Bank Account Negative Balance: What to Do and What Happens Next

If you face a time when money is tight or when a few unexpected bills hit, you may also experience the challenge of a negative bank account — commonly known as an account that is overdrawn.

Although this situation can spell trouble, it doesn’t have to. If you take swift action and make an honest appraisal about your overall finances, you can take some easy steps to get your account back in black and prevent an account closure, a credit hit and long-term consequences.

What It Means When Your Bank Account Goes Negative

When your bank account goes negative, it means you spent more money than you have, and now your balance is less than zero. In banking language, you overdrew your account. Now you owe somebody money — either the bank, a business, a credit card company, or a friend.

A negative balance typically occurs in one or two ways. First is when you paid too many bills at the same time without confirming that you had enough money in your account to pay them.

There are times, however, when a lack of money in your account is just a matter of timing. It’s possible that an expected deposit is late to arrive, while an expense (often an autopay) went out on schedule. This often occurs around a weekend or holiday.

If your bank notifies you about a negative balance, it should also let you know if you’re subject to any fees. Banks often attach per-incident fees if they must cover an expense made to an account with a balance of zero or less.

What Happens After Your Account Goes Negative

What can you expect if your account goes negative? You should expect one or more forms of notices from your bank. That’s likely to mean a text message, an email and a snail mail to the physical address linked to the account.

You can also expect to see your next transactions declined — at the grocery store when you try to pay the cashier or automated clerk or at an ATM when you attempt to retrieve cash.

Another thing to expect is an added fee or service charge. Banks build in fee structures for various scenarios in their account agreements, one of which is when an account goes negative. Banks levy fees for checks that bounce or transactions that post to an account with too little money.

Read your account agreement to learn the details of your account’s fee structure.

One of the most important aspects of a negative balance situation is communication. Consider calling or visiting a bank branch to get ahead of the issue.

If you bank with a major bank and decide to call, your sole goal for that call is to get your side of the story on the record. Remember the message you hear near the beginning of all calls these days: “This call is being recorded for quality and training purposes.” Be assured that the bank will keep a copy of the recording.

This is also your chance to ask specific questions about your account, what you can expect next and how the bank prefers that you handle matters.

If you visit your bank, your conversation with a bank rep won’t be recorded. But take detailed notes about what the rep tells you about your account, the situation, and the preferred resolution.

All banks don’t handle negative balance accounts the same way. Penalty and fee structures differ from bank to bank. So does the timing. Some banks give you 10 days to get the account out of a negative balance. Others give you more time.

What to Do Right Away to Clear a Negative Balance

How do you go about getting rid of a negative balance? The most obvious initial answer is, if you have money in another account that you can transfer to your negative account, do it. If that’s not the case, you have other tactics.

The key action to take is to cancel any pending transactions. If you have an auto payment or a regularly scheduled deduction due to hit the account while it’s negative, do your best to halt those. Most of the time, the bank is going to decline the transaction (unless you have overdraft protection).

If you can’t get those payments stopped, brace for both a late fee on the transaction AND the negative balance fee from the bank. So, you could get penalized twice instead of once.

A third thing to look at is your most recent transactions. Make sure everything is accurate in your account. Did you accidentally send two payments for the same bill? Was a deposit supposed to hit your account that didn’t?

Also, call your bank. This is a recurring theme. Don’t shy away from the reality of a negative balance. Talk to someone at your bank, get them to confirm what you already know, and talk through your options.

If you’re experiencing a negative balance issue for the first time — and especially if the problem was poor timing of a payment or a delayed auto deposit — ask someone at the bank to waive your fees and penalties. This is not an unusual ask, and banks like to keep good customers happy.

What Is an Overdraft Fee and When Does It Apply?

An overdraft fee is a charge banks place on customers who spend or withdraw more money than what exists in their account. This is how banks penalize you for purchasing goods and services you do not have enough available funds to cover.

Fees vary in scope by account type and institution. Overdraft fees for basic spending accounts (checking accounts) usually are $10 or more. Chase Bank, for example, charges $34 per incident, but it waives the fees if the amount of the overdraw is $50 or less by the end of the day or if you bring your account into the positive by $50 or more by 11 a.m. the following day.

Bank of America has a $10 overdraft fee and caps its fees at $20 a day.

You can avoid these fees by paying close attention to the balances in your spending accounts, what you regularly pay out of your spending accounts, and ensuring that sufficient funds are always available.

Insufficient or Non-Sufficient Funds (NSF) fees occur when a bank declines a transaction. If you incur an NSF fee, your bank did not cover your transaction. You still owe somebody money.

Overdraft fees come from a transaction that the bank processed and covered for you, despite a shortfall of money in your account. For this reason, overdraft fees are usually higher than NSF fees ($15 or more).

The good news is the trend of banks eliminating NSF fees altogether and reducing the amounts on overdraft fees.

Before you need cash in a spending account, you’ll help yourself if you already know the cost and timing of transfers and wires to and from your other accounts. Bank wires are often instantaneous, but they can cost $10 to $25 or more, depending on the amount of money being moved. Transfers are often free, but they’re also less swift.

Even during this time of instant digital transfers, banks like to delay major financial transactions to ensure that funds are available and as a hedge against fraud.

Make yourself familiar with the transfer and wire regulations and timing of your bank.

Can a Negative Bank Balance Affect Your Credit?

Having a negative bank balance won’t affect your credit — unless the account goes into collections. But the residual effects of a negative balance will harm your credit if you incur consistent overdraft charges and don’t pay them. That’s when your bank could send your account to collections, an event that will show up on your credit report as a negative action. And it’ll stay on your credit report for seven years.

You can expect your bank to close your account if you have a negative balance for more than 60 days. Some banks will consider closing a bank account and your credit after 30 days with a negative balance.

Although the credit-reporting agencies don’t track details from checking accounts, specialty reporting companies do. The companies collect details about employment history, tenant screening, car and property insurance, phone use, and utility use.

When banks close an account, they report it to ChexSystems, which banks use to gain background on customers. This report will be on your record for five years, and you could struggle to open a new bank account because of it.

Credit unions and banks use that information to decide about future accounts that you want to open. If your reports show that you have involuntarily closed accounts in your past, banks won’t be inclined to offer you favorable terms on your accounts. For example, you might not be eligible for an interest-bearing checking account.

You can avoid all these potential negatives by correcting your negative bank balance early. Collections, credit problems and short- and long-term ramifications disappear once you resolve the situation with a positive balance.

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What Happens If a Negative Balance Isn’t Resolved

Depending on your bank, you’ll have 30-60 days to pay off your negative balance before you’ll face consequences. Those can include the bank closing your account (almost a certainty), problems opening a replacement account (especially at the same bank) and having the bank push you into collections.

These results typically occur when a customer ignores the negative balance and goes radio silent when the bank calls, emails, or texts. Lack of communication is not a good tactic.

You could extend your grace period with the bank with a call, a chat, or an email to a bank representative. Be upfront about your negative balance. Say you want to fix the situation as soon as possible and want to explore all your options.

As long as you show your willingness to get your account back in balance, the bank is likely to want to keep you as a customer.

If you do get sent to collections, your negotiating power with the bank ends. That’s why it pays to be proactive.

If you know before the 30-day mark that you’re going to need a new account, the best advice is to open that new one before your old account is closed. It’s one way to game the banking system, setting up the new spending account before any negative information about your old account gets to credit collections or other information-sharing agencies.

How to Avoid a Negative Bank Balance in the Future

You can take many practical actions to help avoid a negative balance. First, you can monitor your accounts consistently. This has never been easier, thanks to digital banking.

Create a habit of logging into your spending accounts once or twice a week to look at your balances and check what expenses are cleared. You can log in through a website portal or through your bank’s phone app. (A word of caution here. If you use a phone app to bank, log out of the app after each use. This will help prevent theft and fraud.)

If you peek at your balance one day and find it lower than expected, you can head off a negative balance situation by transferring money from one account to another to cover any expected incoming expenses.

The next tool is account linking. Consider linking your spending account to another non-spending account at the same bank. You can use this backup account — a savings account or money market account — to prevent you from getting a negative balance in the future.

Another tool to consider is a low-balance alert. You can set up your account to trigger an email or text message to you that tells you that your balance is below the level you prefer it to be at. This alert should spur you to add money to your spending account before you get to a negative balance.

Similarly, look at setting alerts for auto payments. Many online bank portals let customers automate regular payments, such as loan payments, car payments, insurance payments, etc.

Typically, you can also set up an auto payment alert, which sends you a text or email (or both) when the auto payment happens. These alerts serve as the perfect way to jog your brain immediately to your checking account balance.

Another tool to consider using is less about banking and more about financial well-being: a personal budget. A budget is a financial plan. You anticipate income, you estimate your expenses and you do your best to live by your plan. If an unexpected expense arrives, you must account for it in your budget so that you don’t overdraft your spending account.

You can make a budget and a savings account to hold off any overdrafts.

Overdraft protection is another simple tool that can save you money and aggravation. Banks often offer various overdraft options.

Typically, you can link your spending accounts (checking accounts) to a savings account, from which money automatically transfers to cover any unforeseen negative balance. Some accounts provide free transfers. Others charge minimal fees ($10-$25).

Banks also provide standard overdraft protection, with which they cover your negative balances. Fees are usually on the high end ($25 or more).

Banks can also offer an overdraft line of credit. If you overdraw your spending account — let’s say you withdraw cash from an ATM in the morning and a payment hit in the afternoon, leaving you with a negative balance — then you will loan yourself a set amount of money from your line of credit. There could be a fee involved. And, eventually, you’ll have to pay off the balance of your line of credit.

Overdraft protection is an oft-used tool, and inexpensive.

So, you have a handful of tools at your disposal. Think about these and pick the ones that fit your lifestyle and your financial situation.

When Repeated Negative Balances Signal a Bigger Issue

A one-time negative balance is an occurrence you can overcome with time and consistent monthly positive balances. If you have a solid credit score (over 660) and a positive credit history, then banks, credit card companies and other lenders will consider your negative balance as a blip on the radar — something that existed but came and went away quickly.

But if you experience multiple negative balance incidents, then you’re dealing with a larger issue. These point to one of two realities: either you have consistent cash flow problems (income), or you have regular difficulties with overspending.

They also point to an overall reality, that you’re not managing your money — or budgeting — as well as you could.

If you endured more than one negative bank balance, it may be time to consider looking at the bigger picture and how you spend your hard-earned money.

You might engage a financial counselor for free money management advice. Small changes in how you spend money, earn it, save it, invest it, and think about it, can produce meaningful long-term dividends. It can make your life easier, less complicated.

Nonprofit financial counselors work for free, and they provide sage advice on all sorts of issues, including credit card debt, mortgage debt, medical debt and more.

They can give you new ideas on managing your money, making your money work better for you and handling specific credit and debt issues.

It should make you feel at ease having an honest conversation about money.