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Can You Overdraw a Savings Account?

Can You Overdraw a Savings Account?
Jacqueline DeMarco
Jacqueline DeMarcoUpdated March 9, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
While you may be able to overdraw a checking account (depending on how your account is set up), you generally can’t overdraw a savings account. Banks often offer overdraft protection on checking accounts, which allows you to spend more than you actually have in the account. The bank will typically pull the overage from a linked savings account. If you try to withdraw more than you currently have in your savings account, on the other hand, the transaction will likely be denied.However, that doesn’t mean you can’t end up with a negative balance in your savings account. Here’s a look at ways you might end up overdrawing both your savings and your checking accounts and how to avoid racking up overdraft fees.

What Is Overdraft Protection? 

Overdraft protection is a checking account service many banks offer to ensure that transactions are covered if you have insufficient funds in the account. There are several types of overdraft protection but, typically, the bank will automatically pull funds from a linked savings account to cover the overdrawn amount. Usually, there is a fee for this service, called an overdraft or transfer fee. In some cases, a bank may allow you to link to a line of credit to cover an overdraft to your checking account. Or, you may be able to link a credit card, in which case, you would use a cash advance to cover the shortfall. With the line of credit or credit card overdraft options, you may have to pay an overdraft fee as well as interest on the amount you borrow.

Can a Savings Account With a Linked Account Be Overdrawn?

If you have overdraft protection on your checking account using a linked savings account, you generally can’t pull more funds from savings than it holds (or, in other words, overdraw your savings account). Instead, your checking account transaction will likely be declined.If you have just enough in your savings to cover the overdraft, the automatic transfer from savings to checking will bring the balance in your savings account to 0. If you then get hit with a monthly account fee of, say, $10, your savings account would be overdrawn. Your balance would now be -$10.

Understanding Overdraft Fees

If you sign up for overdraft protection and end up overdrafting your account, the bank may charge you an overdraft (or overdraft protection) fee. On average, overdraft fees run around $35 but can range anywhere from $10 to $40.Unfortunately, overdraft fees can add up quickly. The reason is that overdrafts typically aren’t one and done. Depending on the number of transactions that occur before you remedy the problem by adding more funds to your account, you can potentially incur multiple overdraft fees in a single day. 

Tips for Avoiding Overdraft Fees

Overdraft protection is nice to have but the fees can get expensive. Fortunately, there are some simple steps you can take to help avoid them. 
  • Set up a low balance alert See if you can sign up for an email or text alert that lets you know when your checking account balance hits a certain level. This will give you a chance to add funds, hold off on a purchase, or use a different method of payment.
  • Act fast if you do overdraft. Many banks offer a grace period (often one business day) for overdrafts. If you deposit the overdraft amount into your account within the grace period, you won’t have to pay a fee.
  • Opt out of overdraft protection. If you skip this protection, you won’t get hit with overdraft fees. Instead, the bank will simply decline any debit or ATM transactions your account can’t cover. However, you could end up getting hit with bounced check fees and potentially other fees.
  • Look for a new bank. Not all banks charge overdraft fees. If you’re not happy with your bank’s overdraft policies and fees, it may be worth looking around. Generally, online banks charge lower and fewer fees than traditional banks, due to their lower overhead costs.

Consequences of Having a Negative Balance in Your Savings Account 

A small negative balance in your savings account likely won’t lead to any negative repercussions, provided you correct the problem relatively quickly. However, if you overdraw your account multiple times or let the account stay negative for a long period of time, the bank may close your account. If the bank closes your account, they will likely report the closure to ChexSystems, which is a consumer reporting agency for banking. Once you have an involuntary closure noted in your banking history, you may find it difficult to open a new bank account in the future. You may be limited to a second-chance bank account, which comes with high fees and restrictions.On top of that, the bank may sell your debt (negative balance) to a collection agency. That collection agency might report your unpaid balance to the consumer credit bureaus, which could negatively impact your credit scores.

Tips for Preventing Your Savings Account From Being Overdrawn 

While you typically can’t overdraw your savings account, you can bring the balance down to 0. If you then get hit with a bank fee, the account could dip into negative territory. The best way to avoid overdrawing your savings account is to keep a solid cushion of cash in the account at all times. In fact, financial experts recommend keeping at least three to six months’ worth of living expenses in a separate savings account earmarked for emergencies. This will help you stay on solid ground (and avoid debt) should you overdraft your checking account, get hit with an unexpected expense, or lose your job.Ideally, you want to keep your emergency fund in a savings account with a high annual percentage yield (APY) and easy access. A high-yield savings account at an online bank can work well for your emergency stash. 

Other Fees Deducted by the Bank  

If you overdraft your account and don’t have overdraft protection, you may get hit with a nonsufficient funds (NSF) fee. A bank may charge an NSF fee if a checking account payment (such as a check or an electronic bill payment) doesn’t clear due to lack of funds. In this case, the bank doesn’t approve the transaction. For example, let’s say you have autopay set up for your cell phone bill and you don’t have enough money in checking to cover this month’s bill. Without overdraft protection, the automatic payment will be denied. Your bank may charge you an NSF fee. In addition, your cell phone carrier may charge you a late payment fee.NSF fees average around $34.

The Takeaway

While you typically can’t overdraw your savings account, you can overdraw your checking account if you sign up for your bank’s overdraft protection. When you opt in for overdraft protection, you typically assign a back-up account or line of credit that the bank will draw upon in the case of insufficient funds. This ensures that a debit card transaction will go through and a check will get processed even if you don’t have enough funds in the account. Some banks charge fees for overdraft protection, but not all. If you’re not happy with your current bank’s services or fees, you might consider shopping around.If you’re on the hunt for a savings account that charges low, or no, fees and pays a competitive APY, Lantern by SoFi can help. With our online banking marketplace, it’s fast and easy to compare high-yield savings accounts based on APY, fees, and balance minimums. Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

Can money be withdrawn from my savings if my checking is negative?
What happens if I try to overdraw my savings account?
Are overdraft fees charged instantly?
How does the overdraft rule work?
Can I overdraw at an ATM?
Photo credit: iStock/Milan Markovic

About the Author

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline DeMarco is a personal finance writer and editor based in Southern California. While she spends the bulk of her time writing about complex financial issues, she also tackles a variety of subjects ranging from food to fashion to travel. Her work can be found across dozens of publications such as Credit Karma, LendingTree, Northwestern Mutual, The Everygirl, and Apartment Therapy.
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