufficient funds (NSF) fees, which are charged when the bank declines a transaction due to insufficient funds rather than covering it
- Banks may offer overdraft protection services to help cover overdrafts, sometimes for a fee, to avoid declined transactions or bounced checks
- Overdraft fees can be costly and add up quickly, so managing account balances and setting alerts can help avoid them
In summary, an overdraft fee is the penalty charged by a bank for allowing a transaction that exceeds your available account balance, effectively lending you money temporarily but at a cost
