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 $32.84, 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 with low overdraft fees
- Ally Bank Interest Checking
At $25, Ally's overdraft fee isn't the lowest but it is well below the industry average. What sweetens the deal is that Ally charges no more than one such fee per day, which can save you significant money if you have multiple transactions while your account is overdrafted. With no minimum, no monthly fee, and free balance transfers, this account includes important features for people who often face overdraft penalties.
- Arvest Bank Free Blue Checking
Arvest's $17 overdraft fee is one of the lowest around, though it places no cap on how many times it can charge this on a given day and they also charge $10 for a balance transfer to cover your overdraft. This account has an accessible $50 minimum balance and no monthly maintenance fee.
- TIAA Direct Interest Checking
This offers free checking with a $25 overdraft fee and a maximum of three such fees per day. It also features a $100 minimum to open and free balance transfers.
- State Farm Bank Checking
Very similar to the TIAA account in that it is a free checking account which charges a $25 overdraft fee with a maximum of three per day. It has an even lower minimum to open ($25) but charges $3 for balance transfers.
- Radius Checking
Free checking with a $10 minimum to open, free balance transfers and an overdraft fee of $25. The only drawback is that daily overdraft fees aren't capped.
- Discover Cashback Checking
This has a slightly higher overdraft fee at $30, but these are capped at one per day. No monthly fee or minimum balance requirement.
- Capital One 360 Checking
Meets the tests of no monthly fee or minimum balance. At $35, the overdraft fee is the highest on this list, but they offer an option in which overdraft fees are waived if you cover the overdraft within one business day (you are still charged $9 for a bounced check, however).
- Central Pacific Bank Value Checking
No monthly fee or minimum balance, with a $30 overdraft fee capped at five per day.
- First Hawaiian Bank Pure Checking
Similar to the above with respect to overdrafts, and with a reasonable $100 minimum to open an account.
- Cathay Bank Simple Checking
The combination of a $25 minimum to open and a $25 overdraft fee is attractive. The drawbacks are that there is a $6 monthly maintenance fee, and the cap of eight daily overdraft fees is fairly high.
Please note that account terms offered by banks may depend on location and are subject to change at any time, so check the current details before signing up for any account.
These selections are based on the MoneyRates Index, which is a cross-section of the banking industry representing the 50 largest retail deposit institutions plus 25 medium-sized and 25 small banks. It is possible that you may find other banks offering attractive terms on overdraft fees, but the descriptions above should give you a better feel of what overdraft terms are competitive.