An overdraft is a negative balance in your bank account and can occur for any number of reasons. You might accidentally spend more than you have available in your checking account, for example, or forget to transfer funds before an automated payment gets debited from your checking account. Whatever the cause, an overdraft comes with a number of negative consequences, especially if you don’t pay what you owe right away.
Read on to learn exactly what happens when you overdraft a bank account, plus tips on how to repair the damage and avoid overdrafts in the future.
Key Points
• Overdrafting occurs when spending exceeds the account balance, and the bank covers the shortfall.
• Banks charge hefty fees for overdrafts, which must be repaid along with the overdrawn amount.
• Unresolved overdrafts can lead to account closure and debt collection efforts.
• Negative banking records from unresolved overdrafts may hinder the ability to open new accounts.
• Setting up alerts and linking accounts for overdraft protection can prevent future overdrafts.
What Is an Overdraft?
An overdraft happens when you spend more than you have available in your bank account and the bank pays for the transaction anyway. Think of it as a form of credit, where the bank is lending you money to cover the transaction and you’ll need to pay them back. Having this feature can be convenient, since it allows you to cover payments or withdrawals, like subscription services or a utility bill, even if you don’t have enough funds in your account to cover them.
However, many financial institutions charge their customers hefty fees for this convenience. Depending on the bank, overdraft fees can run upwards of $35. You are expected to pay the fee, plus the amount that was overdrawn.
💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.20% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
What Happens if You Overdraft Your Bank Account and Don’t Pay It Back?
If you overdraft your bank account and don’t pay what you owe plus the overdraft fee, you could face several unpleasant consequences, such as owing additional fees, your account being closed, and having the debt go to collections. Here’s a closer look at the potential fallout.
You Owe the Bank
The amount that was overdrawn, plus any fees, is what you owe the bank. You can repay your debt by transferring or depositing the owed amount into your account. Depending on the financial institution, you may have a certain amount of time to pay the bank back, such as within 30 days of the overdraft.
Pay the Overdraft Fee
Some banks charge a fee each time you overdraft, while others charge a fee for each day you overdraft. This is an important distinction: If your bank charges a fee for each overdraft and you inadvertently overdraft your account multiple times on the same day (which can happen if you have a low balance to start with), you’ll face multiple overdraft fees. For example, if your bank charges $35 per overdraft and you have three transactions in one day, you’ll owe the bank $105 in fees.
Your Account Could Be Closed
If you continue to overdraft your bank account and don’t pay it back, the bank may close your bank account to prevent any more withdrawals. You will still owe the amount you’ve overdrawn, plus any fees you’ve incurred. In some cases, the bank will send your debt to a collection agency.
The Bank Can Sue You
Anyone you owe a debt to can take you to court to try to collect it. The bank can sue you or, if it turns the matter over to a collection agency, the agency can sue. If the court grants a judgment against you, the bank or collection agency can garnish your wages or to place liens against your property in an effort to collect the debt.
Difficulty Opening Another Account
Some financial institutions will report closing your bank account and your unpaid overdraft debt to ChexSystems, the reporting agency for banking. ChexSystems maintains a report of your banking activity, which banks and credit unions can use to determine whether to approve your application for a new checking or savings account. Having an overdrawn and closed account could impact your ability to open a new account, even if it’s at a different bank or credit union.
How to Avoid Overdrafts
Overdrafts are an expensive nuisance. Here are some strategies that can help you avoid overdrawing your account in the first place.
Monitor Your Spending
Keeping an eye on how much you have in your checking account each day and knowing when bills are due can help you avoid spending more than you have available.
Set Up Low Balance Alerts
Many financial institutions allow you to sign up for customized banking alerts, either online or via your banking app. It’s a good idea to set up an alert for whenever your balance dips below a certain threshold. That way, you can top up your account to prevent the account from being overdrawn.
Check Your Account Statement Regularly
Looking at your account statement each month can help you spot patterns, like when your account balance tends to dip and, if you have an overdraft, when and why it happened. This can help you better monitor your account and adjust your spending.
Link Your Checking Account to Another Account or Credit Line
Many banks offer overdraft protection, which allows you to link your checking account to a savings account within the same financial institution or, if you qualify, a credit line. That way, if you don’t have enough funds in your checking account to cover a transaction, the bank will automatically transfer money from your savings to cover the transaction. In the case of a credit line, the bank will borrow what it needs from your credit line.
Overdraft protection avoids overdraft fees, but may come with interest and other fees.
💡 Quick Tip: Want a new checking account that offers more access to your money? With 55,000+ ATMs in the Allpoint network, you can get cash when and where you choose.
The Takeaway
Overdrafting your bank account and not paying what you owe could result in some negative consequences, like racking up even more fees, having your account closed, the debt going to collections, and difficulty opening a new bank account.
Even if you do all you can to prevent an overdraft, the reality is that it can happen on occasion. If you’re worried about the occasional overdraft, it may be worth looking for a bank that doesn’t charge overdraft fees.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Can you go to jail for an overdrawn bank account?
Having an overdrawn bank isn’t considered a criminal offense, so you won’t go to jail. You could face other consequences, though, such as overdraft fees, the bank closing your account, and the balance you owe going to collections.
How long can your bank account be overdrawn?
The time period will depend on your bank. Some may require you bring the negative balance to zero (basically, deposit the amount you’ve withdrawn plus any fees) by the next business day, while others will give you a 30-day grace period.
Can I close my account with a negative balance?
In most cases, banks won’t let you close a checking account that has a negative balance. You will need to ensure your account is current — getting the overdraft amount back to zero and paying any fees you owe.
What happens if your bank account goes negative and you never pay it?
Your bank may close your account and send the amount you owe to collections. The account closure and overdraft debt will also be reported to ChexSystems (an agency that tracks consumer banking history). This could mean you’ll have a hard time opening another bank account.
Can your bank sue you for the overdraft?
Yes. If you’re not aware of an overdrawn account or simply choose to ignore it, the bank could eventually take legal action against you. The amount your account is overdrawn is a legal debt you owe, which means the bank can sue you and use legal tactics such as wage garnishment to recoup their losses.
Photo credit: iStock/vorDa
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SOBK0124043