When your bank account goes negative, it means you’ve spent more money than you had in your account. Not only will your balance show as negative, but you’ll also have to pay bank fees.
Your balance can go negative when you try to purchase something that costs more money than what you have in your account. The bank loans you the money to make the purchase. You then owe them this amount, which is your negative account balance.
But rarely is the negative balance only what the bank loaned you. They also charge fees, which is how they make money. They’re penalizing you for needing a loan from them. These fees can add up, especially since you have to pay them on top of the amount you still owe.
What Happens If Your Bank Account Goes Negative
A negative bank account means you’ve spent more money than you have. Your balance will show that you have less than zero dollars in your account. There are many reasons that your bank account can go negative.
Reasons Why Your Bank Account Can Go Negative
This might happen because you lost track of your expenses. You might have incorrectly added up your previous expenses and thought you had enough money for one more purchase. Maybe you deposited a check and spent some of the money before the check cleared.
If you have autopay set up for some of your bills, you should keep a close eye on your bank accounts. Most companies alert you a day or two before they charge your account. With or without an alert, you need to ensure you have the funds, so an autopay bill won’t cause your account to go negative.
You might feel like you don’t have to worry about a negative account balance because you don’t write checks but think of everything linked to your bank account. You have your debit card, ATM withdrawals, and bills you might autopay. Some of your online accounts might also connect to your bank account, like PayPal, Amazon, eBay, and more.
Consequences of a Negative Bank Account
Different banks approach negative account balances in various ways. It’s best to check with your specific institution to understand what might happen if you don’t have enough money in your account to cover an expense.
Most banks will loan you the money because it allows them to charge a fee. This fee means the bank is making money off of your misfortune, which is good for them. However, they might limit how many times they’ll cover an overdraft for you.
Some banks won’t cover your charge at all. When this happens, your purchase won’t go through if you’re using a debit card. If you paid a bill with a check, the check will bounce. A check bouncing could mean you have to pay a fee to the bank as well as late fees and bounce charges to the company the check was for.
Even if your bank declined the overdraft charge, they might still post a fee to your account. This is a non-sufficient funds (NSF) fee. The NSF fee can come whether you’re trying to use your debit card or write a check and is in addition to any fees the other company might charge you for their troubles.
How Long Can Your Bank Account Be Negative
While you can technically still use your debit card if you have a negative bank account balance, you don’t want to do that. You’re going to keep adding up fees for each attempted transaction. Then you’ll not only owe the bank the money they loaned you but also a hefty fee for each purchase.
Remember that your debit card links to your bank account, so having a negative bank account balance also means that you have a negative balance on your debit card.
If your bank account stays negative, the bank might close it. You typically have anywhere from 45 to 60 days with a negative balance before they close your account.
What Happens if You Overdraft Your Checking Account
If you overdraft your checking account, the best thing to do is pay the fees right away. Letting it sit too long can lead to more severe consequences, like additional fees, debt collection, or a closed account.
Whether your bank covers your charge and tacks on overdraft fees or simply denies the transaction, several things can happen if you overdraft your checking account.
Overdraft Fees
Overdraft fees are the most common result of a bank account having a negative balance. Banks typically charge an overdraft fee for each transaction you try to send through if you have a negative account balance.
Therefore, if you think the debit card rejection was a mistake, check your bank balance before running the transaction again.
Account Freeze or Closure
Many banks have limits on how many overdraft fees they’ll cover. If you continually try to charge things while you have insufficient funds, the bank might freeze your account. Freezing your account is a step before closure. The bank makes it so no transactions can go through.
If you deposit a check or have direct deposit through your job or the IRS, that check will still go into your frozen account. The funds will first pay off your negative balance and fees. It’s essential to keep an eye on your account even when it’s frozen, so you don’t use money from a check that has paid back expenses.
Failing to pay your fees and negative balance, whether your account is first frozen or not, might lead to the bank charging off your account. When this happens, the bank realizes you don’t have money coming in to pay them off. So they close your account and send the money to collections.
If you want to close the account yourself, you first have to pay off your fees and negative balance. The bank will most likely prevent you from closing the account if you still owe money. Don’t ignore the account, either, because the fees could keep compounding, making you owe even more.
Debt Collection
The bank closing your account doesn’t mean everything is over. They might report you to a collection agency. The collection agency can then come after you for the money you owe the bank.
After your information goes to a debt collection agency, you can still settle. You can pay the bank, and they’ll notify the credit agencies to show you’ve paid. You could also pay the amount to the collection agency instead of dealing with the bank again.
Once you pay off your debt, you can reopen your account at the same bank or take your business elsewhere. The closed account won’t prevent you from getting a normal account at other banks because you’ve paid it off.
Bad Credit Score
Having a negative bank account balance can also impact your credit score. If the bank reported your situation, it will stay on your banking history for seven years. Other banks will pull this record when you try to open a new account or get a credit card.
This mark on your credit score could prevent you from opening a new account at another bank. The new bank might make you open a second chance account, which has higher fees and more restrictions than a normal account. This is because your record shows that you frequently have a negative balance, and the bank needs to protect its funds.
My Bank Account Is Overdrawn, and I Have No Money
If your account is overdrawn and you don’t have any money, stop using that account. That doesn’t mean try to close it and forget about the fees, but rather stop charging things to it. Continual usage will mean additional fees, making it harder to pay off.
In addition to not using your debit card or writing checks linked to the overdrawn account, consider your autopay bills. Make sure nothing is coming out from that account, or else the payments may bounce, and you’ll owe more fees.
You can always ask your bank to waive the overdraft fee. The worst they could say is no. Sometimes they might waive it as a one-time courtesy, especially if you’ve been a loyal customer and haven’t overdrawn your account before.
Prevent Overdraft Charges
The Financial Health Network found that American consumers paid over $12 billion in overdraft fees in 2020 alone. This averages out to mean that every adult in the United States paid about $45 in fees. However, just because it’s common doesn’t mean you have to deal with these charges.
You can prevent this from happening by opting out of overdraft coverage. This protection means that a purchase won’t go through if you don’t have enough money to pay for it. Instead of a store charging your debit card for $150 when you only have $100 in the account, the machine will decline the card.
You might feel embarrassed because you aren’t able to make the purchase. However, it’s better than paying a massive overdraft fee, in addition to owing the bank that $50 you didn’t have in the first place.
Link Your Accounts
Find out if your bank allows you to link a savings account to your checking account. If so, you might not have to worry about overdraft fees anymore. If you write a check or make a debit card purchase for more money than you have in your checking account, the bank will pull money from your savings.
There is often a fee involved with this coverage, but it prevents you from having a negative balance, so it’s worth it. However, this approach only works if you have money in your savings account. If you don’t have enough to cover the debit purchase or check, you might wind up paying even more fees.
Some banks even allow you to link a line of credit to your debit card. You won’t get overdraft or NSF fees because the bank charges the amount to the credit card. You’ll still have to pay off this money, though. If you don’t pay it off on time, you’ll have interest fees from the credit card company.
If your bank doesn’t allow you to link accounts, consider finding a bank that does. Remember, you first need to pay off all fees and negative balances before closing your other account. This will keep you in good standing so you can get a normal account at another bank.
Set Up Alerts
Some banks have intricate alert systems that can keep your account from getting overdrawn. You can have alerts texted or emailed to you when your balance hits a certain amount. Then you’ll know not to charge anything larger than what’s left in your account.
See if your bank allows you to customize alerts. You can choose an amount higher than the bank’s alert default. This alert gives you a bit of a buffer. You know you can make another small charge or two before you’re at risk of a negative balance.
Manage Your Expenses
The simplest method of preventing overdraft fees and negative account balances is to keep track of your expenses. Many banks have websites and apps that allow you to check your balance when you’re out and about.
If you don’t have access to this service, consider checking your account balance every day or two. Write it down and have it accessible so you can mentally subtract potential expenses before you try to charge them. This approach can help you cut down on fees.
Final Notes
If your bank account goes negative, you need to stop spending money on any cards or checks that link to that account. Continuing to charge money when you have none will result in hefty bank fees. Repeatedly overdrafting your account makes you a financial risk, so banks might close your account and report you to debt collection agencies. Your credit score could also suffer. Instead of facing these risks, make sure you follow the guide above to prevent a negative account balance.
