How to Deal With Overdraft and a Negative Bank Account

Even if you experience a negative bank account balance, you can use practical solutions to avoid a financial catastrophe. 

Let’s take a closer look at what it means to be overdrawn, what to do if it happens to you, and how to avoid overdrafts so you can sidestep fees and financial setbacks.

What Does It Mean When Your Bank Account Balance Is Negative?

When the balance in your bank account dips below zero, your account is considered negative and overdrawn. 

Your account can become overdrawn if, for example, you write a check, withdraw money at an ATM, make an automatic bill payment, or complete a debit card purchase with a transaction amount that’s more than your bank account balance.

This is when an overdraft typically happens. An overdraft means that you lack enough funds in your account to cover a transaction, but your bank still paid for the transaction, covering your shortfall. Repayment often comes from your next deposit of funds.

Note that some banks cover overdrafts for no extra charge, but you have to set up overdraft protection in advance. Part of that process includes designating a bank or credit card account to cover overdrawn funds. If your backup account is empty or maxed-out, however, you could still end up overdrafted. 

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

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3 Steps To Take To Fix a Negative Bank Account

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

• Stop using the account. Until the account is firmly in good standing, don’t make transactions. Take the time to sort out your finances and get your deficit and fees paid.

• Bring your account back in the black (positive account balance) as soon as possible, including payment of fees. The longer you delay fixing an overdraft problem and balancing your account, the costlier it could become. If you can, transfer funds from another account. 

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

What Are Overdraft Fees?

An overdraft fee is a penalty from your bank for having a negative balance. 

At most banks, an overdraft fee is a fixed amount, no matter the amount of your transaction. This fee can be charged several times in a single day, and some banks charge this fee again every day the account remains overdrawn.

The typical 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 charged a fee if you don’t opt in. In that case, your bank will probably decline the transaction if it would result in an overdraft.

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 into the negative. Here’s how it works:

• You get automatic transfers from a linked account or credit 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.

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

• You’ll likely be subject to a preset cap. Overdraft protection sometimes has a preset maximum amount. 

• You’ll be subject to thresholds for overdraft protection. 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 by less than $50, you might not be charged a fee.  

• Fees and other costs may apply. Overdraft protection could help you avoid a negative bank balance. But banks may charge a fee for each protected transaction. The fees vary based on the bank, but on average 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 it’s usually not free. 

What Is a Non-Sufficient Funds Fee?

You could be charged a non-sufficient funds (NSF) fee if your bank declines a transaction when you don’t have enough money to cover it. Unlike an overdraft, which takes money from some other source to complete the transaction, an NSF means the transaction failed. Unfortunately, you could still be hit with the fee. 

Automatic Clearing House (ACH) transactions like bill pay services or direct payments may be turned down if you don’t have enough money in your account. Even so, you could still be charged an NSF fee. NSF fees tend to run around $32. Be aware that your bank won’t ask you to opt in to 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, 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

If you’ve accidentally overdrawn your bank account, you’re not alone. Here are some of the reasons it could happen to you:

• Unexpected expenses: It’s normal to face unplanned costs for things like medical bills, car repairs, or emergency purchases. If you don't have enough of a 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, you forget to deposit money, or you have a freelance job or side hustle and you didn't properly track when you’ll be paid. If you accidentally submit bill payments, your account might go into the red.

• Automatic payments: Subscriptions or recurring payments can sneak up on you, especially if you’ve just 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 all at once, your balance could take a plunge. 

• Fraudulent purchases: If a thief accesses your account and makes purchases without your knowledge, it could cause your balance to slip into the negative. 

• Human error: Little financial slip-ups—like forgetting to record a transaction, or the grand total of your automatic payments in a given month—can see you miscalculate your balance and put you in the negative.

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

Staying clued-in on issues that 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.

Negative Bank Accounts and Collections: What Can You Do?

If your bank account is in the negative and you don’t correct it, the account could be sent to collections. This typically occurs if you're seriously delinquent on replenishing your negative funds and paying any fees charged.

If you receive a notice from a collections agency due to an overdrawn account, take it seriously, but don’t panic. Don’t ignore the problem. Talk to or negotiate with debt collectors. You can navigate these turbulent waters without being bullied by a collections agency. 

5 Steps To Avoid a Negative Balance

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

• Don’t opt in for overdraft fees. Be prepared for your debit or ATM card to be declined if you don’t have enough money in your account to cover a transaction.

• Link a back-up source of funds to your checking account. This way, if you overdraw your checking account, your bank automatically pulls 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 back-up source should be a savings account if possible. You can use a credit card, but you’ll pay interest, possibly at the higher cash advance rate.

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

• Sign up for low balance and fraud alerts. Your bank can tell you when you're below a certain balance, or if it suspects fraudulent activity. 

• Consider changing banks. Some banks and credit unions 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. 

If Overdrafts Are a Chronic Problem, You Have Options

If you’re living paycheck-to-paycheck, you’re likely very familiar with the stress of managing your money and ensuring you don’t overspend your bank account. Unfortunately, revolving debt and not earning enough money often go hand-in-hand. Here’s a few options for helping yourself—or getting professional help. 

Boost your income

This may be more manageable than trying to cut your spending to the bone. Can you pick up more hours at work, or take on a side hustle? Having more budgetary breathing room is a good feeling. 

Consider debt help

If you’re struggling with debt payments, you don’t have to suffer alone. There are trained professionals who can help you in a few ways. One option is debt settlement, which means negotiating with your creditors to reduce the amounts you owe. You can negotiate with creditors yourself, or work with a professional debt settlement company. 

Another option is a debt management plan. A nonprofit credit counseling agency helps you create a three to five year plan to pay off your unsecured debts (like credit cards and medical bills). If you go this route, do your research on companies beforehand. Look for those that offer free information on services, and are accredited by an outside agency such as the National Foundation for Credit Counseling.   

Bankruptcy is also an option

If you doubt your ability to climb out of debt via the options above, bankruptcy might be worth considering. Depending on your financial circumstances and income, you can choose between Chapter 7 and Chapter 13 bankruptcy—and in some cases, you might be eligible for Chapter 11. The credit impact of bankruptcy isn’t to be taken lightly, but it could give you a ladder to climb out of a financial pit. 

Your negative bank account balance isn’t the end of the world, and you can work to prevent it from happening again. And if your finances are in need of an overhaul, look into one or all of the options above to cope with debt and its impact on your budget.