Yes, you may exercise your contractual right of setoff in the funds deposited in one account to pay the overdraft on another account held by the same owner, since the overdraft is a debt owed to your bank. It is not necessary to wait until the overdrawn account has been charged off.

Several Illinois cases have upheld a bank’s contractual right of setoff, and examples are linked to below.

For resources related to our guidance, please see:

• Fisher v. State Bank of Annawan, 163 Ill.2d 177, 181–182 (1994) (“The contract between plaintiff, his sons, and the defendant bank provides an independent basis for a setoff. . . . the issue here is whether Robert gave the bank the right to set off his debts against his joint account. He did.”)

• Selby v. DuQuoin State Bank, 223 Ill.App.3d 105, 109 (5th Dist. 1991) (“. . . a plain reading of the set-off provision of the signature-card agreement indicates to this court that the Bank asserted a right to set off each depositor's debts or obligations owing to the Bank against the deposit account and that each depositor recognized this right of the Bank to set off either depositor's debts against the joint account. Therefore, under the reasoning of the Chickerneo case, because the joint depositors, Smith and plaintiff, agreed that the Bank's right of setoff applied to the joint account for a debt or obligation owing by either of them, the Bank’s setoff of these funds was proper.”)