In the All Things Pesky universe, overdraft fees rank right up there with mismatched socks and next-door neighbors who vacuum in the dead of the night.
However, these bank fees are not just minor annoyances. They can put a serious dent in your pocketbook. Not only can overdraft fees be expensive, but they can potentially impact your credit. (FYI: Chime doesn’t ever charge its members overdraft fees. Never ever.)
Here are 5 shocking facts about overdraft fees that will send you reeling (don’t say we didn’t warn ya):
1. Americans pay more than $300 in bank fees every year
According to data from BankFeeFinder.com, Americans pay an average of $329 in bank fees annually. What’s worse, one in 10 pay a whopping $1,000 a year in fees. This includes fees for non-sufficient funds (NSF), monthly maintenance fees, ATM fees, overdraft charges and more. Just think: This money could go toward your living expenses, emergency fund, that awesome vacay—anything is better than paying your bank for holding onto your money.
2. Overdraft fees have been on the rise since the recession
Based on recent data released by the FDIC, the 10 largest banks in America collected $11.45 billion in overdraft and NSF fees from American consumers in 2017. What’s more, a recent survey by Moebs Services reveals that consumers paid a whopping $34.3 billion in overdraft fees in 2017 (this includes overdraft fees from big banks, smaller banks, and credit unions). This is the highest since the Great Recession in 2009, and a three percent increase from 2016.
With that much money going toward mere overdraft fees, you may think twice before reaching for your debit card to make transactions. In our age of money micro-transfers, a small misstep can oftentimes result in a series of overdraft fees. I know because this has happened to me. For instance, you can get dinged financially for not having enough in your checking account when an automatic investment hits, or even when you buy groceries at the market.
According to Moebs Services, the median overdraft fee in 2000 was $18. It’s now at $30 (most of the big banks charge an average of $35.) And credit unions aren’t much better. In 2000 credit unions charged a median price of $15; in 2017 that fee is up to $29. It’s a sad reality when credit unions, typically known for lower fees, aren’t cutting consumers any slack when it comes to overdraft fees.
3. Big banks still engage in abusive practices
According to analysis from the non-profit Center for Responsible Lending, at least one of the top 10 big banks do the following: charge extended overdraft fees on top of per-transaction overdraft fees, use high-to-low transaction processing for some forms of debit transactions, and allow five or more overdraft fees to be charged per day to its customers. Indeed, some of the big banks are still manipulating transactions to wrangle as much money in fees from you as possible.
4. Banks leave customers in the dark about overdraft protection programs
Many customers who incur overdraft fees aren’t well informed about how overdraft protections work, according to a recent study by Pew Research. As It turns out, many consumers aren’t aware that if they don’t have enough funds to cover a transaction, they can actually decline the purchase and not have to pay an NSF fee.
The same Pew Research study also showed that banks ineffectively communicate with consumers about overdraft protection programs. What’s worse, even among customers who had a straight-up convo with their bank, their understanding of exactly how overdraft programs work was pretty low. This cloud of confusion can result in even higher bank fees.
Case in point: Per the Pew research on overdraft programs, one in three of those who overdrafted treat these overdraft programs as a type of loan. For example, when they don’t have enough funds in their bank account to pay for those groceries, they use overdraft programs as way to borrow small amounts of cash.
5. Those who opt-in to overdraft protection pay more in fees
Indeed, overdraft programs are not loans and they don’t save you money. As it turns out, people with overdraft protection usually pay $450 more in bank fees, per a recent study by the Consumer Financial Protection Bureau (CFPB).
It’s no surprise that many of those who frequently incur overdraft fees are also financially vulnerable – meaning they tend to have lower credit scores and account balances than those who don’t overdraft as often.
No overdraft fees with Chime
If you want to avoid overdraft fees entirely, look toward Chime. Chime’s fee-free structure means you won’t ever have to incur bank fees. You won’t have to pay overdraft fees, monthly maintenance fees, foreign transaction fees, or minimum balance fees. Plus, you can enjoy ATM withdrawals sans fees from over 38,000 MoneyPass ATMs.
Overdraft terminology 101
To help you better understand the lingo, check out this basic overdraft fee glossary:
An overdraft occurs when you don’t have enough funds in your account to cover a transaction. In turn, your financial institution (i.e. bank or credit union) pays for that transaction. A fee may be charged for this service. You can overdraw your account by paying for bills, writing checks, withdrawing money from ATMs and shopping online.
In the case that your bank account balance falls under zero, overdraft protection provides a guarantee that your debit card transaction will clear. When you opt-in to overdraft protection, the financial institution takes money from a linked account to cover the transfer. A fee is often tacked onto the transaction.
Non-sufficient funds (NSF) is a common banking term that means you don’t have enough money in your checking account to cover a check, online bill payment, or debit card transaction.