While less common for personal savings accounts, overdrafts can occur with current or business accounts, and the associated fees can become a significant expense. When you spend more money than what is available in your current account, it’s called an overdraft. 

Additionally, in Singapore, overdraft charges may take the form of interest rates applied to the overdrawn amount. However, it's worth noting that the landscape is evolving, with digital banks and fintech companies increasingly offering alternatives that minimise or eliminate overdraft fees, providing customers with more cost-effective options.

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Several Singaporean financial institutions offer solutions that help customers avoid or minimise expensive overdraft fees. These include banks that only charge interest or fees on the overdrawn amount and not per transaction. These measures aim to provide more manageable and transparent options for customers who may occasionally overdraw their accounts.

Comparing Singapore’s banks and their overdraft facilities

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An overdraft occurs when you spend more than the available funds in your current account or multi-currency wallet. When this happens, your bank or financial institution typically has two options—they may decline the transaction, such as rejecting a card payment, or they may allow the transaction to proceed.

While the U.S. often sees flat per-transaction overdraft fees, this is less common in Singapore. Instead, Singaporean banks generally apply overdraft charges as interest on the overdrawn amount. 

However, some banks may also impose minimum charges. For instance, DBS applies an interest rate of Prime + 5% p.a., payable on the overdrawn amount (with a minimum charge of S$20).

To minimise the risk of incurring overdraft charges in Singapore, consider these tips:

• Use account alerts or mobile banking notifications to be informed of your account transactions and balance.

• If your bank offers it, link a savings account or line of credit to your current account to automatically cover any shortfalls.

• Explore alternative financial services like Wise or Airwallex, which generally prevent overdrafts by declining transactions when funds are insufficient.

» Planning to open an account? Learn about current accounts and savings accounts

Overdraft protection transfer involves linking another account to your current or debit account so that if a transaction would cause an overdraft, funds are transferred from the linked account automatically to cover the shortfall. While this mechanism exists, it's not a widespread practice among Singaporean banks.

A more common approach in Singapore is for banks to offer a revolving line of credit. This is a pre-approved credit facility that allows you to borrow funds up to a certain limit. When you overdraw your current account, you're essentially drawing on this credit line. Interest is then charged on the amount you've borrowed.

It's crucial to distinguish this from a simple overdraft. With a revolving line of credit, you have a pre-arranged borrowing facility, whereas an overdraft is an unplanned dip into negative balance.

When using a revolving line of credit, be aware that interest charges apply from the moment you access the funds. It's important to manage this credit line responsibly to avoid accumulating high-interest costs.

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• Fall-below fee: This fee is charged if your account balance falls below a specified minimum amount set by the bank. It's not directly related to overdrafts, but it’s a fee to be aware of to avoid account charges.

• Overdraft/Excess fee: An overdraft occurs when you spend more than the available balance in your current account. When the bank allows this transaction, they may charge an overdraft fee, which in Singapore often takes the form of interest on the overdrawn amount. Some banks may also impose a minimum fee.

• Overdraft coverage: This refers to the ways a bank may allow you to access funds beyond your available balance. In Singapore, this often involves a pre-approved revolving line of credit, which you can draw upon when your account is overdrawn.

• Overdraft line of credit: This is a credit facility that allows you to borrow funds up to a pre-set limit. When you overdraw your account, you effectively borrow from this credit line. At the same time, interest is charged on the borrowed amount.

• Prepaid debit card: A prepaid debit card is an account where you load a specific amount of money, helping to prevent overdrafts as transactions are declined if they exceed the available funds.

• Returned item fee: This fee is charged when a payment instruction, such as a cheque, is rejected due to insufficient funds in your account. Some banks in Singapore, like DBS and OCBC, use this term.

While not guaranteed, it may be possible to request a waiver of overdraft-related fees or interest charges. Here's a suggested approach for Singapore-based account holders:

1. Contact your bank: As soon as you become aware of the overdraft charge, contact your bank's customer service department. You can typically find the relevant contact number on the bank's official website.

2. Explain the situation: Provide a clear and concise explanation of why the overdraft occurred. For instance, you might mention an unexpected transaction, a delay in salary crediting, or temporary financial difficulties due to unforeseen circumstances.

3. Provide a timeline: State when you anticipate being able to bring your account balance back to a positive amount.

4. Highlight your customer history: If you've been a loyal and responsible customer with a good track record, politely mention this. Banks may be more inclined to assist long-term customers with infrequent overdrafts.

5. Maintain a polite and professional tone: Throughout your interaction with the bank representative, remain calm and courteous. Avoid getting into arguments or raising your voice, as this is unlikely to be helpful.

6. Seek a supervisor's assistance: If the initial customer service representative is unable to help, request to speak with a supervisor. They may have more authority to grant fee waivers.

7. Consider your options: As a last resort, if the bank is unwilling to waive the fee, you could consider informing them that you'll explore alternative banking options after resolving the outstanding charges. While this isn't a threat, it can sometimes prompt the bank to reconsider.

» Want to learn more? Read SingSaver’s guide on types of credit lines in Singapore.