How to Choose a Bank Account Without Overdraft Fees

More banks are trimming or dropping charges for overspending your account. CR has tips on finding the right plan.

Vault with magnet attracting hundred dollar bills Photo Illustration: Chris Griggs/Consumer Reports, Getty Images

For years, banks have enjoyed big revenues from charging overdraft fees. Almost 1 in 10 bank customers, often low-income consumers, routinely spends more than they have in their checking account, incurring fees averaging $34 each time.

But banks are confronting growing pressure from regulators, including the Consumer Financial Protection Bureau, which has announced that it will scrutinize banks’ reliance on overdraft fees. Banks also face competition from online rivals that don’t levy those charges. 

Now a growing number of banks (PDF), most recently Citi, have announced that they are eliminating overdraft fees, while others are starting to offer low-cost accounts.

Still, if you tend to overdraw your account, choosing the right option isn’t always easy. And depending on the type of account, eliminating overdraft fees might mean a bounced check and yet another fee. Here’s a guide to what’s available and what might work best for you.

What Banks Are Offering

These days, you are likely to find more choices for no-overdraft-fee or low-fee checking accounts. For example, Ally Financial and Capital One have also eliminated overdraft fees on all their accounts. 

Similarly, PNC Bank offers Low Cash Mode accounts that provide grace periods and other fee-minimizing options to customers who sign up for their Virtual Wallet digital tool services. 

More on Banking and Fees

On a broader scale, more than 200 banks and credit unions, including Alliant Credit Union, Citibank, and Wells Fargo, now offer low-fee Bank On checking accounts (PDF), many of which can be opened online. Designed for low-income customers and those just starting out, these nationally certified accounts charge all-in fees of $5 or less per month, with no overdraft or not-sufficient-fund fees.

Some online banks offer short-term credit to help make up for balance shortfalls. Chime’s SpotMe feature lets customers overdraw up to $200 on their debit cards, while SoFi offers a checking and savings account with no minimum balance that provides no-fee coverage of overdrafts up to $50.

What to Watch Out For

The availability of low-cost checking accounts can save some consumers hundreds of dollars, says Aaron Klein, senior fellow in economic studies at the Brookings Institution. But be aware that these options differ in their terms and features, and some will do more to protect you from fees than others. 

Ally, for example, simply eliminates overdraft fees. Customers who incur an overdraft have two weeks to bring their account back above the negative balance. Customers who deposit $100 are automatically enrolled after 30 days in CoverDraft, which provides overdraft protection for up to $100. 

Wells Fargo’s Clear Access Banking account, which follows the Bank On blueprint for no-overdraft-fee checking accounts, charges a flat $5 monthly fee (waived for account holders who are 13 to 24 years old). 

PNC Bank’s Low Cash Mode accounts give customers at least 24 hours to bring up their balances. Otherwise, a $36 fee is assessed once a day. 

Even if overdraft fees are waived, banks can levy fees in other ways, says Syed Ejaz, policy analyst at Consumer Reports. For example, you could be charged ATM fees or returned-check fees. (For more on these charges, learn how to avoid rising bank fees.)

Choosing the Right Account

While the availability of no-overdraft-fee accounts is growing, finding the one that fits your goals can get complicated. These guidelines can help. 

1. Ask Directly About Bank On Accounts
As noted earlier, many major banks and credit unions offer Bank On accounts. All told, these accounts are available at 47 percent of bank branches nationwide, according to David Rothstein, senior principal at CFE Fund, a nonprofit that leads the Bank On initiative and certifies these accounts. 

Still, these accounts might not be prominently displayed online, or consumers may be steered toward other types of accounts, says Peter Smith, senior researcher at the Center for Responsible Lending. 

Your best strategy is to call or speak to a bank representative, and ask whether they offer a Bank On account at your branch—it may carry a different brand name. If none is available, ask whether the bank offers accounts that don’t charge overdraft fees and how to qualify. 

2. Ask About Other Fees
You’ll need to look beyond overdraft fees to get a complete picture of all the charges you might encounter, from ATM charges to not-sufficient fund fees to monthly service charges. The full fee disclosure may be in PDF form, Smith says. Grab a coffee and click through to avoid surprises.

Depending on your account, you may be able to opt out of overdraft services for some types of transactions, such as debit card purchases. Just remember, if you do, your bank will decline a purchase or a withdrawal larger than your balance. 

3. Consider Overdraft Protection
If you have enough money to set up a separate savings account, consider opting for overdraft protection by linking it to your checking account. That way, money will be pulled from your savings account into checking if your balance goes negative. There may be a fee to use it, but it’s typically lower than an overdraft fee. 

4. Set Up Account Notifications
Take full advantage of digital tools like the bank’s app or using text alerts to keep track of your balance and prevent overdrafts, says Greg McBride, chief financial analyst at Bankrate. Set up alerts so that you’re notified when your balance falls below, say, $100, or if a bill payment is due. That way, you can add money or cancel the transaction to avoid a negative balance.

5. Ask for a Fee Waiver
If you do get hit with an overdraft fee, you may be able to get the charge removed by calling your bank and asking for a refund, Klein says. If you’ve been a good customer, and you’ve rarely incurred these fees, there’s a good chance your bank will reimburse you. 

Photo of CR Money editor, Penny Wang.

Penelope Wang

I cover everything from retirement planning to taxes to college saving. My goal is to help people improve their finances, so they have less stress and more freedom. What I enjoy: walks through the city, time with family, and reading mysteries, though I rarely guess who did it. Follow me on Twitter (@PennyWriter).