When you’re low on funds and overdraw from your bank account, it can really feel like a kick in the teeth because you’re already tight on cash and then have to pay an extra fine.
Of course, from the bank’s perspective, it makes sense to have some sort of measure in place. If they didn’t, what would stop people from impulse buying? Or running amok every day using their debit card as if it were a credit card?
But it’s not always impulse-buying when over half of all Americans are living paycheck to paycheck. And 57% of Americans can’t write a check for $500 to cover a surprise expense.
Maybe one day the standard of living will be good enough that people won’t have to read over the fine print when choosing a bank. But, until that day comes, let’s talk about options.
If you’re worried about overdrafting, we’ve uncovered the best banks for low and sometimes even $0 overdraft fees.
Which banks charge $0 or low overdraft fees?
There are a few checking accounts out there that don’t charge overdraft fees. Luckily, the list seems likely to grow even more in the years ahead. Why? A recent FICO survey found that Millennials are two to three times more likely to close all accounts and switch banks completely.
It should really come as no surprise — expensive fees.
Millennials will occupy half of the American workforce in the next couple of years, so expect more and more banks to be added to this list in the years ahead. But, until then, here are current banks offering consumer-friendly overdraft services.
Chime has a new fee-free overdraft feature called SpotMe. They spot members up to $100 on debit card purchases when their balance is low, with no overdraft fees.
Chime is a mobile-only banking option that allows you to get your paycheck up to two days early with direct deposit. In addition, you get daily balance notifications and instant transaction alerts whenever you use your Chime Visa Debit Card.
To avoid paying ATM fees, you’ll need to find a specified ATM via your mobile app whenever you need cash. There are over 60,000 fee-free ATMs to choose from.
This checking account has no minimum balance requirements, no monthly fees, no deposit required, and no foreign transaction fees.
The Acorns Spend Checking Account comes with a Visa debit card, and every time you spend money, it will automatically deposit money into your investing account. This means that your round-ups are invested in real-time, making the entire process easier.
But there are several other advantages to signing up for Acorns Spend. For example, you’re free to use your debit card at any ATMs that accept Visa cards, and Acorns doesn’t charge ATM fees.
Not only that, but the company offers unlimited ATM reimbursement for any third-party fees you accrue throughout the month. You’ll receive your ATM refunds monthly.
Acorns charges a $3 monthly fee, but the ATM reimbursements more than make up for this. And you’ll receive several other useful features when you sign up for the checking account, including:
- No minimum balance fees
- No overdraft fees
- Mobile check deposit
- Send checks digitally
- No foreign transaction fees
- Automatically invest part of your paycheck
Talk about user-friendly! Simple has one of the best mobile apps on the market and provides users with helpful tools to help you manage your money more effectively.
Users can, for example, input all of their upcoming bills and needed purchases. Simple then calculates how much money is ‘safe-to-spend.’ What better tool is there to have with you before you hit the town on Saturday nights?
Simple also doesn’t have any minimum account balances, monthly fees, or — you guessed it — any overdraft fees. The way it gets around charging an overdraft fee is quite simple: it doesn’t allow any transactions to exceed the user’s balance.
Attempt to do so, and the card will be declined. For many people, this is just what they want. And with Simple’s powerful, intuitive mobile app, there’s really no reason anyone shouldn’t know how much money they have.
Though Discover does charge a $30 fee if you have a negative balance, it only does so once a day. Many banks charge a similar amount each time you overdraw. So if you overdraw your account at a deli for lunch and again at the grocery store, Discover would only charge you a single overdraft fee.
However, Discover didn’t make the cut just for this. With Discover, you can connect your checking account with a savings or money market account and get a free transfer any time your account needs the funds.
Fidelity Investments is a bank that truly offers its customers zero-fee banking. If you have overdraft protection, there’s no charge to use it. However, if you don’t have overdraft protection, your card will be declined. Either way, there are no overdraft fees.
What happens when you do sign up for overdraft protection?
You can link your checking account with either a savings account or a brokerage account. Then, if and when you overdraw from your account, funds will automatically be pulled from your savings or brokerage account to cover the transaction.
Again, this all happens for free.
Capital One actually does something pretty cool for overdrafts. When you overextend your online checking account, Capital One lets you borrow money that you can then pay back month-to-month at a pretty decent APR of 12.25%.
Say you go over your checking account balance by $50. You won’t be fined an overdraft fee of $35 and then be immediately harassed for the $50 the next day. Instead, you would have a $50 debt plus the pennies in interest you would owe by the end of the month.
If you have a Schwab One brokerage account, Schwab will pull money from it for free if you ever overdraw your checking account.
Do know, however, that this free overdraft protection doesn’t pertain to checks or electronic withdrawals, or payments. If these cross the line, you’ll get a $25 insufficient funds fee, which can add up to $100 a day.
As of July 2021, Ally Bank has eliminated overdraft fees. An Ally checking account also comes with no minimum balance requirements and no monthly maintenance fees.
You can use your Ally debit card at over 43,000 Allpoint® ATMs in the U.S for free. Plus, they reimburse up to $10 per statement cycle for fees charged at other ATMs nationwide.
If you sign up for it, TIAA Bank (formerly EverBank) offers a line of credit any time you overdraw. However, the rates are variable, and if you miss a monthly payment, there is a $25 late payment fee.
Another option with TIAA Bank is to link another line of credit or account with your checking account. The transfer, should you need it, is free.
If you don’t do either of the above options, there is a $30 over-withdrawal fee. There’s a $100 minimum deposit to open a checking account, but there is no monthly service fee.
Axos Bank offers no monthly fees, full reimbursement for fees incurred while using any ATM in the US, and some pretty competitive cash back rewards.
As you might have guessed, Axos has zero overdraft fees for people who spend more than what is in their checking account. There are two ways for users to accomplish this. Option one involves not signing up for any protection and letting your card simply be declined.
The second option is to sign up for a line of credit with them. The APR is not great — a somewhat high 18% — and interest begins to accrue the day of the transaction.
If you are looking for a checking account with no fees, Axos Bank is a strong choice.
Tips to Avoid Overdrafting Your Account
Though the banks discussed above offer some solutions, there are things you can do to lessen the likelihood of overdrawing from your account.
First off, there are three things that suck up most people’s paychecks every two weeks.
- Student Debt
- Car Payments
Is this the situation you’re in?
Experts say you should never spend more than 28% of your income on housing, nor should you spend any more than 10% to 20% on transportation.
Simply put, don’t live beyond your means. Do the math before you commit. If the monthly payments mean you won’t be able to afford a fast-food run once in a while, then you can’t afford them.
Yes, there are things you can do to lessen your student debt before you matriculate, but it’s unlikely you’re in a position to take advantage of those things now. So, apart from consolidating your loans and getting into an income-based repayment plan, let’s focus on some practical things you can do to stay on top of your bank account.
1. Use cash for all purchases
It’s not the most convenient thing to go to the bank and withdraw cash whenever you need to spend money.
To get around doing this, take out as much money as you can and leave just enough in to pay your mortgage, car payment, and any monthly bills you have. Leave your debit card and credit card at home, and only take just enough cash with you when you go out.
This way, your budget is a very real one. If you go over, you can’t pay for what you’re trying to purchase. It’s not stressful; it’s practical. Use your phone as a calculator, know your state’s sales tax, and you’ll be just fine.
Groceries are what really get people into a bind when using this system. For cash to work when grocery shopping, you need to have a list with every item on it before you go out.
Stick to the list, know how much your bill will be before you even get to the register, and buy nothing else. Over time, you can save buckets of money doing this.
2. Use a prepaid debit card
This is basically the same as using cash, but you have the added security that comes with a debit card. If you use a prepaid debit card, keep track of how much you have on the card by using a transaction register.
Don’t know what that is? Keep reading.
3. Record all purchases or payments in a transaction register
This sounds simple (and a bit old-fashioned), but it’s actually a very powerful method to stay on top of your finances.
In many ways, we’ve become too tech-oriented and rely too heavily on checking balances online — which we then rarely do.
To avoid overdrafting your account, write down every transaction in your register. You’ve got to include the little stuff because that’s the stuff that comes back and gets you.
If you always know how much money you have (down to the very cent), you will be far less likely to waste it on small purchases.
You can also use a mobile app for budgeting to do this automatically. But if you’re just getting started, it may be helpful to start off tracking your everyday expenses manually before having your phone do it for you.