Here's What Happens When You Spend More Money Than You Have in Your Bank Account

Most of us know that feeling when we check our bank accounts and are stressed by how little we see there. But for some people, that stress takes on a whole new level when they realize they've withdrawn more money than they had to their name in the first place. This is known as an overdraft, and it can get pretty costly, especially if you don't know how your bank handles them. 

Fortunately, with a little bit of knowledge and a decent strategy in place, you can reduce your risk of costly overdraft fees and maybe even avoid them altogether.

How bank overdrafts work

Overdrafts are when you withdraw more money from your account than you had in there to begin with. Banks typically handle these in one of two ways. The standard way is to deny any withdrawal attempts if you don't have the funds in the account to back it up. Say you try to use your debit card to make a $50 purchase when you only have $20 in your account. Usually, your card will get declined and you'll need to find another way to make that purchase.

But sometimes you really need the money and you know you'll have some coming in soon. That's where overdraft protection could be helpful. If you opt into this, your bank will approve your transaction, even though you don't have enough money in your account right now. But as a consequence, it may also charge you a per-transaction fee for every transaction you make that pushes your account into the negative.

That's where overdrafts can become really dangerous. They cost around $35 on average. If you don't realize you've overdrawn your account and make several purchases, you could easily wind up with hundreds of dollars in overdraft fees in a single day. And some banks charge additional daily overdraft fees for each day your account remains in the negative.

If you fail to pay back your overdraft fees in what your bank considers a reasonable amount of time, it could even close your account. Then, it'll likely report you to ChexSystems. Banks look at your ChexSystems report when deciding whether to give you a new bank account, and if your report shows a failure to pay fees, you may have trouble obtaining a new bank account in the future.

What to do if you owe overdraft fees

Owing overdraft fees is no fun, but it might not be as big of a deal as you think. Some financial institutions are willing to waive overdraft fees if you simply call and ask. Explain what happened and highlight your long history as a customer if appropriate. Then, request a refund. Banks are under no obligation to do this, but they might if they want to keep your business. However, this may not work for you if you routinely incur overdraft fees.

If your bank denies your request, you'll still be on the hook for the fees. You may have to budget a portion of each paycheck until you've paid it off if you want to avoid account closure and the negative mark on your ChexSystems report.

You may also want to explore moving your money to a different bank account that doesn't charge overdraft fees or caps the daily overdraft fees it charges. You can find this information by either contacting the bank or viewing the fee schedule for the account you're considering. This should be available on the bank's website.

If you don't want to worry about overdraft fees going forward, consider opting out of overdraft protection going forward. This way, your bank won't be able to charge you fees for one-time debit card or ATM withdrawals that exceed your account's current balance. However, you should note that banks can still charge you fees for check and ACH withdrawals that exceed your balance even if you've opted out of overdraft protection. You'll also need a back-up plan for how you'll cover purchases when you're low on cash.

Another option is to keep your overdraft protection and sign up for alerts so you know when your balance is getting low. If you have a savings account at the same bank, you might be able to link the two and set up an automatic funds transfer from your savings account to your checking account as needed so you don't get hit with an overdraft fee.

You can always try one approach for now and then if it doesn't work out like you'd hoped, you can adjust your strategy and try again. And don't be afraid to reach out to your bank with any questions if you're uncertain about how it handles overdraft fees or when you could face charges. The more you know, the better prepared you'll be.