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Overdraft: What happens when you spend more money than what you have in your bank account?

Updated: Jun 2, 2021

"Depending on your bank you could end up with a negative balance and paying high fees, so it's always best to deal with overdrafts quickly."

By Allan R. Kirby

Overdraft: What happens when you spend more money than what you have in your bank account? overdraft fees can be expensive.

So what is a native bank account balance:

A negative bank account balance also commonly called being “overdrawn or overdraft” is when your account balance is negative, meaning you have spent more than what you had in your bank account. Negative accounts balance must be paid back by the customer and can include interest, fees, and penalties. It is also one of the most common problems customers have when dealing with their finances which is why banks do provide overdraft protection for a fee to protect customers from this problem.

Can you end up with a negative bank account?

Yes, however, it really depends on your bank's policies with regard to the type of account you have with them. Usually, it can be between $0 and $1,000 for a checking account but it can be substantially more if you pay for overdraft protection. So let's take a look at how much you could end up in

$0 in most cases

In most cases, when a customer tries to use their debit card or write a check for an amount that is more than the balance in their bank account, the transaction will not be processed. In the case of a check, the bank will cancel the transaction and it will be considered an NSF (None-sufficient funds). Basically, the bank will not allow the money to be cleared from the account the check was being drawn from. Additionally, the bank will likely charge the account holder a few for the cost of trying to process an NSF check. The most common amount is $20 - $30 but it could be more or less depending on the bank.

$1 to $1,000 in some cases

In some cases when using a debit card or writing a check, the bank may clear the transaction so long as the amount is small. I have found some banks will only allow a small amount such as $5 but it could be possible that a bank will allow as much as $1,000 but this is not common.

Up to $5,000 with overdraft

Overdraft is big money, banks make billions of dollars in overdraft fees every year which helps protect customers from over-drafting their accounts. The amount of overdraft allowed does vary from bank to bank as well as the types of bank accounts you have. However, this opt-in-only service can allow you to have your account in overdraft for as low as $100 but I have seen as high as $5,000, it could be even higher in some cases. But it’s likely that for the vast majority of customers, the amount of overdraft will be under $1,000 even with overdraft protection.

Do you need to pay the overdraft off including fees and interest?

Yes, the quicker you pay it off the better as you will incur interest and penalties if you continue to leave the account with a balance. The bank will also try to recoup the balance if you have money in other accounts, or they will reconcile the negative balance you put money into the account. Keep in mind you will not be able to continue to use your account while you have a negative account balance.

If its possible to get your fees and penalties waived if its your first offense and you deal with the overdraft quickly.

Your overdraft could hurt your credit score:

An overdraft is a debt, so it is best to pay it off as quickly as possible. However, if you decide not to pay the negative balance and ignore the notification letters, the bank will eventually close your account and could send your debt to a collection agency which will damage your credit score.

Using overdraft protection:

For people who have issues managing their money, it's always best to ensure you have overdraft protection. But keep in mind, banks charge a monthly fee for the protection. But the monthly fee you pay will always be substantially less than if you have no protection and you continue to end up with non-sufficient or insufficient funds (NSF) on your accounts. This is an opt-in service so you can always ask your bank about the benefits of having overdraft protection if it's a concern for you.

Final thoughts

Overdrawing too often is never a good thing and it's worse if you chose to ignore your negative balance. This is because your negative balance is a debt and after 60 days a bank could close your account and refer your debt to a credit agency to recoup the funds. As a result, you are always best to find a way to talk to the bank and pay the debt back as soon as possible.


This is a blog written by Allan Kirby, who writes and produces Personal Finance and Money Management articles and videos.


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