What Happens When Your Bank Account Goes Negative?

A negative bank account can create problems quickly, and it can happen for ordinary reasons: a card swipe at the grocery store that's more than your balance, an automatic payment that hits early, or a deposited check that bounces. What follows can be fees and missed payments that add up to far more than the original shortage.

Yet a negative balance doesn't always create long-term problems, especially if you can catch it quickly.

What does it mean when your bank account goes negative?

Your bank account is considered in the negative when the balance falls below $0. Whether your bank allows a transaction to go through depends on your account settings.

For debit card and ATM transactions, it specifically depends on whether you’ve opted into overdraft coverage. Federal law prohibits banks from charging you an overdraft fee on these transactions unless you’ve opted in to overdraft protection. If you haven’t opted in, your bank may choose to pay the transaction anyway or decline the charge, but it can’t charge an overdraft fee.

Checks and automatic payments don’t receive the same protections and can trigger what’s called a non-sufficient funds (NSF) fee if your account is overdrawn.

Why bank accounts go negative

Your bank account may fall below zero due to:

Overdrafts from debit card transactions

One of the most common reasons for a negative account balance is a debit card purchase that is more than your remaining balance. Some banks offer overdraft coverage that may allow certain transactions to go through even when you don’t have enough money.

Automatic payments and recurring bills

If you lose track of automatic payments and don’t have enough cash in your account to cover them, you could overspend. Make a budget that includes all recurring bills and watch your account balance so you don’t go into the negative.

Deposited checks that bounce

A deposited check can increase your account balance, but if it bounces, the bank can reverse the deposit. If you have already spent the money, your account may now be in the negative.

Fees you may be charged for a negative balance

If you have a negative bank account balance, you may see these charges on your statement:

• Overdraft fees. You could end up paying fees that run as high as $35 if you don’t have enough money in your account to cover a transaction. Some banks offer limited fee-free overdraft coverage or no overdraft fees at all.
• Extended overdraft fees. You might pay an extra fee if you leave your account in the negative. Talk to your bank to learn whether this fee applies to your account.
• Non-sufficient funds (NSF) fees. Banks charge this fee when a payment like a check or automatic payment is declined because your balance can’t cover it. It’s sometimes called a bounced check fee.

What happens if you leave your account negative?

If you don’t address your negative balance, you face more serious consequences that can damage your credit.

Your bank may close your account

Your bank won’t let you keep your account in the negative indefinitely. If you don’t resolve the outstanding balance, they will close your account. You could keep racking up fees in the meantime, which means you’ll owe even more money.

Your bank could send your debt to collections

Your bank can send the outstanding amount to a collection agency. You could then receive collection notices and face additional consequences. Look out for emails, text messages, and phone calls from your bank. If you can’t repay what you owe, ask if you can set up a payment plan.

You could be reported to ChexSystems

ChexSystems provides reporting and account verification services for financial institutions. Banks and credit unions can use the database to find out about an applicant’s previous banking history, including checking account openings, closures, and the reason for those closures.

ChexSystems is different from traditional credit reports, and the information it contains does not directly affect your credit score.

Can a negative bank account affect your credit score?

If you don’t address a negative bank account, your institution may report you to a debt collector and sell off your debt. When an account is sent to collections, it can damage your credit score. A negative account can also make it harder to open another checking or savings account, even if you go to another bank.

Read more >> Does closing a bank account affect your credit score?

How to address a negative bank account

If your bank account falls into the red, consider these four key steps.

Deposit funds as soon as possible

Adding enough money to cover the negative balance and any fees can stop additional charges to your account. Check your balance again after the deposit processes, and watch for pending transactions that can push you back into the negative.

Contact your bank about fee waivers

If you haven’t had one in a long time, your bank may be willing to waive some of the charges. Reach out to your institution to ask about reducing how much you owe.

Set up low balance alerts

Push notifications or email alerts can notify you when your balance falls below a set threshold, such as $200.

Review your overdraft settings

For debit card and ATM transactions, overdraft coverage requires opting in. If you opted in and want to remove it, ask your bank to turn it off.

How to avoid going negative in the future

Watch your balance closely, and look into whether you can set alerts that let you know when you’re close to going negative. Build a budget that you can stick to, so you know what’s coming in and going out. And put aside a small cash buffer so an emergency doesn’t trigger fees.

Stronger credit gives you somewhere else to turn when the buffer isn’t there yet. Kikoff’s Credit Account reports your on-time payments to all three credit bureaus, building the payment history lenders weigh most heavily. No hard credit check required.