The Fee That Banks Count on You Forgetting
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KEY POINTS
- Traditional banks make billions of dollars in overdraft fees every year.
- Many banks now provide overdraft coverage to help users avoid fees.
- Many accounts now come with the perk of no overdraft fees, so there's no reason not to switch.
Overdraft fees aren't just costly -- they're built to catch you off guard.
Banks rely on the fact that most people either won't notice overdraft fees or won't have the time and energy to dispute them. It's one of the most consistent revenue streams in retail banking -- banks made $12.1 billion on overdraft fees in 2024 alone, according to the Financial Health Network.
Keep reading to learn how overdraft fees work -- and what you can do to avoid them.
How overdraft fees really work
An overdraft fee is triggered when your checking account doesn't have enough funds to cover a transaction, but your bank lets it go through anyway. You're essentially taking out a small loan without asking, then paying a massive interest rate in the form of a flat fee.
Some banks will even reorder your transactions from largest to smallest to increase the number of overdraft fees they can charge in a single day.
It's not about helping you out of a pinch -- it's about squeezing money from a moment of financial vulnerability.
Switch to a bank without overdraft fees
The best way to stop paying overdraft fees is to switch to a bank that doesn't charge them at all. That's where accounts like these come in:
- SoFi Checking and Savings (Member FDIC)
- Capital One 360 Checking
- Discover® Cashback Debit
- Ally Spending Account
- Axos Bank Rewards Checking
One of our favorite options is SoFi Checking and Savings (member FDIC). Users get up to $50 in fee-free overdraft coverage, plus real-time balance notifications to help avoid overdrafts in the first place.
To qualify for SoFi®'s overdraft coverage, you'll just need to set up a direct deposit of at least $1,000 per month. That unlocks its SoFi Member Benefits, which includes other valuable perks like a savings annual percentage yield (APY) of up to 3.80%.
Ready to say goodbye to overdraft fees? Open a SoFi Checking and Savings (Member FDIC) account today.
How to protect yourself from overdraft fees
If you're not ready to switch banks, you can still take steps to avoid these surprise charges:
- Set up low balance alerts in your banking app
- Link your savings account to cover checking overdrafts automatically (but watch out for transfer fees)
- Keep a small cushion ($50-$100) in your account
- Use a budgeting app to track your spending in real time
Make the switch and save today
The best protection against overdraft fees is finding a bank that protects against them, and SoFi® is one of the few that get it right.
I made the switch a few months ago and have loved it so far -- not just because of overdraft protection, but because of its user-friendly interface and APY of up to 3.80%.
Want to earn more on your money? Compare SoFi® with some of our other favorite high-yield savings accounts today.
Our Research Expert
Ryan is a full-time personal finance writer at Motley Fool Money. He’s been covering topics like credit cards and savings since 2022, focusing on helping people who are new to the world of personal finance.
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