Bank Overdraft Fee Policies

Overdraft fees most commonly come from debit card transactions these days.

Perhaps you forgot about that recurring bill payment you set up or you simply lost track of your checking account. Either way, when you make a habit of carrying a low account balance, you're often one error away from accidentally withdrawing more money than you have. While most banks will spot you money when your account balance hits negative numbers, this also is when potentially expensive fees can begin piling up.

Identification

Most banks, including 86 percent of 462 banks surveyed by the U.S. Federal Deposit Insurance Corporation in 2006, offer protection from overdrawing funds from an account by check, debit card or ATM transaction. This protection can come from a linked credit card or extra account or by the bank covering the overdraft amount in what essentially is a temporary small loan from your bank. Whatever the method, you potentially face extra fees from overdraft protection, including a flat charge for the bank's covering the amount, a transfer fee to your other account or interest on your linked credit card.

Fees

The FDIC survey indicated that overdraft fees range from $10 to $38, with $27 as the median. Some banks also charge additional fees, either a flat fee or interest, if your bank account maintains a negative balance over a certain period. When a linked account is your protection, the median fee for a transfer is $5, though just under half of the banks surveyed charged no fees. Generally, credit cards that act as overdraft protection carry an 18 percent annual percentage rate. In all, U.S. banks generate more than $30 billion in revenue annually from fees related to overdraft protection, according to economic research firm Moeb Services.

Considerations

Overdraft protection can be beneficial in emergency situations but can quickly become costly. Almost 90 percent of banks will not notify you at the point of sale if you are overdrawing on a debit card until after the transaction is completed, and about three-quarters will allow you to overdraw at an ATM without notification, according to the FDIC. That means if you do not keep an eye on your account levels, overdraft fees could quickly turn a debit purchase of a few dollars into a more than $30 purchase, and those will add up each time you use the card. About half of overdraft fees charged stem from debit or ATM transactions, according to the FDIC.

Changes

Historically, banks automatically enrolled customers in overdraft protection for their debit cards and ATM withdrawals. As of July 1, 2010, however, the Federal Reserve requires U.S. banks to get their customers' consent. As such, some banks, including Bank of America, are doing away with overdraft protection for debit purchases. Other banks will continue to allow you to opt into these programs, and some have been softening the penalties in response. Chase, for example, in 2009 eliminated overdraft fees for accounts overdrawn by $5 or less. In August 2010, U.S. Bank altered its policy so that customers pay only a $10 fee for overdrafts from transactions of $20 or less, though larger transactions carry a $33 fee.

References

• Federal Deposit Insurance Corporation: Study of Bank Overdaft Programs
• The New York Times: Bank of America to End Debit Overdraft Fees
• Moeb Services: Overdraft Fee Revenue Drops to 2008 Levels for Banks and Credit Unions
• Better Business Bureau: Chase to Alter Overdraft Fees
• Minnesota Public Radio: Changes Ahead for ATM, Debit Card Overdraft Fees

Resources

• Federal Reserve Board: Protecting Yourself From Overdraft and Bounced-Check Fees
• Seeking Alpha: The Continuing Fight Against Overdraft Fees
• Forbes: How The End Of Overdraft Fees Could Wind Up Costing Cardholders