Answers to Your Questions About Overdrafts
Learn more about bank overdrafts* and how to avoid the fees
Bank overdrafts occur and an overdraft fee is charged to you when a debit transaction (for example, a check, ATM withdrawal or debit card purchase) exceeds the available balance in your account and the bank still approves the transaction. As a checking account customer, you know how important it is to keep track of your balances to avoid the inconvenience and expense of overdrafts and accompanying fees. Learn more about overdraft fees and how to avoid them with this helpful guide.
What is an available balance?
The available balance is the amount of money in your account, minus any holds (such as outstanding debit card authorizations) and uncollected funds as a result of the bank's funds availability policy. It does not include checks you've written that have not yet cleared, pending online bill pay transactions, or pre-scheduled debits (e.g. health club dues automatically debited from your account at a certain time each month).
Your available balance does include cash deposits, direct deposits, account transfers, withdrawals and debit card purchases. You can determine your available balance at the ATM, by phone or by accessing your account online.
Can I overdraw my account at the ATM or with my debit card?
If you opt in to Standard Overdraft Practices, the bank may approve ATM or debit card transactions at their discretion that result in an overdraft. An overdraft fee will be charged for each item that overdraws your account.
What is an outstanding debit card authorization?
An outstanding debit card authorization is the amount immediately deducted from your available balance while the bank waits for the final settlement request from the merchant, which can last several days. A final settlement request is an instruction from the merchant to the bank to deduct the exact amount of your final purchase. It follows after the debit card authorization request and completes the transaction. While the majority of transactions are settled within one business day, the actual timing rests with the merchant and is out of your bank’s control.
Keep in mind, until then, the outstanding authorization amount may be larger or smaller than your actual purchase amount. In some cases when final settlement is delayed, the outstanding authorization is released, which causes your available balance to appear larger than you might otherwise expect.
How and when are transactions deducted from my account?
At Citizens Bank, we do not process your transactions in the order that you make them or when we receive them. Rather, we post transactions from high to low, meaning that at the close of each day, we deduct your largest transactions before deducting your smaller transactions. With this "posting order", you are at a lower risk of having an important item returned, such as a mortgage, rent or car loan payment due to non-sufficient funds.
However, these larger items will cause your account balance to be used up faster, and if it falls to zero, you will incur bank overdrafts or returned items and related fees. As a result, overdraft fees may be incurred more frequently than if we had deducted the transactions in a different order. Remember though, if the available balance in your account does not fall below zero, this "posting order" does not matter.
Can an outstanding debit card authorization result in overdraft fees for me?
A merchant's outstanding debit card authorization request will alter the available balance in your account. If, as a result, your available balance falls below zero at day's end, then overdraft fees will be charged. For example, a debit card authorization may lead to overdraft fees in certain circumstances:
- Customers who spend the funds in their account, anticipating a delay between purchase and settlement, may experience an overdraft fee. This is because the outstanding debit card authorization reduces the available balance in the account even though the actual purchase has not posted yet.
Example: Bill has a $100 available balance and makes a $75 debit card purchase. His available balance will be immediately reduced by $75, or the amount of the outstanding debit card authorization. If he makes another purchase or withdrawal beyond the remaining available balance, it will result in an overdraft fee.
- If a merchant obtains an authorization for your debit card, but then your purchase is paid for by other means, the merchant must submit a reversing transaction to remove the debit card authorization. If they do not do this, the available balance will be reduced until the hold expires, normally two business days.
Example: Jane has $250 in her account and uses her debit card to pay $175 for theater tickets. She decides, after the card is swiped, to pay by cash. The theater operator does not reverse her debit card authorization immediately and her available balance is reduced by $175. That night, a $200 check she had previously written posts to her account. As a result the account is overdrawn and a fee is charged.
Can I cover an overdraft and avoid fees?
If you overdraw your account during the day, you can cover it and avoid overdraft fees by making a sufficient deposit that same day. Review a bank's funds availability policy to determine which deposits could become available the same day.
If your account remains overdrawn, several things will happen:
- After three business days, you will be charged a sustained overdraft fee. This overdraft fee of $6.99 will be assessed on the fourth business day and each day thereafter up to and including the thirteenth business day. You could avoid this by signing up for online banking alerts to know when your account is overdrawn.
- Your account will be forwarded to our collections department, which will contact you to ensure that you are aware of the overdraft and to discuss ways to bring the account positive.
- We may also transfer funds from your other accounts to cover the overdraft.
- Finally, if the account has not been brought back to positive within 60 calendar days, the account will be closed and you may be reported to ChexSystems, a national clearinghouse of check writing information. This may impair your ability to open a checking account elsewhere.
Manage your account to avoid overdraft fees
The simplest way to avoid overdrafts is to balance your checking account on a daily basis. Be sure to record fees and regular account charges and don't assume transactions will not post to your account for several days.
Citizens Bank offers several tools to help you manage your account, including online banking, with alerts to warn you when your account balance dips below a certain level. You may also sign up for email or text notification of an overdraft on your account. For more information about bank overdraft fees, checking accounts or our services and solutions, call 1-877-360-2472 and speak to a Citizens Bank representative.