Overdraft "protection" might be costing you. Here's how to avoid the fee trap

Many consumers may have heard that overdraft fees were on the way out. But those charges remain a costly reality for millions of Americans, a new report suggests.

According to the National Consumer Law Center, consumers paid more than $12 billion in overdraft and insufficient funds fees in 2025, despite years of efforts by regulators to curb the charges.

Federal regulators had previously proposed limiting many overdraft fees to about $5. However, that rule was reversed, allowing many banks to continue charging fees that can exceed $30 when an account balance drops below zero.

How overdraft fees work

An overdraft fee is typically charged when a bank allows a transaction to go through even though there is not enough money in an account to cover it.

While a single fee may seem manageable, consumer advocates warn the costs can snowball, particularly for households already struggling to make ends meet.

The Consumer Financial Protection Bureau previously found that a relatively small percentage of account holders generate the majority of overdraft fee revenue. According to Ted Rossman of Money Management International, the CFPB found that 8% of overdrafters incur 75% of all overdraft fees.

"That's really what's most important here," Rossman said. "We're talking about a vulnerable audience."

Simple ways to avoid overdraft charges

Experts say there are several steps consumers can take to avoid getting hit with overdraft fees.

Among them:

• Set up low-balance alerts through your bank.
• Link your checking account to a savings account that can cover shortfalls.
• Consider opting out of overdraft coverage.
• Regularly monitor your account balance.
• Compare banks that do not charge overdraft fees.

Rossman said opting out of overdraft coverage may sound counterintuitive, but it can actually save consumers money.

"Sometimes, honestly, you'd rather just have your transaction denied than end up paying an extra 35 bucks for that cup of coffee or whatever it was," Rossman said.

When overdraft fees become a pattern

For some consumers, overdraft fees stem from an occasional mistake.

For others, they reflect broader financial challenges.

"There are a ton of people who are struggling with high-cost debt and budgets that are just not matching up, and people are looking for solutions," Rossman said. "Sometimes people are kind of bridging the gap to the next payday with an overdraft."

Rossman said consumers who find themselves repeatedly paying overdraft fees should consider seeking help through nonprofit credit counseling organizations or taking a closer look at their budgets.

He also cautioned against treating overdrafts as a long-term strategy.

"Don't just continually pay these 30 or 40 dollar fees, because that can really add up over the course of the year," Rossman said.

Shopping for a different bank may help

While many banks still charge overdraft fees, some major financial institutions have voluntarily eliminated them.

The NCLC notes that institutions including Capital One, Citibank, American Express and Ally Bank no longer charge overdraft fees.

Consumer advocates say that if overdraft fees repeatedly appear on your bank statement, it may be worth comparing accounts and exploring alternatives that better fit your financial situation.

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