Best Banks for Overdraft Protection

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Overdraft protection is a service that many banks offer where they cover overdrafts from your checking account to help avoid declined transactions. In other words, even if you don’t have enough money in your account to cover a transaction, your overdraft protection will allow the transaction to go through, and you’ll have to replace the money.

Historically, overdraft protection has come with some costly fees, but many banks now offer this service in a way that better benefits consumers. Learn more about the six best banks for overdraft protection in 2023.

Best Banks for Overdraft Protection in 2023

A Good Choice for Most People : SoFi : Online Checking Account


SoFi

SoFi

  • Minimum Balance to Open: None
  • Monthly Fee: None
  • Overdraft Policy: No fees; coverage for up to $50 with qualifying direct deposits
Pros & Cons
Pros
  • No account fees or overdraft fees

  • Earn 1.20% on your checking account balance

  • No minimum deposit or balance

Cons
  • Overdraft protection only with direct deposit

  • $50 cap on overdraft protection

  • Fee for cash deposits

Why We Chose It

SoFi’s online bank account is an all-around good option for several reasons. First, this account is a checking and savings account in one, and you can simply organize the money as needed. You’ll earn 1.20% APY on your checking and 4.00% APY on your savings. On top of that, you’ll get 15% cash back at local businesses with your SoFi debit card.

SoFi also makes it easy to set up an account. You don’t need a minimum opening deposit, nor are you subject to minimum balance requirements. The account doesn’t charge any fees. Finally, you’ll get your paychecks two days early when you have direct deposit set up.

Details

SoFi doesn’t charge any overdraft fees, but this protection is only available to customers with at least $1,000 in monthly direct deposits. Overdraft protection is limited to $50, meaning your card will be declined for a transaction that results in a higher overdraft. Finally, if you’ve previously had an overdraft that you didn’t repay, you won’t be eligible for overdraft protection moving forward.

If You Like Credit Unions : Alliant Credit Union : High-Rate Checking


Alliant Credit Union

Alliant Credit Union

  • Minimum Balance to Open: $25
  • Monthly Fee: None
  • Overdraft Policy: Multiple coverages to choose from
Pros & Cons
Pros
  • No account fees or overdraft fees

  • Earn 0.25% APY dividend on your balance

  • Three types of overdraft coverage

Cons
  • $25 minimum balance to open account

  • Overdraft not available for all transactions

  • Dividend only with direct deposit set up

Why We Chose It

Alliant Credit Union is an excellent option for anyone who prefers a credit union over a bank. You can open your checking account with as little as $25. After that, you won’t be subject to any minimum monthly balance requirements and won’t pay any monthly fees.

Other perks Alliant Credit Union offers on its high-yield checking account include $20 per month in ATM fee rebates and a monthly dividend payment of 0.25% APY.

Details

Alliant Credit Union offers two different overdraft programs, plus and optional extra coverage. First, you can choose an optional overdraft protection program where, if you overdraft your account, the necessary funds are pulled from a linked savings account.

The second type of coverage is called Courtesy Pay. To use this program, you don’t need to have a linked savings account. If you spend more than what’s in your account, Courtesy Pay will cover up to $600 for checks and electronic payments, but not debit card transactions. You can also opt into Courtesy Pay extended coverage, which does cover everyday debit transactions.

Neither overdraft protection nor Courtesy Pay has any fees associated with it.

If You Are (or Were) in the Military : Navy Federal : Free Easy Checking


Navy Federal Credit Union

 Navy Federal Credit Union

  • Minimum Balance to Open: None
  • Monthly Fee: None
  • Overdraft Policy: Multiple coverages to choose from
Pros & Cons
Pros
  • No monthly account fees

  • Multiple overdraft protection options

  • $10 per month in ATM rebates

Cons
  • Overdraft fees apply in some cases

  • Membership limited to military families

  • No interest on checking accounts

Why We Chose It

Navy Federal Credit Union is an excellent option for military families who want a free checking account with perks. Anyone can become a member of Navy Federal Credit Union if they or a member of their family or household has ties to the armed forces, the Department of Defense, or the National Guard.

Navy Federal’s Free Easy Checking account doesn’t have a minimum opening balance requirement, nor does it have ongoing monthly balance requirements. There are no monthly fees for this account, and you’ll get $10 per month in ATM reimbursements.

Details

Navy Federal Credit Union has three different overdraft coverages to choose from. 

  • Overdraft Savings Transfer covers overdrafts by transferring money from your linked savings account. The program is free to join, and there’s no fee for transfers. However, you must have enough money in your savings account to cover your transactions, and it won’t cover debit card transactions.
  • The Checking Line of Credit (CLOC) serves as a line of credit for large or unexpected expenses. There’s no per-item overdraft fee, but the program charges an interest rate ranging from 13.9% to 17.9% on your overdrafted amount.
  • The Optional Overdraft Protection Service covers all transactions, including checks, debit card transactions, ACH transactions, and ATM withdrawals. There’s no fee on transactions of $5 or less or if your overdrafted amount is less than $15. But in other cases, you’ll pay a $20 fee. You’re limited to one overdraft fee per day and total overdrafts of $500. 

If You Prefer a Big Online Bank : Ally Bank : Interest Checking Account


Ally Bank

 Ally Bank

  • Minimum Balance to Open: None
  • Monthly Fee: None
  • Overdraft Policy: Multiple coverages to choose from
Pros & Cons
Pros
  • No account fees or overdraft fees

  • Earn 0.25% APY interest on your balance

  • Two types of overdraft coverage

Cons
  • No cash deposits

  • No physical branches

  • Not eligible for overdraft for first 30 days

Why We Chose It

Ally Bank is one of the most popular online banks. It offers an interest-bearing checking account that pays 0.25% on deposits. There are no minimum opening balance or ongoing balance requirements, nor are there any monthly fees.

Ally Bank allows you to get paid two days early when you have a direct deposit set up. And despite being an online-only bank, Ally has 43,000 no-fee ATMs throughout the country and will reimburse your ATM fees up to $10 per month.

Unlike other banks on our list, Ally Bank doesn’t offer an easy way to deposit cash into your account. To get funds into your account you have a few avenues: deposit a check via Ally’s electronic check service; paycheck direct deposit and online transfers; wire transfer; and mail.

Details

Ally Bank has two overdraft protection options to choose from. 

  • Overdraft Transfer Service allows you to link your Ally Interest Checking Account to either a savings or money market account through Ally. If you spend more than your checking account balance, Ally will transfer money from your savings or money market account to cover it, rounded to the nearest $100.
  • CoverDraft Service is a fee-free overdraft protection that covers up to $250 per month in overdrafts, with a requirement that you pay it back within 14 days. 

When you first open your account, you won’t have coverage for the first 30 days. But then you’ll have $100 of coverage, and if you have direct deposit set up for at least two consecutive months, your CoverDraft Service coverage will increase to $250.

If You Prefer a Regional Bank : BMO : Smart Money Account


BMO Harris Logo Primary

BMO Harris Logo Primary

  • Minimum Balance to Open: $25
  • Monthly Fee: $25 ($0 if you’re under 25)
  • Overdraft Policy: No fees
Pros & Cons
Pros
  • No overdraft fees

  • 40,000 fee-free ATMs and 500+ branches

Cons
  • $5 monthly maintenance fee

  • No interest on checking accounts

  • $25 minimum balance to open account

Why We Chose It

BMO might be the right choice for someone who wants to work with a major regional bank that offers both online access and in-person service at hundreds of branches. While there is a monthly fee of $5 to maintain your account and a minimum deposit of $25, there’s no online balance requirement.

As a traditional bank, BMO offers more than 500 branches in Arizona, Florida, Illinois, Indiana, Kansas, Minnesota, Missouri, and Wisconsin. It also offers access to more than 40,000 fee-free ATMs nationwide.

Details

BMO's Smart Money Account declines ATM and debit card transactions that overdraw your account and returns other transactions as unpaid. In some cases, BMO may allow a transaction to overdraft your account at its discretion. Regardless of whether a transaction overdrafts your account, there are no overdraft fees on this account.

If You Prefer a Big National Bank : Capital One : 360 Checking


Capital One
  • Minimum Balance to Open: None
  • Monthly Fee: None
  • Overdraft Policy: Multiple coverages to choose from
Pros & Cons
Pros
  • No account fees or overdraft fees

  • Earn 0.10% APY interest on your balance

  • Get paid two days early

Cons
  • Lower APY than many competitors

  • Few branch locations

Why We Chose It

Capital One is one of the largest national banks, and while it has physical branches, it’s largely considered an online bank. You can open a Capital One 360 Checking account with no minimum opening balance. There are no monthly balance requirements and no monthly fees.

Capital One has some in-person locations, which include cafes, branches, and more than 70,000 ATMs. You can get your paychecks two days early when you have direct deposit set up. Additionally, you’ll earn 0.10% on your account balance.

Details

Capital One has three different overdraft options.

  • You can set up your account to automatically decline transactions that would overdraft your account.
  • You can link your Capital One 360 Checking account to a savings or money market account. When you make a transaction that will overdraft your account, Capital One will automatically transfer from your other account to cover it.
  • You can choose No-Fee Overdraft, where it will approve certain transactions, including checks, electronic payments, and recurring debit card transactions (such as subscriptions), even if they’ll overdraft your account. You’ll have to deposit funds promptly to cover the shortfall, but Capital One won’t charge you a fee.

Final Verdict

In recent years more and more banks and credit unions have eliminated expensive overdraft fees. While there are plenty of options for overdraft fee-free banks to choose from, the six we shared particularly stand out thanks to their overall low fees and other perks.

Some banks on our list, including SoFi, Alliant Credit Union, and Ally Bank, offer interest on the money in your checking account. SoFi, in particular, offers an impressive 1.20% APY, which is part of what puts it at the top of our list. Other companies on our list offer perks that include nationwide ATMs, ATM fee rebates, early direct deposits on your paychecks, and more.

Compare the Best Banks for Overdraft Protection

Bank and Account  Minimum to Open  Monthly Fee  Overdraft Policy 
SoFi Online Checking Account  None None No fees; coverage for up to $50 with qualifying direct deposits
Alliant Credit Union High-Rate Checking  $25 None  Multiple coverages to choose from 
Navy Federal Credit Union Free Easy Checking  None  None  Multiple coverages to choose from 
Ally Bank Interest Checking Account  None  None  Multiple coverages to choose from 
BMO Smart Money Account  $25  $5  No fees
Capital One 360 Checking  None  None  Multiple coverages to choose from

Guide to Choosing the Best Bank for Overdraft Protection

Factors to Consider When Choosing a Bank With Overdraft Protection

When you’re looking at different banks and their overdraft protection options, here are some things to consider:

  • Terms of the overdraft protection: Before opting into any overdraft programs, it’s important to read the terms. Knowing what you’re signing up for can help avoid costly fees and unexpectedly declined transactions.
  • Overdraft fee waiver: Some banks offer overdraft protection but then charge large fees for it. When comparing different overdraft programs, look specifically for those that waive overdraft fees.
  • Overdraft line of credit: One feature that some banks offer is an overdraft line of credit, where you’ll pay interest on your overdrafted amount. While this isn’t necessarily the same as a fee, it still costs money to use.
  • Overdrafting limit: In many cases, banks place a limit on overdrafts. For example, some banks set limits as low as $50, while at least one on our list allows you to overdraft up to $600.
  • Ability to opt out: Some banks automatically enroll customers in overdraft protection, while others require that they opt in. Either way, make sure you have the ability to opt out of overdraft protection, especially if there are fees involved.

Types of Overdraft Fees

Overdraft fees have become less common in recent years. However, plenty of banks and credit unions still charge them. There are a couple of different types of fees your bank might charge.

The most basic type of fee, an overdraft fee, is charged when you spend more money than you have in your account. Overdraft fees average around $35. Some banks charge you for each transaction that overdrafts your account, while others charge a daily fee.

Some banks may also charge a fee to use their overdraft protection program. For example, a bank might allow you to go negative in your account a certain amount but then charge you a fee. In some cases, the overdraft protection fee applies even if you have an automatic transfer from a savings account set up to cover the overdraft.

Next, some banks charge what’s called an “extended overdraft fee,” which applies when you don’t promptly bring your account balance to positive.

How to Avoid Overdraft Fees

The simplest way to avoid overdraft fees is to avoid spending more money than you have in your account. Unfortunately, while that sounds simple, it’s often far more complicated. A few ways to ensure you always have enough money in your bank account include:

  • Create a budget and track your spending
  • Monitor your bank account regularly
  • Create an artificial buffer in your checking account
  • Set up low balance alerts

In cases where overdrafts are inevitable, there are still ways you can avoid overdraft fees.

First, shop around for a bank that allows fee-free overdrafts. This will help you avoid overdraft fees, NSF fees, and late fees on your bills. Next, link your checking account with a savings account at the same bank. In many cases, your bank can transfer money from your savings account to your checking account to prevent your account from going negative at all.

Frequently Asked Questions

  • What Is the Main Downside to Overdraft Protection?

    Overdraft protection can be an excellent tool to avoid having your debit card transactions declined and avoid having checks and online payments returned. However, it also comes with some downsides worth considering.

    • Overdraft protection often comes with fees each time it's used.
    • When you allow your account to overdraft, you’re spending money you don’t have that you’ll have to replace later.
    • Extended overdraft fees may apply for overdrawn funds that aren’t quickly replaced.
    • If you fail to repay your overdraft promptly, you risk having your account restricted.
  • How Long Does It Take for Overdraft Protection to Take Effect?

    The amount of time it takes for overdraft protection to take effect depends partially on the type of overdraft coverage you have.

    Let’s say you have overdraft protection that allows you to go negative in your bank up to a certain amount without paying a fee. In that case, overdraft protection goes into effect immediately.

    But some overdraft protection programs automatically transfer the overdrawn amount from a linked savings or money market account. In that case, overdraft protection can take up to a few days to go into effect since that’s what’s required to transfer money from one account to another.

  • Does an Overdraft Hurt Your Credit?

    In most cases, overdrafting your bank account doesn’t hurt your credit. However, there are ways it can indirectly affect your credit.

    First, if you fail to repay your overdrawn amount, the bank could eventually send the balance to a collections agency. The amount you owe would go on your credit report and would hurt your credit. And even if you quickly pay off the balance once it goes to collections, it is likely to remain on your credit report for up to seven years.

    Another way overdraft can hurt your credit is if it results in other bills not being paid. Let’s say you’ve overdrafted your account up to your bank’s limit, meaning all transactions will be declined until you replace the funds. During that time, your credit card bill comes due, but you aren’t able to pay it. Your late or missed credit card payment could appear on your credit report.

Methodology

Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews. To rate checking account overdraft protection, we collected hundreds of data points for a score of accounts, including overdraft policies, APYs, fees, and account requirements, to ensure that our reviews help users make informed decisions about their banking needs.

Young man with smart phone using ATM

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Article Sources
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  1. Office of the Comptroller of the Currency. “What Is Overdraft Protection?

  2. FDIC. “Overdraft and Account Fees.”

  3. Popular Bank. “What Is an Extended Overdraft Fee?

  4. Experian. “Does an Overdraft Affect Your Credit Score?