Overdrawn Checking Accounts

How do I start with a negative bank balance?

Starting in overdraft can seem overwhelming, but YNAB can help make it much more manageable. Your overdraft balance is considered debt because it is money you owe, and your goal should be to get rid of that debt as soon as possible. 

If you’re frequently going into overdraft, one of two things is typically true:

  1. You’ve cut back on expenses as much as possible and you are still not breaking even. If that’s the case, you’ll need to find a way to increase your income. 

  2. You make enough money to get by (and maybe more), but you spend more than you earn, and that’s why you’re not breaking even. In that case, you need to examine spending and find ways to cut back. This is where YNAB shines and can really help you.  

How you handle your overdraft will depend on the terms of the overdraft and what your bank’s rules and fees are. It also makes a big difference how far into overdraft you are and how quickly you can pay back the full amount.

Ideally, you should follow this simple three step process when managing your money:

You now find yourself in overdraft because you skipped the critical budgeting step and have incurred debt. Not budgeting got you into this situation; budgeting will get you out.

How do I set up the overdraft checking account?

Step 1: Click the "Add Account" button at the bottom of the Sidebar:


A pop-up window will appear. Enter the name on the account, the negative starting balance, and the starting date. Select Checking from the account type drop-down menu.

Make sure you place a minus sign (-) before the starting balance to indicate that it is negative.

Step 2: Click Create Account.

YNAB will then ask you if you are sure about the negative balance.

Step 3: Click The value is correct.

The new account name will now appear in the sidebar with the negative starting balance.

Step 4: YNAB has entered a starting balance transaction for you and created a new Category.

YNAB has created a new Category for you called: Pre-YNAB Debt: (Name of Account).

Step 5: Move to the Budget.

You will see this same Category at the top of the Budget.

The starting balance has been entered as an outflow and the red arrow in the Category Balance column has been turned to the right. This red arrow controls the overspending settings, and with the arrow turned to the right, the negative Category balance only affects this Category and has no impact on the rest of your Budget.

How do I deal with the existing negative balance?

To pay back the overdraft balance, budget an amount toward that Category the next time you are paid.

Step 1: Enter your next paycheck when it arrives.

Categorize it as Income for (the current month) so it can go to work immediately.

Step 2: Move to the Budget.

You now have more money Available to Budget.

Step 3: To pay back the overdraft balance, budget something toward the Pre-YNAB Debt: (Name of Account) Category.

You'll notice as you budget to that Category, the balance gets smaller. Continue to budget toward this Category when you receive income until the balance is paid in full and the Category Balance on the Budget is zero.

Often the bank will pay themselves back in full when money is deposited into your account. If this happens, budget the entire amount they took to your overdraft Category. This will leave you with less money Available to Budget, but this is an accurate representation of what happened.

How do I deal with overdraft fees and interest?


When you are charged interest or fees in any Budget Account, you have essentially incurred a new expense. Make sure you have set up a Category to budget for that new expense.

You can set up this Category in the Pre-YNAB Debt Master Category, or start a new Master Category to handle all your accounts that charge you interest or fees, with account names as Categories.

Learn how to set up a new Category.

Now you are ready to record the interest or fee and budget for it.

Step 1: Select the account that was charged the interest or fee.

Whenever you are charged interest or a fee on your overdraft account, you will have to update your corresponding YNAB account register with any interest or fees that were charged to the account.

Step 2: Record a new transaction indicating the interest charge or fee.

Click on Add a new transaction and enter the date the interest or fee was charged.

Then in the Payee field, enter the name of the bank that charged the interest or fee (since they charged the interest or fee, they will ultimately receive the payment), or you can enter Interest as the payee.

Step 3: Select a Category.

The interest and fees being charged affect both the balance of your account and the amount you must budget to pay off in the same way that making a new purchase using the card does. Because of this, you must categorize these expenses.

In the Budget Category field, select the Category you have established to handle this new charge.

Step 4: Record the payment amount in the Outflow field.

In the Outflow field, enter the amount of the interest or fees.

Always make sure you have budgeted enough in your interest and fees Category to cover the charge. This will now show up on the Budget and increase the amount you owe in that Category.

Step 5: To pay back the fee, simply budget more toward that Category.