What is overdrafting?

My senior year of college, five other girls and I drove down to Daytona Beach, Florida for our spring break. We were there too early in the season for all the crazy, party-hard events Daytona is known for, but we had a good time exploring the area and lying on the beach.

On our last day there, several of us stopped by a stall where a lady let you pick an oyster and then made some jewelry for you from the pearl inside. For $12, I got myself a cute gold necklace featuring my perfect, white pearl.

On the way home, my phone rang. It was my dad, telling me he’d gotten a message from the bank that my checking account was overdrawn.

“Don’t use your debit card for anything else!” he said.

I stared at the soda and snacks I had just bought at a gas station. Oops.

When I got home, my dad marched my brother and me over to the bank to talk to someone about overdrafting and how we had to be careful about our money. I was so embarrassed, I wanted to melt into the floor. It was a rough introduction to the overdraft monster.

How does overdrafting happen?

The overdraft monster appears when you spend more money than you have in your bank account.

Say you use your checking account to pay for something that costs $50. Unfortunately, you only have $45 in your account. Now, one of a couple of things might happen.

  1. Your bank declines the transaction and does not charge you a fee. Lucky you. Of course, you won’t be able to buy the item you’re trying to purchase. This scenario usually happens if you try to use your card for purchases, but sometimes the bank will reject (or bounce) a check or electronic withdrawal.
  2. Your transaction will still go through, but now your account will have a negative balance of $5. You have now overdrafted your account and the bank will charge you an overdraft fee as a penalty. This is what happened to me. Overdrafts usually happen with checks or automated payments that come out of your account, although each bank varies in its policy on what is allowed to trigger an overdraft.

Overdraft fees:

If you overdraft, the bank will charge you an overdraft fee, which is usually around $35. And not just once.

No, no.

Every time you overdraft, you owe another $35, which can really add up if you’re not careful.

The necklace and snacks I had bought had only cost maybe $20 total, but they had racked up $70 on top of that in overdrafts and fees!

Avoiding overdrafting:

Obviously, we NEVER want to pay overdraft fees, but how can we best protect ourselves against them?

Firstly, of course, we should always pay attention to how much money is in our checking accounts, especially if we pay automated bills or subscriptions from them. By being aware of how much money you have going into and coming out of your account, you can save yourself a lot of worry and will never come close to overdrafting.

If you don’t trust yourself to keep track of your money that closely, there’s a backup option available. Most checking accounts come with free “overdraft protection”.

Basically, overdraft protection means you connect your checking account to another, separate, bank account or credit card and give the bank permission to charge any overdrawn amounts to those accounts. I would recommend using a savings account as your overdraft protection. Credit cards are much riskier back-ups, since you’re just borrowing that money and will have to pay it back, perhaps with interest.

Some banks have restrictions on what kinds of accounts can be used for overdraft protection, so check with your bank before you sign up.

If you overdraft

There’s not much you can do if you overdraft, but it’s worth a shot to call your bank and ask about your options. After my dad dragged me to the bank, the woman we talked to was willing to excuse one of the two overdrafts I’d racked up. Someone might at least be able to help you sort out a payment plan.

In the end, however, it’s best to stay aware of your money situation and keep that overdraft monster from invading your life and bank account.

What is a debit card?

When you open a checking account, and sometimes a savings account, with any major bank, you receive a debit, or check, card. It looks like a credit card, but it usually has the word “Debit” printed on it somewhere. So what is this card and how should you use it?

A debit card allows you to access the funds in your checking account. It is the card you use to get cash out of an Automated Teller Machine (ATM) and can usually be used anywhere that accepts credit cards.

Let’s look at some of the features of debit cards:



When you pay with a debit card, the money is drawn from your account immediately. This means that if you spend more than you have in your account, you will overdraft your account, and will usually owe the bank a fee on top of the amount you overdrew.

For example, if you only have $25 in your account, but pay for a $30 dinner, you will overdraft your account by $5. If your bank charges a $35 overdraft fee, you now owe the bank $40 for that five dollar mistake!

Also, if you make ANOTHER purchase with that card, you’ll be charged ANOTHER $35, and so on. Obviously, it’s super important that you keep track of what you have in your account, which is great practice for using a credit card.



The amount of money you can spend on a debit card is limited by the amount of money you have in your bank account. Spend any more than that and you’ll start racking up overdraft charges.



Many debit cards require you to enter a Personal Identification Number (PIN) when you withdraw cash from your account and when you make purchases. Others allow you to make purchases using the “Credit” selection on the checkout machine, but still require a PIN at the ATM. When you get your card, it will come with instructions that tell you how yours works.



Because of the direct connection to your checking account, debit cards can be very dangerous if they are lost or stolen. If someone steals or finds your debit card, he or she may be able to make purchases with it, and if the thief has your PIN, he or she can withdraw money from your account. Anything this person uses will immediately be taken from your account. Disputing these charges takes a lot of time and effort, and you may never see that money again.


Credit History:

Debit cards do not affect your credit history.



Banks generally do not charge fees for debit cards, but you might have to deposit a certain amount, usually something like $25 to $100, in the bank to open the card in the first place. 



Debit cards usually do not carry perks, but a few banks are starting to add cash back, sign-up bonuses, and miles to their checking programs.


When should you use a debit card?

I would say that any time you’re buying something in person and the card doesn’t leave your hand, it’s fine to use a debit card. I would avoid using a debit card online or at places like restaurants, where your information is more likely to be stolen. It may never happen, but there’s still the chance your hard-earned cash might disappear.

If you think your information has been stolen, or see charges on your card that you didn’t make, call your bank immediately and tell them to put a hold on the account to prevent that card from being used again until you sort out what’s happening.
Debit cards can be super useful for building responsible money habits without running the risks of using credit cards.

Want to compare debit cards to credit cards? Head on over to What is a credit card?