What Happens If You Go Negative in Your Bank Account?

A negative bank account balance occurs when money spent or withdrawn exceeds available funds. This situation, often called an overdrawn account, can trigger various financial consequences. Understanding these mechanisms and repercussions is important for maintaining sound financial health.

Understanding Overdrafts

An overdraft occurs when a transaction processes without enough funds in the account, resulting in a negative balance. Common reasons include debit card purchases exceeding available funds, ATM withdrawals of more cash than present, or automatic bill payments and checks clearing with insufficient funds. Pending transactions can also lead to an unexpected negative balance.

Banks offer two main approaches to handling insufficient funds: overdraft protection and standard overdraft services. Overdraft protection links a checking account to another account, like savings, a credit card, or a line of credit. If the checking balance is too low, funds transfer automatically from the linked account to cover the transaction, often for a lower transfer fee than an overdraft fee. Standard overdraft services mean the bank may, at its discretion, allow transactions to go through with insufficient funds, then charge an overdraft fee for each instance. Under Regulation E, banks must obtain explicit “opt-in” consent to charge fees for overdrafts from ATM withdrawals and everyday debit card transactions. Without this opt-in, these transactions are generally declined if funds are unavailable. However, checks and automatic bill payments (ACH transactions) may still be paid into overdraft and incur fees even without an opt-in for debit card and ATM overdraft services.

Immediate Financial Consequences

When a bank account goes negative, several immediate financial charges can arise. Overdraft fees are assessed each time a transaction causes the balance to drop below zero. These fees range from approximately $15 to $37 per transaction, with many banks charging around $35. Multiple transactions while the account is negative can result in multiple fees, though some banks may limit the number of overdraft fees charged per day.

Another charge is a Non-Sufficient Funds (NSF) fee, also known as a “returned item” fee. This fee is charged when a transaction, such as a check or an Automated Clearing House (ACH) payment, is returned unpaid due to insufficient funds. NSF fees are often similar to overdraft fees. Some banks may also impose continuous overdraft fees, which are daily or recurring charges assessed for each day the account remains overdrawn.

If an account holder has not opted into overdraft services for certain transaction types, or if the overdraft limit is reached, transactions will be declined. For example, a debit card purchase might be refused at the point of sale, or an ATM withdrawal attempt denied. Any subsequent incoming deposits to an overdrawn account will first be used by the bank to cover the negative balance and any incurred fees before becoming available.

Steps to Resolve a Negative Balance

Addressing a negative bank account balance promptly prevents further fees and complications. Depositing funds into the account is a primary way to resolve the deficit. This can be done through ATM deposits, mobile check deposits, in-person deposits at a bank branch, or direct deposits. A timely deposit covers the negative amount and any outstanding fees, potentially avoiding additional charges.

Contacting the bank immediately upon realizing an account is negative is also important. This allows the account holder to understand the exact negative amount, including all fees incurred, and discuss potential options. Many banks may waive overdraft fees, especially for first-time occurrences or if the account holder has a history of good account management and makes a quick deposit. When requesting a fee waiver, highlighting a long-standing relationship with the bank can be helpful.

Understanding the bank’s cut-off times for deposits is important. Funds deposited after a certain time may not process until the next business day, impacting when the negative balance clears and whether additional fees are assessed. Stopping automatic payments linked to the overdrawn account can prevent further transactions from adding to the negative balance until it is resolved.

Impact on Banking Relationship and Financial Standing

Beyond immediate fees, a persistent negative bank account balance can have broader, longer-term consequences for an individual’s banking relationship and financial standing. Banks may close accounts that are frequently or severely overdrawn and remain negative for an extended period, often within 30 to 60 days.

When an account closes due to an unresolved negative balance, the bank may report the incident to ChexSystems, a consumer reporting agency for banking activity. A negative mark in ChexSystems can make it difficult to open new bank accounts at other financial institutions for up to five years.

While an overdraft itself typically does not directly impact a credit score because checking accounts are not reported to major credit bureaus, this changes if the debt is not resolved. If the bank sells the outstanding negative balance to a collection agency, that activity can be reported to credit bureaus and negatively affect the individual’s credit score. Unpaid negative balances lead to collection efforts, which may involve contacting the account holder directly, sending the debt to an internal collections department, or selling it to a third-party collection agency. This process can escalate to legal action if the debt remains unpaid.