Experiencing an overdrawn bank account can be stressful. Since banks can charge an overdraft fee multiple times a day, fees can add up quickly, piling on to the negative balance and the stress.
The consequences of overdrawing can be serious, so it’s essential to fix your account as soon as you can. The bank may temporarily suspend or even close your account. A closure could go on your record with ChexSystem, an agency that tracks customers who have had problems with their bank accounts. This could make it difficult for you to open future bank accounts, says Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling.
Here are some steps you can take to recover after an overdrawn account and tips to avoid overdrafts in the future.
Make a transfer to cover the charges
If you have cash in another account, transfer it to cover the deficit and avoid additional fees. That should be the first step you take, says Andrea Brashears-Lusk, a certified financial planner and president and founder of Wise Financial Counsel in Fort Washington, Maryland. For example, some banks charge a fee for having a negative balance for consecutive days, and that fee could be charged multiple times.
Ask your bank for a refund
If your bank doesn’t automatically waive fees for some overdrafts, call your bank and ask for a refund. The bank could be gracious and refund you, especially if it’s your first time or not a recurring issue, Brashears-Lusk says.
McClary recommends taking another step when you call the bank: Discuss how you can avoid overdrawing again. Most banks and credit unions should be willing to help you, McClary says. You might also consider contacting a nonprofit credit counseling agency to get free help on your entire financial situation, he says.
Stop using the account
"Stop using the account, period," Brashears-Lusk says. This action also will include one-time and recurring transactions, which are tricky to keep track of and could overdraw your account even more. While figuring out expenses versus your cash flow, she recommends using a prepaid debit card to manage spending. To pay bills that require payments from a bank account, pay by money order, Brashears-Lusk says.
Use these tips to avoid overdrafts
Once you’ve fixed an overdrawn account, you can take a few critical steps to prevent overdrawing again.
Track your expenses
"You don’t have to physically balance a checkbook, but you should have some way of tracking expenses," says Brashears-Lusk. Balancing your checkbook and budgeting don’t necessarily mean you have to stick to a spreadsheet; several budgeting apps could work.
Use low balance alerts
Automated alerts can help you avoid overdrawing an account. You can specify a threshold for a low balance and set up an alert to notify you when the account reaches that balance.
Reconsider overdraft protection
Overdraft protection transfers are an optional service that lets you move money from a linked account to your checking account to cover transactions that would overdraw the account. These transfers are typically cheaper than an overdraft charge and free at some banks, but if they’re not free, they’re a vital charge to consider.
It’s good to have overdraft protection if cash flow is tight and you’re using the bank account as your main account for expenses, Brashears-Lusk says.
But if you’re racking up fees because of frequent overdraft protection transfers, you might be better off opting out and having transactions declined. Beth McCarter, a teacher who lives outside of Dallas and tutors online, says she’s strongly opposed to overdraft protection after her experience with her first bank account in college.
"Within a single day, I had accrued $500 in overdraft [protection] fees," McCarter says. "While it sucks to be in line and have a cart full of things and have your card declined, I would rather take that."
Choose the right bank account
A fundamental way to avoid adding to the damage of an overdrawn bank account is to choose a bank that doesn’t charge overdraft fees or offers alternatives to costly overdraft coverage. If you select one of these bank accounts, overdrawing likely won't be such an issue going forward.