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Best Checking Accounts for Minimizing Overdraft Fees

| MoneyRates.com Senior Financial Analyst, CFA
min read
Is overdrafting your checking account a bad habit you can't break? Then at least you can minimize the damage by choosing an account that keeps the cost of overdrafts relatively low.

losing moneyTo be clear, overdrafting a checking account is a bad habit. Overdraft fees are 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.

Finding the best checking account if you overdraft frequently

What makes for a good checking account if you have a habit of overdrafting your balance? Here are some characteristics:

  • Low overdraft fee

    Start with a relatively low overdraft fee. With the average overdraft fee now up to $32.30, finding a bank that will charge you less when you make this mistake will help limit the damage.

  • Cap on the number of fees

    A cap on the number of overdraft fees can also help. 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 on any one day, so looking for a low daily cap can help save you from your mistakes becoming exorbitantly expensive.

  • Minimize monthly maintenance fees

    Minimizing monthly maintenance fees can help keep your balance intact. While free checking accounts are becoming relatively scarce, they do still exist. 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.

  • Low minimum balance

    A low minimum balance is a must. If you habitually overdraft your account, it implies that you don't generally keep a particularly large balance in the account. Thus, you should look for an account with a low balance requirement.

  • Free balance transfers

    Free balance transfers may help you put your account right. Banks that allow you to transfer money from savings or other accounts with no additional charge might help you cover your overdrafts efficiently.

While few accounts have all of the above going for them, MoneyRates looked for checking accounts with at least some of these characteristics and identified ten accounts that could be a good choice if you tend to overdraft your account.

Keep in mind that, while these accounts can help you manage the cost of overdrafts, if you incur overdrafts too frequently there is a good chance that your bank will force you to close your account.

Best Checking Accounts to Minimize Overdraft Fees - September 2019

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:

(Please note that account terms offered by banks may depend on location and are subject to change at any time, so check the details before signing up for any account.)

1. Discover Cashback Checking

Discover Bank has taken the concept of free checking to the next level, by doing away not only with monthly maintenance fees but also not charging for account overdrafts.

There is no minimum-balance requirement to open, so these potential savings are readily available. As an added sweetener, this account pays cash back on certain debit card purchases.

2. Axos Bank Essential Checking

This account is a close second because it matches many of the benefits of the Discover account. The Axos Bank Essential Checking Account has no overdraft fees, no minimum amount to open an account, and no monthly maintenance fee.

The only thing keeping it from tying with Discover for the top account in this study is a $5 a month charge for paper statements, which could be costly to certain customers.

3. Ally Bank Interest Checking

The $25 overdraft fee for Ally's Interest Checking account is well below the industry average, and the account also charges no monthly maintenance fee. What really placed this account high on the list was the fact that they also cap overdraft fees at one per day.

It gets even better for customers who have a linked savings or money market account at Ally because they automatically transfer money from these accounts to your checking account to cover overdrafts at no charge.

4. TIAA Direct Interest Checking

This account has a $30 overdraft fee, which is below the industry average; but the real advantage is that it caps the number of such fees you can be charged at two per day.

In addition, TIAA will transfer funds at a linked account to cover an overdraft at no charge. This account also has no monthly maintenance fee.

5. Arvest Bank Free Blue Checking

At $17 per occurrence, this account has one of the lowest overdraft fees in the business. This advantage is eroded somewhat by the fact that there is no cap on the number of overdraft charges you could incur on any given day, which could get expensive if you have a high volume of transactions. Still, with no monthly maintenance fee and just $50 required to open an account, this could be a cost-effective option for many customers.

6. State Farm Bank Free Checking Account

The checking accounts at this bank have no monthly maintenance fee and a fairly low $25 overdraft fee, with a cap of three overdraft fees per day.

7. USAA Bank Classic Checking Account

The Classic Checking account at USAA has no monthly maintenance fee and a reasonable $29 overdraft fee, with a cap of three overdraft fees per day.

8. Cathay Bank Simple Checking

Your first six overdrafts in any 12-month period are free with this account. After that there is a reasonably low $25 overdraft fee per occurrence - though, with a maximum of 16 such occurrences per day, this could get expensive under certain circumstances. There is also a modest $6 per month maintenance fee.

9. Radius Bank Hybrid Checking Account

The Radius Hybrid checking account charges no monthly maintenance fee, has a fairly low overdraft fee of $25 and offers free automated transfers from linked accounts to cover overdrafts. The only catch is that they do not cap the number of overdraft fees you can incur at once, so people who overdraft their account frequently should take care.

10. Comerica Bank Access Checking

While this account does have a $13-per-month maintenance fee, there are several ways to qualify for a waiver of this fee. Overdraft fees are on a sliding scale depending on how many overdrafts you have. The scale ranges from $26 to $38, meaning that these overdraft fees start out being cheaper than the industry average but become more expensive than average on the high end. However, at least there is a cap of 5 overdraft fees per day.

The above selections are based on accounts in the MoneyRates Index, which is a cross-section of the banking industry representing the 50 largest retail deposit institutions plus 25 medium-sized banks 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 for overdraft terms that are most competitive.

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