You thought you had $65 in your checking account—enough to grab groceries and gas before your next paycheck. You even double-checked your balance before heading out.
But when you get home and open your banking app, your heart sinks. You stare in disbelief at your phone screen, which shows an account balance of -$158!
Three automatic payments came out of your account while you were running errands: $9.99 for a streaming service, a $28 phone bill, and your $15 prescription refill.
Your account went negative because your bank hit you with $105 in overdraft fees ($35 each), and you also have to pay back the $53 that was overdrawn.
Those forgotten automatic payments just put you $158 in the hole.
You’re not the only one. Bank overdraft charges affect millions of Americans every year, especially those who are already struggling financially.
The worst part? These fees usually happen because your paycheck arrives on Tuesday, but your landlord cashed your rent check on Monday, or you forgot about an automatic subscription renewal, or multiple small charges hit your account on the same day.
It’s not because you’re bad with money.
At Kudzu, we believe banks shouldn’t punish you for being human.
That’s why in this article, we’ll cover everything you need to know about overdrafts, including why banks charge hefty overdraft fees, how to avoid overdrafts, how to protect yourself from these frustrating charges, and how Kudzu approaches personal finances differently, by putting our customers’ financial well-being first.
What Are Overdrafts?
An overdraft happens when you spend more money than you have in your bank account (generally applies to both traditional brick-and-mortar and online banks, although some online banks may charge low or no overdraft fees).
Your account balance goes negative, and depending on your financial institution, you might face steep penalties.
For example, you have $8 in your account, but a $12 charge goes through. Now you’re in the negative by $4, and your bank might charge you an overdraft fee on top of that.
Overdrafts can happen with any type of transaction:
- Small purchases like your morning coffee or lunch
- Automatic payments for subscriptions you may have forgotten about
- Recurring bills that hit your account on a day they normally don’t
- Debit card transactions at stores or online
- ATM withdrawals that are more than your account balance
The tricky part is that overdrafts are often the result of poor timing, not overspending.
Maybe your car insurance payment was processed a week early, or your gym membership renewed on the 10th of the month instead of the 15th like usual.
Banks handle these situations differently.
Some will decline a transaction to keep your account balance from going negative.
Others will let the charge go through, but then tack on pricey overdraft fees.
While most major banks charge overdraft fees, many online banks or credit unions don’t, or they offer checking accounts with flexible options.
Overdrafts are frustrating and often unpredictable. They also hit those living paycheck to paycheck the hardest because they can least afford the extra cost.
What Is an Overdraft Fee?
An overdraft fee is the penalty you may pay if a transaction goes through even though you don’t have enough money in your account.
Here’s how many banks typically handle an overdraft:
Instead of declining your $6 coffee purchase when you only have $2 in your account, they’ll “cover” the transaction and charge you a fee for the favor.
At most major banks, overdraft fees range from $10 to $37 per transaction.
The real kicker? Even though many banks now have daily overdraft fee caps, you can still get charged multiple fees in a single day.
You might also get hit with an additional non-sufficient funds (NSF) fee from the merchant where the transaction took place.
If you have several small purchases that all go through and you don’t have the funds, those penalties can add up fast.
Americans paid an estimated $15 billion in overdraft and non-sufficient funds (NSF) fees in 2019 alone.
Some banks have faced scrutiny for their overdraft fee practices. For example, Wells Fargo was fined $203 million in 2010 for arranging withdrawals in a way that maximized overdraft fees.
Recent regulatory changes have also impacted bank customers—and not in their favor. In early 2025, Congress overturned a proposed rule that would have capped overdraft fees at $5. The Consumer Financial Protection Bureau estimates that the rule would have saved banking customers $5 billion annually.
Many banks also tack on “extended overdraft fees” if you don’t fix the overdraft and related charges within a few days.
This means the penalties keep growing while you’re trying to resolve the negative balance.
Here’s what makes this especially unfair: When you’re already struggling with money, a $35 penalty for a small misstep can create a cycle that’s incredibly difficult to break.
Banks know that most people don’t know how to avoid an overdraft, so they offer “solutions” that sound helpful on the surface, like overdraft coverage.
But beware: Banks don’t always have your best interests at heart, and the lingo they use doesn’t always mean what you think.
Overdraft Coverage vs. Overdraft Protection
The industry uses the terms “overdraft coverage” and “overdraft protection” almost interchangeably, but they definitely aren’t the same thing.
Let’s look at the key differences between the two.
Overdraft Coverage (What Most Banks Offer)
Overdraft coverage means your bank will allow transactions to be processed when you don’t have enough money in your account, but then they’ll charge you a fee for each one.
Banks frame this as a “favor” to you, preventing the embarrassment of a declined purchase or ensuring important transactions go through.
In reality, it’s often a way to generate repeat fees from customers who are already financially stretched.
Here’s how overdraft coverage typically works:
- Your bank approves a transaction
- Your account balance goes negative
- You get charged a penalty fee per transaction (usually up to a certain daily limit)
- The bank profits from the overdraft fees
This system puts customers like you in a no-win situation, especially when money is already tight.
Fortunately, there’s a better approach—one that actually protects you instead of penalizing you.
Overdraft Protection (The Real Deal)
True overdraft protection prevents your account from going negative in the first place.
Instead of letting you rack up fees, this type of protection either:
- Declines the transaction so your account doesn’t go negative
- Covers small overages without charging you a penalty
- Transfers money from a linked savings account to cover the difference (usually fee-free)
The difference is obvious: Overdraft coverage means you get dinged with overdraft fees. Overdraft protection keeps your account safe.
At Kudzu, we believe in real protection for our customers.
We never profit from your cash flow challenges because that goes against everything we stand for.
Our approach is designed to protect your financial well-being, not penalize you when you’re already feeling pinched.
Tips for Preventing Overdrafts
Nobody wants to deal with the stress of overdrafts. Here are some practical strategies to help you—not your bank—stay in control of your money:
Track Your Balance Daily
Make checking your account balance as routine as checking the weather.
Set a specific time each day—maybe with your morning coffee or during lunch—to quickly review your balance and recent transactions.
Most banking apps take less than 30 seconds to open, and staying aware of your available funds is your best defense against surprises.
Set Up Low Balance Alerts
Most banks and financial apps offer notifications when your balance dips below a certain amount.
For example, our Kudzu Alerts include a low balance notification, and Kudzu’s SpendSense Alerts help curb overspending by letting you know when you’ve reached your chosen spending threshold.
Both are designed to help you avoid overdrawing your account in the first place.
If you aren’t using the Kudzu app yet (what are you waiting for!), set an alert to let you know when your balance drops under a certain threshold—like $50 or $100—giving you time to transfer money or adjust your spending plans.
Time Your Bills After Payday
If possible, schedule your recurring payments and bills to process 1-2 days after your paycheck arrives.
Adjusting when payments come out of your account is an easy way to help prevent most overdrafts caused by regular monthly bills.
Build a Small Buffer Fund
You don’t need hundreds of extra dollars sitting in your checking account, but having some extra money as a cushion can help cover minor, unexpected charges or bad timing.
Even a modest buffer of $25-$50 can help prevent overdrafts from things like forgotten subscription renewals or small impulse purchases.
Think of this as your “oops fund”—money that you don’t use unless you really need it to avoid overdraft fees.
Make Smart Overdraft Choices
If your current bank offers overdraft coverage, you can usually opt out of it. This means transactions will get declined instead of letting your account go negative, which saves you from overdraft fees.
While nobody likes a declined transaction, it’s much better than paying $35 on top of a $5 purchase.
Choose a Financial Partner That Actually Protects You
The most effective way to avoid an overdraft is choosing a financial partner whose features are built to protect your money (like us!)—not penalize you when you’re financially vulnerable.
Look for banks that offer genuine overdraft protection rather than overdraft coverage that comes with expensive penalties.
How Kudzu Handles Overdrafts
At Kudzu, we’ve designed our overdraft protection features (savings transfers, automatic charge declines, and spending alerts) to actually do what they say—protect you—not create another excuse to charge fees.
Here’s how our protection options work:
Covered by Kudzu™
This is our fee-free overdraft protection that comes with your standard Kudzu account.
Here’s how it works:
When you don’t have enough in your spending account for a debit card purchase, Covered by Kudzu1 can automatically transfer money from your Kudzu savings account to cover the transaction.
There are no fees for this service. You just need at least $50 in your savings account to be eligible, and you can use the feature up to 10 times per month.
This means you can avoid that panic-inducing moment of a declined transaction or expensive overdraft fee, as long as you have some money saved with Kudzu.
Covered by Kudzu+™
If you’re a Kudzu+2 member, you get even more overdraft protection.
Covered by Kudzu+3 will spot you up to $100 when you’re short on funds, and you only repay what we cover.
To stay eligible, you just need to receive at least $100 in qualifying direct deposits each month. There are no fees, no interest charges, and no complicated terms.
This premium feature is perfect for those times when your paycheck is coming tomorrow, but you need essentials like gas or groceries today.
Both options are designed with one goal: to protect your financial well-being, first and always.
Embrace Overdraft-Free Banking
Dealing with overdraft stress doesn’t have to be part of your financial life.
By understanding how overdraft fees work, following smart money management strategies, and choosing a banking partner that puts you first, you can break free from the cycle of overdraft penalties.
Occasional cash flow hiccups happen to everyone.
The difference is having systems and protections in place that help you get through those moments without costly consequences.
Kudzu’s overdraft protection features are built around a simple principle: Your financial success matters most.
We’re here to help you grow your money, so you can have the life and financial security you want, on your terms.
Ready to experience banking that actually has your back? Join Kudzu today and discover what real financial support feels like.
- Covered by Kudzu™ is an optional overdraft protection feature that uses funds in your savings account to cover debit card transactions that would otherwise bring your account negative, up to 10 times per month. You must maintain at least $50.00 in savings to be eligible for Covered by Kudzu. If the combined balance in your spending and savings accounts is less than the transaction amount, the transaction will be declined. View full terms. ↩︎
- Kudzu+ is an optional spending account that gives you access to additional features and benefits. A $4.95 monthly membership fee applies and will be automatically deducted from your Kudzu+ spending account. View full terms. ↩︎
- Covered by Kudzu+™ is an optional overdraft protection feature that covers up to $100 in debit card purchase transactions that bring your spending account negative. If you have also enrolled in Covered by Kudzu™, we will first transfer available funds from your savings account to cover a debit card purchase that brings your spending account negative, before using Covered by Kudzu+. To be eligible to enroll in Covered by Kudzu+, you must have an active spending account open for at least 30 days and one qualifying deposit of $100 within that 30-day period. To maintain access to Covered by Kudzu+ once enrolled, you must receive at least one qualifying deposit of $100 or more in your spending account each 30-day period. View full terms. ↩︎
