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How Does Having A Negative Bank Account Affect You?

How Does Having A Negative Bank Account Affect You?

Having a negative bank account balance can be stressful and costly. It happens when you spend more money than you have available in your account. Your bank may charge overdraft fees, close your account, or send your debt to collections. This can hurt your finances and make it harder to open accounts in the future.

Let’s break down the key things that can happen if your account goes negative, and how to avoid or resolve the situation.

Overdraft Fees

If you spend more than your available balance, your bank may cover the transaction as an “overdraft” – this allows the payment to go through but takes your balance negative. However, banks will charge an overdraft fee for this “courtesy”, often $30-35 per overdraft1. These fees add up quickly and can make the situation worse.

For example, let’s say you have $100 in your account. You use your debit card to buy groceries for $120. The bank covers the $120 charge but charges you a $35 overdraft fee. Now your balance is negative $55.

Some key things about overdraft fees:

  • They apply to checks, debit card transactions, ATM withdrawals, and automatic payments
  • Banks will charge a fee each time you overdraw, not just once per day
  • The fees can rapidly multiply if you have multiple transactions that overdraw
  • You have to repay both the negative balance and the fees

Overdraft fees are a major source of revenue for banks – over $12 billion in fees annually2. But they can be financially devastating for account holders.

Account Closure

If your account stays negative for an extended period, your bank may close your account entirely. They will withdraw the remaining funds to repay part of what you owe, then close the account.

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Banks don’t want to carry long-term negative balances – it’s too much risk and liability for them. So they’ll cut their losses at some point by closing accounts with chronic negative balances.

Having your account closed can cause several headaches:

  • You lose access to banking services like direct deposit, bill pay, ATMs, etc.
  • You may not be able to open another account right away if you still owe money
  • The closure is reported to ChexSystems, making it harder to open accounts in the future
  • You still have to repay the remaining negative balance

Each bank has its own policies on how long they’ll allow an account to stay negative before closing it. But in general, the closure process starts within 1-2 months of the account going negative.


If closing your account doesn’t recover the negative balance, banks will often send the debt to collections. Debt collectors will attempt to recover the money by contacting you and reporting the debt to credit bureaus.

Having an unpaid bank debt in collections can hurt you in several ways:

  • It damages your credit, lowering your credit score
  • It stays on your credit report for up to 7 years
  • Debt collectors can sue you to recover the debt
  • Future account applications may be denied due to the negative history

Some banks sell unpaid account debts to debt buyers, who then attempt to collect. Other banks hire traditional debt collection agencies to recover the money. Either way, having a bank debt in collections makes it harder to get loans, credit cards, utilities, and other services until it’s resolved.

Reporting to ChexSystems

ChexSystems is a specialty consumer reporting agency that tracks checking and savings account history. When you apply for a new bank account, most banks will check your ChexSystems report to review your history and risk.

If you have a negative balance closure or suspected fraud on your checking history, it will show up on your ChexSystems report for 5 years. This could lead banks to deny your applications for new accounts during that period.

Some key facts about ChexSystems:

  • Most banks report involuntary closures, overdraft abuse, and fraud
  • Unpaid negative balances stay on your report for 5 years
  • Having negative records makes it very hard to open a new account
  • You can request your free annual ChexSystems report to check your status

If you are unable to open a checking account due to ChexSystems, you may have to look for “second chance” checking accounts with banks that don’t use ChexSystems or will overlook prior issues. Opening a secured credit card and using it responsibly can also help improve your ChexSystems status over time.

Strategies to Resolve a Negative Balance

If you do end up with a negative bank account, here are some tips to correct the situation:

  • Communicate with your bank: Contact them immediately and explain your situation. They may waive fees or set up a repayment plan.
  • Deposit funds: Put in enough money to at least cover the negative balance, if possible. This stops further fees and damage.
  • Set up automatic transfers: Schedule recurring transfers from another account or paycheck to prevent overdrafts.
  • Close unused accounts: Cancel old accounts you don’t use to avoid automatic withdrawals causing overdrafts.
  • Prioritize payments: Pay the most urgent bills first like rent when money is tight.
  • Seek assistance: Non-profits like United Way may be able to help cover basic needs if you are financially struggling.

With persistence and changed spending habits, you can get your account back in good standing. But the best approach is avoiding negative balances altogether.

How to Avoid Negative Accounts

Here are some proactive steps you can take to avoid spending more than you have in your account:

  • Track your balance using online banking and your register.
  • Set up account alerts to be notified when your balance is low.
  • Link your checking account to savings for overdraft protection.
  • Opt out of overdraft coverage if you don’t want banks paying overdrafts.
  • Use cash when possible to avoid overspending.
  • Review transactions frequently to catch any errors.
  • Set up a budget to align expenses with income.

Staying aware of your balance, limiting spending, and planning ahead are the best ways to avoid those costly overdraft fees and get your finances on track.

1. FDIC National Survey of Unbanked and Underbanked Households – https://www.fdic.gov/householdsurvey/2017/2017report.pdf
2. Consumer Financial Protection Bureau – https://www.consumerfinance.gov/data-research/research-reports/overdraft-white-paper/


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