Imagine having caused your account to overdraft by only 11 cents and yet you find out later that day that your bank has charged you a $34 fee to cover the charge. Ouch! And yet, this type of thing literally happens every day to millions of people. For some folks, $34 isn’t much money, but for most of us, we’d rather not have to pay it as a fee to our bank, thank you very much.
Overdraft fees have gone well beyond being just a penalty or slap on the wrist that a bank customer gets charged for not managing her checking account carefully enough. Rather, they have become a big source of revenue for banks in and of themselves – to the tune of over $25 billion per year across all banks in the U.S. alone.
Many bank customers who try faithfully to manage their checking accounts each month do a pretty good job. And yet, there can be that one charge that puts you over the edge by just a few dollars – and then come the fees.
The Bad News
The bad news about overdraft fees is that they are set up to be “trigger happy”: to make it as easy as possible for you to get charged a fee. For example, most banks with overdraft protection programs will allow a debit charge to go through, even when the account is overdrawn. This causes a fee to be charged to the account.
Another bad thing about overdraft programs is that they have traditionally been opt-out. This means that when you sign up for a new checking account, you are automatically enrolled. Many people are unaware of this, so they figure that if they try to put through a charge that will overdraw their account, the charge will just get rejected. That is why it’s a rude awakening when they check their bank statement and see a charge there.
The Good News
There is some good news in this area, however. For example, in response to government and consumer pressure, many large banks are changing their overdraft policies to make them more customer-friendly.
For example, some banks are now saying they will not charge a fee unless the account is overdrawn by at least $5 (rather than just a few cents, as before). Other banks are limiting the maximum number of charges you can incur in a given day. And, some banks are also making their protection programs “opt in,” which means that customers will be given a choice about whether they want to join when they sign up for a new account.
The Alternative to Paying Overdraft Fees
Of course, the best alternative to paying these fees is to find banks that do not charge overdraft fees at all. While most major banks continue to implement strict overdraft policies, there is a new breed of banks that refuse to charge overdraft fees. These banks will actually cover an overdraft charge – say when a customer uses a debit card or writes a check against an account with a negative balance – and yet still not charge an overdraft fee for the trouble. Cool stuff!
You can find no-overdraft-fee banks online. Make sure to contact at least 3-5 of these banks before you make a decision on a particular bank: while they all offer no-overdraft-fee checking, other details about each bank will of course vary. Choose the one that feels right to you.