To be clear: overdrafting a checking account is a bad habit. Overdraft fees can be very expensive, and frequent overdrafts may be a sign you are spending more than you can afford.
Then again, everyone has bad habits, and if overdrafting your checking account is one of yours, you should choose a bank that isn't going to compound the problem by charging especially high overdraft fees.
What makes for a good checking account if you have a habit of overdrafting your balance? Here are some characteristics:
- Low overdraft fee
With the average overdraft fee now up to $32.75, you might not find banks with no overdraft fees, but finding a bank that charges you less when you make this mistake can help limit the damage.
- Cap on the number of fees
When people overdraft their accounts, they may conduct multiple transactions before restoring their balance. If this results in multiple fees, one overdraft can actually run into the hundreds of dollars. Fortunately, many banks cap the number of overdraft fees they charge for any one occurrence, so looking for a low daily cap can help save you from your mistakes becoming exorbitantly expensive.
- Low minimum balance
Banks with free checking and no minimum balance may be elusive; but if you habitually overdraft your account, it implies that you don't keep a particularly large balance to begin with. Thus, look for an account with a low balance requirement.
- Minimize monthly maintenance fees
While free checking accounts have become relatively scarce, it is possible to find a checking account with no fees. If you are going to be paying the bank regular overdraft fees, why add to this with a monthly fee? Look for an account with a low or no maintenance fee.
- Free balance transfers
Banks that allow you to transfer money from savings or other accounts with no additional charge can help you cover your overdrafts efficiently.
Based on the above characteristics, MoneyRates identified 10 checking accounts that may be good choices if you tend to overdraft your account.
Best checking accounts for minimizing overdraft fees - November 2018
Through a combination of low overdraft fees and caps on the number of fees per occurrence, the following are the best checking accounts for minimizing overdraft fees if you habitually overdraft your account:
- Ally Bank Interest Checking
Ally has an overdraft fee that is well below average at $25, and it earns the top spot on this list by combining that with a policy of charging only one overdraft fee per day, even if you have multiple transactions while your balance was negative on a given day. If you have a savings or money market account with them, Ally will also automatically transfer funds from those accounts to cover an overdraft at no extra charge.
- Discover Cashback Checking
Like Ally, Discover will limit your overdraft charges to one per day. Discover's overdraft fee of $30 is a little higher than Ally's but still below the industry average.
- TIAA Direct Interest Checking
This account combines a below-average overdraft fee of $30 with a cap of two such charges per day.
- Arvest Bank Basic Blue Checking
At $17, Arvest has one of the lowest overdraft fees available. However, since they don't cap how many fees they can charge per day, you could rack up several times that if you happen to have a lot of transactions on a day when your balance is overdrawn.
- State Farm Bank Free Checking
A relatively modest $25 overdraft fee coupled with a cap of three such fees per day makes this a good option if you have a habit of overdrafting your account.
- UFB Direct Checking
The terms of this account are almost identical to those of the State Farm account -- a $25 overdraft fee, a maximum of three overdraft fees per day, and no monthly maintenance fee. A slightly higher minimum deposit to open an account was used as a tie-breaker; but at just $100, the UFB Direct minimum shouldn't be an issue for most people.
- Opus Bank Personal Checking
The $30 overdraft fee is cheaper than the industry average, and the cap of three such fees per day could come in handy for some customers.
- Cathy Bank Simple Checking
The $25 overdraft fee is very low by industry standards. The number of fees per day is capped; but with that cap at a possible eight such charges, this could still make for a very expensive day if you get careless.
- Amalgamated Bank Online Checking
The $25 overdraft fee is a positive, but be advised -- there is no cap on how many times this can be charged per day.
- Radius Bank Checking
Similar terms to the Amalgamated Bank account -- $25 overdraft fee, with no daily cap. This was ranked just below the Amalgamated account because of a higher minimum opening deposit; but at $100, this is not an unreasonable hurdle.
The most cost-effective solution for your banking needs depends on several factors -- how often you overdraft, whether your overdrafts tend to come singly or in bunches, and what your typical balance is. The above are strong examples of banks that can help you minimize overdraft fees, and these examples should help you find a bank that would work best for your situation.