What Happens When You Go Negative in Your Bank Account?
Understand the financial impact and banking consequences of a negative bank account balance. Learn how to address and resolve it.
A negative bank account balance occurs when the amount of money withdrawn or debited from an account exceeds the available funds. This situation is often referred to as an overdraft. Banks have established policies and procedures to manage these instances, which can vary across financial institutions. Understanding these policies is important for account holders to navigate such situations effectively.
Immediate Account Behavior
When an account approaches or enters a negative balance, banks typically respond immediately. Transactions that would push an account into the negative, such as debit card purchases or ATM withdrawals, may be declined at the point of sale. Checks written on an overdrawn account may also be returned unpaid. Banks often send automated notifications, including emails or text messages, to inform the account holder about the low or negative balance.
Even if an account has overdraft protection, which allows transactions to go through despite insufficient funds, the account balance will still reflect a negative amount. This protection functions as a short-term loan from the bank to cover the shortfall. The bank covers the transaction, but the account holder is then obligated to repay the overdrawn amount.
Understanding Related Fees
Entering a negative balance results in various fees charged by the bank. These fees compensate the financial institution for covering transactions or processing items without sufficient funds. The primary types of fees are overdraft fees and non-sufficient funds (NSF) fees.
An overdraft fee is incurred when the bank covers a transaction that exceeds the available balance in an account. The average overdraft fee in 2024 was approximately $27.08, though this amount can vary by bank, ranging from about $10 to $40. Some banks may also charge continuous or daily overdraft fees if the negative balance persists over multiple days, typically ranging from $5 to $10.
In contrast, a Non-Sufficient Funds (NSF) fee, also known as a returned item fee, is charged when the bank does not cover a transaction due to insufficient funds, and the transaction is returned or declined. The average NSF fee in 2024 was around $17.72. While both overdraft and NSF fees arise from insufficient funds, the key distinction is whether the bank covers the transaction (overdraft) or declines it (NSF). Banks cannot charge both an overdraft and an NSF fee for the same transaction.
Steps to Resolve the Balance
Address a negative bank account balance promptly to avoid accumulating additional fees and potential complications. The first step involves accurately determining the precise negative amount, which includes the original overdrawn sum and any incurred fees. This information can typically be accessed through online banking platforms or by directly contacting the bank.
The primary method to resolve a negative balance is by depositing sufficient funds into the account. This deposit must cover not only the negative balance but also any associated overdraft or NSF fees that have been charged. Many banks will apply any incoming deposits, such as direct deposits, first to clear the negative balance and outstanding fees.
Contacting the bank directly is another step. Account holders can discuss the situation, understand the bank’s specific policies regarding negative balances, and inquire about the possibility of waiving fees. While fee waivers are not guaranteed, it can be a viable option to explore, especially for a first occurrence. Resolving the balance quickly can help prevent further charges.
Bank Actions for Unresolved Balances
If a negative bank account balance remains unresolved for an extended period, financial institutions will take further action to recover the outstanding funds. One common action is the closure of the account. Banks may close accounts that consistently remain in a negative status or have multiple instances of overdrafts. Once an account is closed, future transactions, including direct deposits and automatic payments, will be blocked.
An unresolved negative balance can also lead to reporting to ChexSystems, a consumer reporting agency that banks use to assess risk when individuals apply for new accounts. A negative entry on a ChexSystems report can make it difficult for an individual to open new checking or savings accounts at other financial institutions for several years.
Ultimately, the bank may pursue collection efforts for the outstanding debt. This can involve internal collection departments contacting the account holder to arrange repayment. If these efforts are unsuccessful, the bank might sell the debt to a third-party collection agency. This process aims to recover the overdrawn amount and any accumulated fees.