bank rates

10% Still Get Hit With Overdraft Fees

One in 10 of us were hit with at least one overdraft fee in 2013, a new survey by Pew Charitable Trusts has found.

And each of those overdrafts cost almost $70 in fees on average.

That’s too much, according to the group, which is pushing the Consumer Financial Protection Bureau to force banks to change their overdraft practices.

“Fees should be reasonable and proportional,” says Susan Weinstock, director of consumer banking for Pew Charitable Trusts.

Pew found in its study – “Overdrawn: Persistent Confusion and Concern About Bank Overdraft Practices ” – that even though the median cost of an overdraft at the largest U.S. banks is $35, having one overdraft can have a domino effect.

Banks often tack on extra fees if you don’t immediately deposit enough money in your account to cover the transaction and the overdraft. That drives the median fee per incident to $69.

Although most overdrafts are rectified within a matter of days, adding together all the fees charged for the short time an account is overdrawn results in an unimaginable APR of more than 5,000%, Weinstock says.

In most cases, the initial transaction that caused fees to balloon was for $50 or less.

Sometimes, it’s a matter of being overdrawn by pennies. Of those who paid overdraft fees, 15% said the fees kicked in when they overdrew their account by $5 or less. Almost two-thirds had overdrawn for $50 or less.

There are easy ways to avoid this.

When you open a checking account, you have several options for handling overdrafts:

  • Have your bank cover your overdrafts and charge you a penalty.
  • Have the bank transfer funds from a linked account, such as savings or a credit card, to cover your overdraft and then charge you a transfer fee. The median fee is $10.
  • Have the transaction declined if it would overdraw your account and pay no fee. This is the smart move.

Of those who’ve ponied up overdraft fees, nearly 70% said they’d rather have the transaction declined than pay a fee.

And 52% said they didn’t recall opting for overdraft coverage. That’s down slightly from 2012, when 54% didn’t remember opting in.

Given the financial burden of overdraft fees, Pew is calling on the Consumer Financial Protection Bureau to take action by requiring financial institutions to:

  • Provide consumers with clear information about overdrafts.
  • Require overdraft fees to be “reasonable” and proportional to the bank’s cost of covering the overdraft.
  • Prohibit transaction reordering, in which banks don’t deduct payments from your account in the order in which they’re made but instead reorganize them so the largest amount comes out first, increasing the likelihood you’ll overdraw your account multiple times.

Don't miss out on the next bank deal. Get the newest deals delivered straight to your inbox!

Comments (0)
1 Star2 Stars3 Stars4 Stars5 Stars (2 votes, average: 4.50 out of 5)
Loading...
No Existing Comments

Comments are closed.