There are few things more frustrating than being charged an overdraft fee. These bank fees can be so high that they wipe out your bank account. Unfortunately, it’s all too easy to get stuck in a cycle of paying the bank charges over and over again. To escape the cycle, it’s important to understand what overdraft fees are and why you may be charged one so that you can do everything to avoid it. In the event that you do get stuck with one, there is plenty that you can do to get an overdraft fee refund.
An overdraft occurs when you don’t have enough money in your bank account to cover an ATM withdrawal, debit card purchase, online payment, or transfer. Instead of declining the transaction, the bank will spot you, allowing your account balance to go negative. When your bank account balance dips below zero, the bank will charge you a fee for the convenience.
Many financial institutions require you to opt into overdraft protection in order to overdraft on certain types of one-off purchases, such as ATM transactions and everyday debit transactions. However, you will usually receive an overdraft fee automatically if you overdraw your account on a preauthorized transaction, such as a check, recurring debit card transaction, ACH transaction, online or automatic payment, or other transaction that uses your checking account number.
The cost of overdraft fees can vary, but you can typically expect to spend $34–36 per fee. Bank of America, for instance, charges $35 per overdraft fee.
Occasionally, your bank, credit union, or other financial institution may only charge you overdraft fees if you overdraw your account by a certain amount of money. For instance, Bank of America specifies in its online fee guide that it will only charge you an overdraft fee if you make a purchase that overdraws your account by more than $1. Therefore, if you make a purchase and your bank balance only falls to -$0.50, you may not be charged an overdraft fee at Bank of America.
Read the Bank of America Overdraft Fee Guide here.
Be aware that you could have to pay different bank fees due to your overdraft protection status. For example, if you are opted into overdraft protection and have linked an account that will transfer funds if you overdraw your account, your overdraft fees may be less costly.
Alternatively, you may be on the hook for more overdraft fees if you overdraw your account. Some banks charge extended overdraft fees, which are an additional fee if your bank account remains overdrawn for an extended period of time. You may also receive insufficient funds fees if you attempt a transaction without enough money in your account but the bank declines the transaction.
Simply put: Banks charge fees because they can. You need the money, and banks are able to provide the funds. Essentially, financial institutions are able to penalize you for the convenience of having access to money even if it’s not currently in your account.
Banks make money in two major ways: interest and fees. In early 2021, the New York Times reported that the Federal Reserve planned to leave interest rates low for months or even years to aid economic recovery after the COVID-19 pandemic. It became evident that financial institutions would hike fees, either in cost or volume, in order to make up for lost revenue.
So why do banks charge overdraft fees? First, because they need to — for them. Second, because they can — at your expense.
Overdraft fees are one of the most common charges that Cushion detects on customers’ accounts, along with ATM fees, credit card interest charges, and late payment fees. Luckily, there are small actions that you can take to prevent overdraft fees.
This might seem obvious, but it can easily fall by the wayside. Banks are not required to notify you if you’ve overdrawn your account. They could apply the bank fee and deduct money from your account without you ever having known, and can also charge multiple overdraft charges in a single day. If all of your bills come out at once, you could find yourself hundreds of dollars in the red.
Another way to know whether you are in danger of overdrawing your account is by signing up for Cushion’s ⚛️ Fee Genius. Aside from scanning your accounts 24/7, finding and alerting you about fees, and identifying which ones are negotiable, it also predicts when you will get hit with overdraft charges.
Our ultra-smart algorithms can also detect when your account is nearing negative territory based on your transaction history and spending patterns.
Rather than manually checking your balance and charges, you can sign up for notifications that alert you when you’re nearing a low balance. Most mobile banking apps offer this feature and allow you to set the threshold yourself.
This doesn’t give you a pass to neglect your bank account. You should still be monitoring your account regularly. This allows you to identify mistakes, like if someone has stolen your debit card number or if you’ve been charged more than once for a bill.
Low-balance notifications won’t let you in on insights like these, and monitoring your account for mistakes can be one of the most lucrative ways to put money back in your account so that you don’t overdraft.
It’s important to get money into your account as soon as possible. Do an immediate transfer from another checking account or savings account at the same bank, or deposit cash into the account in-person at a branch or via ATM.
Some ATM deposits may not be available immediately, so it’s important to know your financial institution’s policy. Bank-to-bank transfers and other mobile payment services can also take several business days to complete, but can be an alternative solution if you do not need the funds immediately.
If you’re in danger of overdrawing your account, it’s crucial that you be proactive to protect your money. Contact your billers or creditors to let them know about your situation. If you’re experiencing financial hardship, they will likely work with you to modify your payment plan.
Aligning your bills with your paycheck is another easy way to ensure that you have money in your account when it comes time to pay the bills each month.
Next, consider contacting your financial institution. If you’re able to communicate your issues early, your bank may be willing to work with you to avoid overdrafts or having to ask for an overdraft fee refund altogether.
When you’re on the phone, focus on your value as a customer. If anything, this call will show your bank that you are a reliable customer who keeps a close eye on your account and cares about your financial health — that goes a long way.
You’ve moved some money and contacted your bank and billers if necessary. Now it’s time to take a look at your spending habits.
In the short term, you could reduce the amount of money that you spend eating out, or seek out coupons and discounts. Long term, reduce financial waste by negotiating credit card interest rates, essential bills, or eliminating unnecessary expenses.
If your account has a low balance, try only paying with cash. This will force you to not rely too heavily on plastic, and consider what is really important for you to buy.
Overdraft protection helps if you’d like peace of mind knowing that you can withdraw money or make a purchase even if the funds aren’t currently in your account.
Courtesy or standard overdraft coverage allows you to overdraft on ATM withdrawals and debit card purchases; however, your bank will charge fees for each transaction. There are other forms of overdraft protection that allow you to go into the red for a fraction of the price. This could include linking your account to another checking account, credit card, or line of credit. While these methods might still stick you with a fee, the fee is typically about half of what a standard overdraft charge would be.
While opting in may seem to be the default for many account holders, not opting in altogether could save you a ton of money. If you try to make a purchase but it’ll send you into overdraft, the purchase will be declined. Consider not opting in if: you don’t have a lot of essential bills to pay, you’re trying to manage your spending, or you’re an avid user of mobile banking and text message alerts. Remember that you can opt into and out of the program at any time.
It may seem like a hassle, and may even be intimidating. However, if you gather the necessary information and prepare your argument, you’ll increase your chances of getting the refund.
Your bank will need to verify your identity. Be prepared with:
Start with: “Hello. My name is [your name], and I recently received an overdraft fee while using my card. I’m contacting you to see if you would be willing to refund this fee.”
At this point, it’s possible your bank may say that they can’t offer a bank fee refund. Don’t get discouraged. They often can — and will — when presented with a compelling argument.
These arguments are all able to convince a customer service representative to waive overdraft fees.
Now that you’ve prepared all of your information, there are a couple of things that you should keep in mind during the negotiation.
A little kindness goes a long way. The representative that you’re speaking with likely didn’t write the rules on fee refunds.
Don’t hesitate to press the issue if you initially hear “no” — that’s what your points of leverage are for. If you’ve prepared correctly, you should have several arguments ready.
If you continue to hear no, you can escalate the issue to a manager. When you ask to speak with someone who has more authority, make sure to do so politely. Rudely asking to speak with a manager will not get you far, and may only jeopardize your chances of getting overdraft fee refunds at all.
Sometimes, success depends on the representative that you speak with. Try calling back a few days later to speak with someone new. Once again, politely let them know why you deserve a refund, and see what happens.
Finally, you have to be willing to lose some negotiations. Banks refund fees at their own discretion. Plus, the more you overdraft, the less able you will be to get fees refunded.
You won’t win the full refund amount every time. You might get a partial refund or no refund at all. Try not to get discouraged, but do try to take the necessary steps to avoid overdraft fees in the future.
Cushion helps you waste less money, save more, and live a financially healthier life. We monitor your bank and credit card accounts 24/7, find and alert you about pesky fees, let you know which fees are negotiable, which banks are cooperative, and can even automatically negotiate on your behalf.* To date, Cushion has secured customers more than $11 million in bank and credit card fee refunds—and we’re just getting started.
*Cushion only negotiates fees with high refund odds. We cannot guarantee any negotiations, a regular frequency of negotiations, or fee refunds—your bank makes the final call.