Why Is a Debit Card Issuing Cash When the Withdrawal Causes the Account to Be Overdrawn?

Banks cannot charge ATM overdraft fees if you opt out.

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Debit cards can be used to make withdrawals at ATMs and to pay for goods and services at point-of-sale terminals or online. Electronic withdrawals at ATMs are instantaneous, meaning your bank debits the amount of the withdrawal from your account at the time of the transaction. Nevertheless, ATM withdrawals, like check withdrawals, can lead to overdrafts and fees. While you cannot eliminate all overdraft situations, you can eliminate ATM-related overdraft fees.

Overdraft Settings

Federal legislation that came into effect in 2010 governs the way banks handle overdraft situations. When you open a bank account, you have the right to opt in or opt out of your bank's standard overdraft procedures. If you opt out, your bank should decline one-time debit card transactions, including ATM withdrawals, that cause your account to go into a negative balance. If you opt in, you allow your bank to decide whether to honor such withdrawals and allow your account to go into the negative. The disadvantage is you will face a fee for overdrawing your account.


Many banks offer overdraft protection on checking accounts. With this service, you are covered if you overdraw your account at an ATM and won't have to pay the standard overdraft fee. The overdraft protection sometimes takes the form of a line of credit, in which case your bank transfers money from the credit line to cover the overdraft. You pay interest on the credit line until you have repaid the debt. Other banks use savings accounts as overdraft protection. In these cases, you usually pay a flat transfer fee when you overdraw your account. Either way, banks profit from allowing your account to go into the negative. In many instances, opting-in to your bank's standard overdraft protection means agreeing to link a savings or credit line to your checking account.

Lack Of Funds

Once you have opted in, your bank can choose to approve ATM withdrawals even if you have exhausted your line of credit or withdrawn all of the cash from your savings. When this happens, an ATM withdrawal could cause your account to go into the negative and your bank can assess an overdraft fee. Additionally, if you lack covering funds, your bank can assess an overdraft fee even if it declines the ATM withdrawal. Banks argue that some customers prefer to get overdrawn rather than find themselves without access to cash.

Opt Out

If you opt out and you lack the funds to cover your ATM withdrawal, it will be automatically declined. However, on some occasions processing delays involving other electronic transactions can make it seem like you have funds in your account even though you have already spent your money elsewhere. Your bank cannot assess an overdraft fee in this situation because fees on such transactions are prohibited if you have opted out of your bank's standard overdraft procedures. Although you are responsible for keeping track of your transactions and bank balance, banking laws restrict the ability of banks to assess punitive fees. For example, if a technical error or processing delay allows the transactions to go through, this is considered a banking issue that caused the fee rather than a customer error. Hence, the fee can't be assessed.