Best Checking Accounts for Minimizing Overdraft Fees

Written by Richard Barrington

Financial Expert

Edited by Kristin Marino

Managing Editor

Is overdrafting your checking account a bad habit you can’t break? Then at least you can limit the damage by choosing an account that keeps the cost of overdrafts relatively low.

Overdraft fees can turn even a small purchase into a big expense.

That’s because banks often charge an overdraft fee for each transaction that occurs while your account is overdrawn.

Losing track of your balance just once can result in multiple charges to your account.

Fortunately, there are checking accounts that can help you minimize overdraft charges. We highlight ten accounts below along with some additional steps you can take to reduce those fees.

What is the Average Overdraft Fee Now?

Discover Bank Cashback Checking

OVERDRAFT FEE: $0

OVERDRAFT FEE CAP: N/A (With no overdraft fee, there is no need to cap the number of fees that can be charged.)

ACCOUNT FEATURES:

A few accounts currently have no overdraft charges, but the Discover Bank Cashback Checking account adds additional value by having no monthly maintenance fee and no minimum balance requirement.

This account even offers cash back on a certain number of transactions.

BANK DETAILS:

Perhaps best known for their popular cash back credit card, Discover also has a significant banking presence with over $80 billion in deposits. They are an online bank, so they’re suitable for consumers that want the convenience and savings associated with online banking.

Axos Bank Essential Checking

OVERDRAFT FEE: $0

OVERDRAFT FEE CAP: N/A

ACCOUNT FEATURES:

Like the Discover account, the Axos Essential Checking account rates has some of the best overdraft protection because it charges no overdraft fee and also has no monthly maintenance fee and no minimum balance requirement.

The only thing that separates it from the Discover account is a $5 monthly fee for paper statements – something that wouldn’t be an issue if you plan to bank exclusively online.

BANK DETAILS:

Axos is primarily an online bank with over $11 billion in customer deposits. They also offer savings and money market accounts which can be linked to their checking account for additional overdraft protection.

Eastern Bank Premier Checking

OVERDRAFT FEE: $0

OVERDRAFT FEE CAP: N/A

ACCOUNT FEATURES:

The Eastern Bank Premier Checking account doesn’t charge overdraft fees but does have a $10 monthly maintenance fee unless you maintain a combined balance of $25,000 in related accounts.

BANK DETAILS:

Eastern Bank is based in Boston, MA and has 90 locations. Customer deposits total over $11 billion.

HSBC Premier Checking

OVERDRAFT FEE: $0

OVERDRAFT FEE CAP: N/A

ACCOUNT FEATURES:

The HSBC Premier Checking account does not charge an overdraft fee but does have a $50 monthly service fee. This fee is waived if you maintain at least $75,000 in combined balances among HSBC accounts.

BANK DETAILS:

HSBC has 159 domestic locations across nine states, and currently houses over $160 billion in customer deposits.

Ally Bank Interest Checking

OVERDRAFT FEE: $25

OVERDRAFT FEE CAP: 1

ACCOUNT FEATURES:

Ally’s overdraft fee of $25 is well below the industry average of $32.11; and with a cap of one overdraft fee per day, Ally could significantly limit the damage from overdrawing your account. This account also has no minimum and no monthly service fee.

BANK DETAILS:

Ally is an exclusively online bank with over $133 billion in customer deposits.

TIAA Bank Yield Pledge Checking

OVERDRAFT FEE: $30

OVERDRAFT FEE CAP: 2

ACCOUNT FEATURES:

The overdraft fee of $30 is a little below the industry average, but the main way this account limits the expense of frequent overdrafts is by capping the number of those fees it will charge in a single day at two.

This account requires $100 to open but has no monthly service fee.

BANK DETAILS:

TIAA offers both online and branch-based banking. They have a total of 14 locations, primarily in Florida, and handle over $31 billion in customer deposits.

State Farm Bank Checking

OVERDRAFT FEE: $25

OVERDRAFT FEE CAP: 3

ACCOUNT FEATURES:

The $25 overdraft fee is well below the industry average and, by capping the number of overdraft fees it can charge in a single day, this account could limit the cost of overdrafts.

The State Farm Bank Checking account has no minimum and no monthly service fee. There is a fee of $5 per month if you want paper statements.

BANK DETAILS:

State Farm Bank offers online banking, including savings and money market accounts that can be linked to your checking account for additional overdraft protection. There is a $3 charge for transfers to cover overdrafts.

State Farm Bank currently has over $11 billion in deposits.

Potential customers should take note that State Farm has announced that its deposit accounts will be acquired by U.S. Bank if the deal is approved by regulators. This could impact the terms offered for those accounts.

Chase Total Checking

OVERDRAFT FEE: $34

OVERDRAFT FEE CAP: 3

ACCOUNT FEATURES:

While the overdraft fee is more expensive than average, people who frequently overdraft their account may find this is mitigated somewhat by the cap of three times a day that you can be charged an overdraft fee.

This account also charges a $12 monthly maintenance fee, but it can be waived under some circumstances.

BANK DETAILS:

Chase is one of the largest financial institutions in the U.S., with over 4,700 branches across 48 states and over $2.6 trillion in domestic deposits.

Wells Fargo Bank Everyday Checking

OVERDRAFT FEE: $35

OVERDRAFT FEE CAP: 3

ACCOUNT FEATURES:

While the $35 overdraft fee is well above average, having this capped at three charges per day could be an attractive feature for those who overdraft frequently.

There is also a $10 monthly fee, but this can be waived if certain conditions are met.

BANK DETAILS:

Wells Fargo is one of the most prominent financial institutions in the country, thanks in part to having over 5,300 locations across 40 states. Wells Fargo has more than $2.3 trillion in domestic deposits.

Avidia Bank Smart Checking

OVERDRAFT FEE: $30

OVERDRAFT FEE CAP: 4

ACCOUNT FEATURES:

With a below-average overdraft fee of $30 and a cap of four overdraft fees per day, this account could be a money-saving option for people who are in the habit of overdrawing their accounts. This account also has no monthly maintenance fee and requires only $10 to open.

BANK DETAILS:

This is the smallest financial institution on this list, with $1.7 billion in deposits across ten locations in Massachusetts.

See current checking account offers

Steps to Take to Minimize Overdraft Charges

Reducing overdraft fees is a matter of both which account you choose and how you use it. Here are some tips that can help:

1. Look at both overdraft fees and daily fee capsTake a cue from the methodology of this study. It’s important to look at both the size of the overdraft fee and the maximum number of those fees you could be charged on one day. Banks with no overdraft fees are very rare, but they are a great place to start your search.
2. Choose an account that matches up well with how you’ll use itSome accounts waive various charges if you maintain a certain account balance. Others allow free balance transfers from savings accounts at the same bank to cover overdrafts.Also, how often you overdraft your account could affect which account is best for you.
3. Know the timing of automatic transactionsIf you have direct deposit and/or automatic bill-pay set up, your account balance may change without your being aware of it. This could cause you to inadvertently overdraft your account.If available, sign up for text notifications of any transactions in your account. At the very least, be aware of the timing of those automatic transactions so you can anticipate when your balance will change.
4. Use online tools for the most up-to-date informationBeing able to view your account online is a big improvement over-relying on monthly statements to check your account balance. If you can, check your balance regularly to avoid accidental overdrafts.
5. Understand how to balance your checking accountBalancing your checking account means comparing your records against the bank’s records to see if there are any differences. This is a vital skill because you may have initiated transactions of which the bank is not yet aware and vice versa. Balance your checking account at least monthly to maintain an accurate picture of your balance.

Between overdraft fees, monthly service charges, and ATM fees, having a checking account can become very costly. Take the time to choose a checking account with reasonable terms that fit the way you’ll use the account. This can save you hundreds of dollars a year.

Methodology: How We Find Checking Accounts that Minimize Overdraft Fees

Overdraft fees can be most damaging when they come in bunches – that is, when banks charge multiple overdraft fees because a customer had more than one transaction on a day when the account was overdrawn.

So MoneyRates surveyed 89 banks and 345 different checking accounts to find the ones that offer:

• low overdraft fees
• caps on the number of fees charged per occurrence

Beyond that, this study also considered monthly fees and account minimums. After all, the higher a bank’s fees, the more likely the account balance is to become overdrawn. Also, minimum balance requirements mean that customers have to be concerned not just with overdrafting the account but also with maintaining a large enough balance to keep the account open.

Frequently Asked Questions

My daughter had a low balance in her checking account ($2) and got hit with an overdraft fee, so now she has a negative balance. She did not write any checks or use a debit or ATM card. How could they assess an overdraft fee when she had a balance in the account?

There are two likely possibilities for what happened:

1. There was a fee charged to the account. Perhaps the bank imposed a monthly maintenance fee or minimum balance penalty, or else there was a fee for some other service, such as getting checks printed. In any case, if the account’s balance wasn’t sufficient to cover the fee, it would have overdrafted the account and triggered the overdraft fee.
2. There may have been an error. Perhaps your daughter made a book-keeping mistake, or the bank charged the account in error. You can determine this by checking your daughter’s records against the bank’s records transaction-by-transaction.

Whatever the cause of the fee, the bank should be willing to work with you to get to the bottom of it. Then you need to take a couple of additional steps:

• If the overdraft was a one-time occurrence because of an honest misunderstanding, you may be able to get the bank to waive the fee this time. Some banks are more forgiving about this kind of thing than others, but it’s worth asking.
• You need to determine whether this checking account is right for your daughter. If she is going to carry a low balance, you need to find an account with no monthly maintenance fee and with no minimum balance requirement. There are checking accounts like this especially for students.