What Is an Overdrawn Bank Account and How To Fix It

Jan 30, 2023

An account that is overdrawn could be stressful. Since banks can charge an overdraft multiple times per day, the fees could quickly accumulate, increasing the negative balance and the anxiety.

The consequences of an overdraw can be severe, so it is essential to repair your account as fast as you can. Banks can temporarily close or suspend your account. The closure may be recorded on your file with ChexSystem. This agency records clients who have experienced problems regarding their accounts with banks. According to Bruce McClary, senior vice director of communications at the National Foundation for Credit Counseling, it can be more difficult for you to open new bank accounts.

What does the word “overdrawn” mean?

“Overdrawn” means that more money was taken out of the account than was in it. Also, it refers that the balance of the bank account is negative. The word could be confusing because”over” implies “above,” and “over” tells “above,” which means that it’s positive. However, when trying to recall whether “is overdrawn negative or positive,” it’s the opposite of what it implies”overdrawn” refers to the balance being lower than zero.

What are the common causes of an account that is overdrawn?

Anyone who’s had the experience of noticing “my bank account is overdrawn and I have no money” must be able to figure out why the bank overdraft happened. Knowing the cause will help you avoid repeating the mistake.

There are 2 of the most common reasons for an overdrawn bank account.

Failing To Keep an Accurate Account Balance

The most serious mistake that can lead to an overdrawn account is that you do not keep a detailed report of all the outstanding withdrawals and payments.

Some transactions do not post to the account after an owner swipes their debit or writes a cheque. The bank’s balance won’t reflect the transactions until they are posted into the bank account. Making withdrawals from an ATM using the balance of your account or using a debit card for purchases can result in one or more transactions that haven’t yet cleared to allow overdrawing of the report.

Utilizing an old-fashioned check register is the most efficient method of keeping track of the balance on your account. Note every payment, deposit, or withdrawal, then review the balance before each purchase, retreat, or settlement. This will prevent any further overdrafts.

Forgetting About Automatic Payments

The money is taken to pay for other purposes before the price is paid. Automating bill payments is convenient and can help avoid delays in paying bills. However, it can also cost you money if these automated payments are not remembered.

If automatic payments cause excessive overdraft charges, it may be sensible to take a chance with having a late payment rather than paying an overdraft cost. Setting reminders for dates when bill payments will be due and when automated charges start scheduled to go out could help ensure that the bills aren’t late and overdrawn accounts are prevented.

How to fix an overdrawn bank account

Here are a few ways you can get back on track after having an account that has been overdrawn and how to avoid having an overdraft in the future.

Transfer money to cover the cost

If you have money in another account, you can transfer it to pay for the deficit and avoid fees. That’s the first thing you do, according to Andrea Brashears-Lusk. An accredited financial planner and president and co-founder of Wise Financial Counsel in Fort Washington, Maryland. Some banks, for instance, charge a fee when you have an unbalanced balance for several days. This fee can be assessed multiple times.

Request your bank for an amount of money

If your bank does not automatically waive fees on specific overdrafts you have, contact your bank and request a refund. Brashears- Lusk suggests that the bank might be gracious and offer you a refund, mainly when it’s the first time or not a frequent problem.

McClary suggests taking a second step after you contact the bank: discuss the best way to prevent you from overdrawing again. A majority of credit unions and banks are willing to help with your situation, McClary says. He suggests it is also possible to contact an agency that offers credit counseling to receive free advice regarding your financial situation.

Stop by using the account.

“Stop using the account, period,” Brashears-Lusk advises. The same applies to regular and one-time transactions that are difficult to track and could cause you to overdraw your account further. In determining expenses and cash flow, she suggests using a prepaid debit card to help manage your costs. For bills that require payments through an account at a bank, you can pay with a money order, says Brashears-Lusk.

How to avoid drafts that are too large

After you have fixed the overdrawn account, you’ll need to make a few crucial steps to ensure that you don’t stretch again. Utilize these suggestions to avoid overdraws

Track your expenses

“You don’t have to balance a checkbook physically, but you should have some way of tracking expenses,” Brashears-Lusk says. Many budgeting tools can work. Balance your budget, and checking your bank account doesn’t mean you need to use the spreadsheet.

Low balance alarms

Automated alerts will help you keep your account from being overdrawn. You can define an amount for an account with a low balance and create a sign to alert you when your account is at that amount.

Reconsider overdraft protection

Transfers to protect against overdrafts are a service that allows you to transfer funds from linked accounts to your checking account to protect against transactions that could cause the account to overdraw. They are usually less expensive than an overdraft cost and even free at some banks. However, even if they’re not free and you’re not sure, they’re an essential cost to think about.

Brashears- Lusk states it’s beneficial to have an overdraft security plan if the cash flow is strained and you’re using your bank account as the primary account to pay for expenses.

Suppose you’re paying charges due to frequent transfers to protect your account from overdrafts. In that case, It may be better to opt-out and have transactions canceled. Beth McCarter, a teacher who lives outside of Dallas and tutors online, is adamantly opposed to overdraft protection following her first experience with a bank account during college.

“Within a single day, I had accrued $500 in overdraft [protection] fees,” McCarter states. “While it sucks to be in line and have a cart full of things and have your card declined, I would instead take that. “

Select the appropriate bank account

The best way to reduce the harm of a bank account overdrawn is to select a version that does not charge fees for overdrafts or offer alternatives to the costly coverage offered by overdrafts. If you choose one of these accounts, the possibility of overdrawing will not be an issue in the future.