5 Banks or Checking Accounts that Waive Overdraft Fees

Bobby McCarty
April 16, 2020

Yeah, we’ve all been there: you're going about your business having a nice day when you get that dreaded update from your bank that your account has been overdrawn. Ugh, what a sinking and infuriating feeling! It’s like you’ve been robbed $34 (side note - why is it always $34...so random). Money that you could have spent on a lot of other things, like a kid’s birthday party or an electricity bill or a nice takeout meal, is now sitting in the coffers of some bank. Well, let us tell you something -- it doesn’t have to be this way. In this article, we hope to break down overdraft fees, give you tips to fight those fees, and share some insights into banks that don’t charge overdraft fees if you’ve overdrawn. Yeah, you read that right. Banks that don’t charge overdraft fees. Let’s do this!

What’s an overdraft and why banks charge it

Most banks and credit unions offer an overdraft protection service to their account holders. One way to think of overdraft coverage or protection is that it’s a form of a short-term cash advance, kind of like a payday or short-term loan, to cover payments (such as debit card purchases or automatic payments). The primary difference between an overdraft fee and a short-term loan is that the bank will always charge you the same fee (like the $34 we mentioned earlier), even if you go negative by just a couple dollars. According to the Consumer Financial Protection Bureau (CFPB), most debit card overdraft fees are caused by card transactions of $24 or less, and they’re typically repaid within three days. “Put in lending terms, if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000 percent annual percentage rate (APR).” That’s actually way higher than a payday loan or friendly alternatives such as a Possible loan.

Why would a bank waive or not charge an overdraft fee

Here’s a little known secret -- most banks will waive overdraft charges (monthly, overdraft, NSF fees, ATM) under certain circumstances. Yeah, you heard me correctly - those pesky little $35 overdraft charges can be refunded. Why is this? Simply put, banks care a lot about retaining their customers and keeping them happy. They spend a lot of money acquiring customers, hundreds of dollars in fact, so don’t want to lose them because of a relatively small fee they can easily reimburse.

So how do you do it? Well, it’s actually quite simple: contact your bank, let them know that you received a recent overdraft fee, and ask if they’ll refund it. Yes, it’s really that easy. Any method of communication should work: phone, email, chat, in-person, or physical mail even. Most banks have a certain number of overdraft fees you can get refunded each year. If you overdraft often or you’re a new customer without a lot of history, it can be trickier to get the fee refunded, but that doesn’t mean it’s not doable. Banks are aware of their competition and they don’t want to lose your account. They want to help you avoid overdraft too, and there are a lot of resources online that give pointers on having these conversations with your bank.

You’re most likely going to receive a refund if some of the following conditions are met:

  • Length of time you’ve been a customer (the longer the better)
  • How often are you  overdrawing your account (the fewer the better)
  • How many overdraft fees have already been refunded (the fewer the better - banks often have a limit on the number of fees they will refund)
  • Average bank balance (the higher the better)

Keep in mind that your bank will not always refund an overdraft fee. Check out this article where we go deep on how to avoid overdraft fees

Review of the top 5 banks with no overdraft fees

Okay, now on to my favorite section - banks that don’t charge overdraft fees. What a novel idea! It’s becoming increasingly common for banks, especially these new online banks, to not charge overdraft fees. It’s a competitive advantage they can use to acquire customers. Instead of relying on overdraft fees to make money, they rely on what are called “interchange fees.” Whenever you make a purchase using your everyday debit card, VISA/Mastercard collects a small “interchange” fee from the merchant (i.e. the store/website where you made the purchase). This fee is then split between the bank associated with the debit card and VISA/Mastercard. This debit fee has increased over time and has enabled online banks to rely solely on this fee. No more overdraft fees!

Below you will find a list of some of our favorite banks that do not charge overdraft fees: 

Chime

Rating: ✅✅✅✅ (4 of 5)

The Short: When you think online-banks, you think Chime. They are growing rapidly in the digital-banking space, with allegedly more than 5 million accounts. Their app interface is simple and easy to use. With hardly any fees and new features constantly rolling out, they’re a great option for someone in search of a new checking/savings account. 

What we like: 

  • No monthly or overdraft fees whatsoever. YAH!
  • Get paid up to 2 days in advance with direct deposit
  • Vast free ATM network (38,000+ MoneyPass® and Visa® Plus Alliance ATMs)
  • Beautiful mobile-first product experience (we live in a mobile world!)

What we don’t like:

  • Zero and I mean zero retail stores. 99% of the time this isn’t a problem; however, from time to time, you need to visit a bank. With Chime, you can’t 😔
  • The banking services offered by Chime are pretty limited at this point to only your checking/savings account. If you’re looking for a one-stop-shop for all of your financial needs, Chime might not be the best option for you 

In summary:

  • We like Chime! They are leading the way of new online banks providing checking/savings accounts with no fees. We believe this is the way of the future. They tout themselves as a “a banking app built by a tech company.” If you’re not tech-savvy, this might not be the right option for you. However, if you’re in search of an online bank that puts the customer first and has a great technology platform in place, you should give them a try. Setting up a checking account is painless and can be done in minutes from the comfort of your own home.

Online banks work with Possible! Borrow up to $500 in minutes and build credit history.

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Simple

Rating: ✅✅✅  (3 of 5)

The Short: In a lot of ways, Simple is the OG of online banks. As one of the first digital banks, they paved the way for online banks offering no-fee checking/savings accounts. Their current product has a heavy focus on budgeting, helping the customer better manage their finance. While still a great product, they’re increasingly challenged by new online banks. In order to stay relevant, they will need to continue to deliver value to the customer with new products and services. 

What we like: 

  • No monthly or overdraft fees whatsoever. YAH!
  • FDIC-insured account where you can earn up to 1.75% APY
  • An easy-to-use budgeting feature

What we don’t like:

  • No way to deposit cash directly (see article here)
  • Zero and I mean zero retail stores. 99% of the time this isn’t a problem; however, from time to time, you need to visit a bank. With Simple, you can’t 😔

In summary:

  • Simple paved the way for this new wave of online banks. They’ve been around since 2013 and are well established. Their core checking product is a great option for people looking for a zero-fee account and wants a budget-oriented checking account (that also allows you to earn interest!). 

Varo

Rating: ✅✅✅  (3 of 5)

The Short: Varo is quickly turning into a major player in the digital banking space. Their unique approach in targeting millennials is turning out to be a winning strategy. Varo offers an FDIC-backed bank account backed by The Bancorp Bank. Similar to other digital banks, they are online-only and do not charge any monthly or overdraft fees. 

What we like: 

  • No monthly or overdraft fees whatsoever. YAH!
  • No ATM fees at 55,000+ Allpoint® ATMs.
  • Upon approval, you can overdraw your account up to $50 on any transaction using your Varo Visa Debit Card (with no fees!)
  • Get your direct deposit sooner

What we don’t like:

  • Cash deposits must go through a third-party service (lame!)
  • No retail stores

In summary:

  • Varo is quickly becoming one of our favorite digital banks. It’s clear they put the customer first and care deeply about making a product that makes sense for millennials - online / no fees / cash advance. They’re well funded and positioned to do well in this space. 

Discover

Rating: ✅✅✅✅ (4 of 5)

The Short: Unlike the players mentioned above, Discover has been around for many years. They are a well-established financial institution, with a very compelling checking account offering. Perhaps best known for credit cards, Discover offers a comprehensive suite of financial services: credit cards, mobilebanking, student loans, home loans, and retirement accounts. The online banking products offer one of the most competitive checking accounts we’ve seen.

What we like: 

  • Withdrawals at over 60,000 ATMs nationwide
  • No fees! (insufficient funds, stop payments, monthly maintenance, and the list goes on!)
  • Comprehensive suite of financial products and services
  • 1% cash back

What we don’t:

  • No branch locations - being as big as they are, it’s surprising they don’t have any physical locations for customers or withdrawals.

In summary:

  • Possible really likes Discover. They offer a comprehensive solution that clearly puts the customer first. They seem to target a slightly older demographic with more complex financial needs. That being said, they’re a great option for anyone looking for a new bank. Not many concerns here!

Capital One

Rating: ✅✅✅ (3 of 5)

The Short: We’d be remiss not to include at least one bank with physical locations. And while Capital One does have overdraft protection, they have a novel way of managing it to limit the fees a customer receives. If you have extra savings in a Capital One 360 account, the bank's 360 online checking account can make a “good” pairing. Essentially, this means you won’t be charged a fee and Capital One will transfer funds to cover the difference. Unlike most of the big players, Capital One continues to innovate. We like innovation!

What we like: 

  • Innovative way to avoid overdraft fees
  • Comprehensive offering of financial products and services
  • The cafes! - a new take on what a bank branch could look like (we’ve all seen the commercials 😂)

What we don’t:

  • For a big bank, it pays competitive rates on deposits. But rates are low compared with the best nationally available APYs.

In summary:

  • Capital One is always looking for ways to innovate. They’re reshaping what it means to have a physical bank branch, with their innovative Capital One Cafe concept. These innovations aren’t just fluff. 

Final verdict

Let’s face it - switching banks can be an intimidating process. At the end of the day, you want to find a bank you can trust and that puts the customer first. With so many choices out there, it’s tough to decipher which one is right for you. From our research, there are a lot of great options. More and more banks are recognizing that people are sick and tired of hidden fees. This new wave of digital banks, with no overdraft or ATM fees, are putting pressure on the established banks to rethink how they operate. Some of the big players, like Capital One and Discover, are following suit. We anticipate more of this to happen in the coming years.

If you're looking to recoup and get back some of your overdraft fees, try out Possible Finance. We have a new feature that can visualize all your overdraft fees and we're helping customers get their money back. In addition, with Possible, you can borrow up to $500 in minutes with no credit or bad credit, and build credit history to improve your long-term financial health.

Bobby McCarty

Bobby is a Product Manager at Possible, who is always on the lookout for new and exciting products that can help people with their finances. His past experience at non-profits and large tech companies inspires him to write about how technology can help improve people's well-being.

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