Maybe you’ve been here before: You swiped your debit card or clicked “check out” on a purchase that was a little more expensive than you were ready for, and you got hit with fees from your bank. While Ally Bank doesn’t charge overdraft fees, many financial institutions do, and learning how and why these charges happen can help you avoid them in the future.
How overdraft fees happen
If you spend more money than you have in your account — whether by using your debit card, writing a check or making an ACH payment (for instance, a bill paid directly from your account) — you may be charged an overdraft fee. To get your account back on track, you’d have to pay back the negative balance, plus the extra charge.
Read more: 8 ways an Ally Bank Spending Account can simplify your finances.
Overdraft fees can cost about $35 per transaction, which can add up quickly, especially if you overdraw your account frequently. Repeated overdrafts may lead to repeated fees, up to your bank’s limit. If your account ends up with a negative balance and remains negative for too long, some banks might also add a negative balance fee every day your account stays below $0.
Overdraft vs. non-sufficient fund fees
If you do try to use more money than you have in your account, you could be charged a non-sufficient funds fee instead of an overdraft fee. Both are an extra charge for sending your account below $0, but they are slightly different:
Overdraft fees enable you to continue paying bills and making purchases, even after your account balance reaches (or passes) $0.
Non-sufficient funds, or NSF, fees occur when your bank declines to pay for the transaction. In this case, your payment will be declined and your account could go negative due to fees. For example, if you write a check without enough funds to cover the payment, it will be returned unpaid and you will be responsible for the NSF fee. The recipient of the NSF check can also be charged a fee. If this check was written to a merchant, they may pass that fee onto you.
Our checking account — the Ally Bank Spending Account — doesn't charge either of these fees, so if you’re an account holder, you don’t have to worry about them.
How overdrafts can impact your credit
Failing to pay your debt in what your bank determines to be a timely manner could result in the outstanding debt being sent to a collection agency. This will negatively affect your credit score, and even if you pay the money back, the delinquency will stay on your credit report for the next seven years. But don’t stress — you can still work to improve your credit score.
4 ways to avoid overdraft fees
Consider these methods for safeguarding your account against overdrafting:
1. Track your balance
Stay on top of how much money you have in your account. Banking online, like with Ally Bank, makes it easy to keep track of your balance — which is a good thing, even when the bank doesn’t charge overdraft fees. At Ally Bank, you get 24/7 account access, so you can bank anywhere, anytime and on any device.
2. Sign up for alerts
Set up automatic alerts to notify you when your account dips under a certain balance. This way, you’ll know to transfer money into your account, take a break from using your debit card or avoid making ATM withdrawals.
3. Opt-in to overdraft protection
Overdraft coverage lets you link your checking account with another account (like a savings account), so that if your account balance goes below $0, funds in the linked account will cover the outstanding balance to avoid an overdraft. Some banks may charge for this service or offer overdraft protection as a loan product — but Ally Bank's Overdraft Transfer Service is free of charge.
4. Automate your deposits
Set up recurring deposits to keep a consistent flow of money in your account.
How CoverdraftSM can help you avoid overdraft fees
At Ally, we offer CoverDraft as a way to provide a safety net for you and your money.
In most cases, you’ll qualify for CoverDraft 30 days after you deposit a total of $100 into your Ally Bank Spending Account (our version of a checking account). If CoverDraft applies in a situation where you happen to overspend, we’ll cover $100 — and up to $250, if you receive a qualifying direct deposit of at least $250 for two months in a row. You’ll then have 14 days to bring your balance out of the negative, with no hidden fees.
Keep in mind, CoverDraft isn't a line of credit or a guarantee. If your purchase isn't covered for any reason (let's say the transaction exceeds your CoverDraft limit, for example), it will be declined — but we'll never charge you an overdraft fee.
Bank with no overdraft fees
In 2021, Ally became one of the first large U.S. banks to eliminate overdraft fees. It’s just one of the ways we work to be your financial ally. Overdrawing your account happens — but at Ally, we believe it shouldn’t stop you from pursuing your goals.
