How to Deal With Overdraft and a Negative Bank Account

When you use more funds than you have in your checking, savings, or money market bank account, you can end up with a negative balance. That can lead to your bank declining future transactions.

If you have opted-in for overdraft coverage, your bank may complete your ATM transaction or debit card purchase, even if the transaction overdraws your account. But you will be charged any overdraft fees that are incurred as a result, and you will be required to repay the amount you are overdrawn.

It’s important to understand how overdraft works, what to do if your account is overdrawn, and how to avoid overdrafts in the future so that you can sidestep fees and financial setbacks.

What does it mean when your bank account is negative?

When the balance in your bank account dips below zero, your account is considered negative and overdrawn. Your account can become negative and overdrawn if, for example, you write a check, withdraw money at an ATM, make an automatic bill payment, or engage in a debit card purchase in which that transaction amount exceeds your bank account balance.

This is when overdraft typically kicks in. Overdraft means that you lacked enough funds in your account to cover a transaction, but your bank still paid for the transaction and covered your shortfall. Repayment often comes from your next deposit of funds.

Note that some banks cover overdrafts for no extra charge, but you are required to set up overdraft protection in advance and indicate which bank or credit card account to take overdrawn funds from. If your backup account is empty or maxed out, however, the transaction will be declined unless you have opted in to fee-based overdraft protection.

Significant consequences can result from having a negative bank account. You might be charged fees for being overdrawn (more on that next). Your account may be temporarily suspended or closed if you don’t fix the problem soon. And if your account is closed, that could show up on your record with Chex Systems or Early Warning Services, which tracks consumers who have had issues with their financial accounts. This could, for a time, make it challenging for you to open accounts in the future.

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What are overdraft fees?

An overdraft fee is a penalty assessed by your bank for having a negative balance . At most banks, an overdraft fee is a fixed amount no matter the sum of your transaction; this fee can be charged several times in a single day, and some banks assess this fee every day the account remains overdrawn.

The typical cost for each overdraft fee is around $35 per transaction, according to the FDIC.

You must opt-in (agree upfront) that the bank can charge you an overdraft fee for debit card transactions at merchants or ATMs that result in a negative balance. You can’t be assessed a fee if you don’t opt in; however, your bank will probably decline your purchase if it will result in an account overdraw.

What is a non-sufficient funds fee?

A non-sufficient funds (NSF) fee means your bank declined a transaction when you didn’t have enough money to cover it. Unlike an overdraft, which takes money from some other source in order to complete the transaction, an NSF means the transaction failed. Unfortunately, you’re still hit with the fee. Automatic Clearing House (ACH) transactions, like bill pay services or direct payments, may be turned down if you lack sufficient funds in your account, yet you can still be charged an NSF fee.

The average NSF fee today is just under $27.

Be aware that your bank isn’t obligated to obtain your opt-in for NSF fees.

What is a negative balance fee?

A negative balance fee is also called an extended overdraft fee. Unlike a one-time overdraft fee you may be charged, an extended overdraft fee can be assessed periodically if you don’t resolve a negative account balance right away.For example, your bank may charge an extended overdraft fee of $7 every two days.

Causes of a Negative Bank Balance

A negative bank balance can happen for several reasons. Here are some of the common causes:

• Unexpected expenses. Sometimes, you might face sudden costs. They could be for medical bills, car repairs or emergency purchases. If you don't have enough cash cushion or an emergency fund, these out-of-the-blue bills can quickly drain your account.

• Timing issues. Let's say your paycheck is delayed or you forget to deposit money. Or you freelance or side hustle and you didn't properly track when your payments will drop into your account.  But your bills are due. If so, your account might go negative.

• Automatic payments. Subscriptions or recurring payments can sneak up on you. Or maybe you added a new subscription. It’s easy to overlook a payment and end up with an overdraft.

• Bank fees. Should you get slapped with a slew of bank fees at once, your balance could take a plunge. 

• Fraudulent purchases. If a thief accesses your account and makes a big-ticket purchase without your knowledge, it could cause your balance to slip into the negatives. 

• Human error. To be human is to make mistakes on occasion. Those little slip-ups – like forgetting to record a transaction or the grand sum of your autopayments in a given month –  can miscalculate your balance and put you in the negative.

• Zombie accounts. Should you forget to close an account, and there's a monthly maintenance fee, those fees can eventually put your bank balance in the red. 

Staying clued in on what can cause a negative bank balance can help you stay alert and manage your money better. It can also help you avoid the stress of a negative balance.

3 Steps to take to fix a negative bank account

Got an overdrawn account you’d like to fix quickly? Follow these steps:

1. Discontinue use of the account. Until the account is firmly in good standing, don’t continue to make transactions. Take the time to sort out your finances and get your deficit and fees paid.

2. Bring your account back in the black as soon as possible, including payment of any fees. The longer you delay fixing an overdraft problem and balancing your account, the costlier. If you can, transfer funds from another account. 

3. Request a refund of your fees. You have nothing to lose by contacting your bank and requesting a refund, which they may grant if you have never had an overdraft before.

5 Steps to take to avoid a negative balance

You can take preventive steps now to avoid a negative balance in the future:

1. Don’t opt in to overdraft fees. Be prepared for your debit or ATM card to be declined if you lack ample funds in your account to cover a transaction.

2. Link a backup source of funcs to your checking account. This way, if you overdraw your checking account, your bank will automatically pull money from that source to prevent a negative balance. Some banks charge a fee for this service but it’s usually lower than overdraft fees. Your backup source should be a savings account if possible. You can use a credit card but then you’ll pay interest, possibly at the higher cash advance rate.

3. Check your account balance regularly and track your expenses. Prior to making a purchase or ATM transaction, think about upcoming paper and electronic bills you may need to pay and whether you will have enough money in your account to cover them. 

4. Sign up for low balance alerts. Your bank can inform you when you are at risk of a negative balance.

5. Don’t be afraid to change banks. Other banks and credit unions might offer cheap or free overdraft protection. If you often come close to running out of money, find a bank that won’t hit you financially hard when you do. 

Overdraft Protection

Most banks offer overdraft protection. It's a handy feature that makes sure your transactions go through smoothly, and helps prevent your account from going negative. Here’s how it works:

• Automatic transfers from a linked account or card. If your checking account lacks enough money for a transaction, the bank can move funds from a linked savings account, another checking account, credit card or line of credit. 

• Avoid declined transactions. This service prevents the store from declining your card, which can help you avoid embarrassment and inconvenience. 

• Usually a preset cap. Overdraft protection usually has a preset maximum amount. 

• Thresholds for overdraft protection. And if the overdraft protection charges a fee, you might not be charged if you overdrafted under a certain amount, or if you bring your account to a certain level by the end of the business day. For instance, if you were overdrawn less than $50, you might not be charged a fee.  

• Fees and costs may kick in. Overdraft protection can help you stay away from a negative bank balance. But banks may charge a fee for each transaction. The fees vary based on the lender, but, on average, can cost around $35 per transfer. If your overdraft protection is linked to a credit card, you might also pay interest on the borrowed amount.

Overdraft protection can bring peace of mind. But, you must understand the costs and decide if it’s right for you. Always keep an eye on your accounts to manage your money effectively.

Negative bank accounts and collections: What can you do?

If you have a negative bank account, you could be sent to collections. This typically occurs if you are seriously delinquent on replenishing your negative funds and paying any fees charged.

If you receive notice from a collections agency due to an overdrawn account, take it seriously but don’t panic. Don’t try to ignore their contact, but realize that you can navigate these turbulent waters without feeling bullied. For instance, you don’t have to talk to or negotiate with debt collectors. You can insist that they validate the debt and prove that you owe it. In some cases debt collectors will accept less than the full amount owed, but it’s important to get an agreement in writing that they will consider the debt fully satisfied. Read our guide on how to deal with debt collectors.

If you lack the means to repay your debt, you may want to find out about a debt negotiation program, debt management plan, or bankruptcy options.