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Overdraft Fees Mean Big Bucks for your Bank
Do you have “overdraft protection” on your checking account? Overdraft protection enables your bank to take care of you when you make a little boo-boo and spend more money from your account than you actually have in there. Maybe you’ve written a check that would “bounce” otherwise, or done a debit card transaction for a little more than you currently have in your account, or tried to withdraw a touch much from an ATM. Instead of rejecting the debit card transaction or popping up a little message on the ATM screen informing you of your malfeasance, the bank magnanimously grants your request for that money you don’t have by pulling money from another of your accounts or plopping it onto your credit card (now your bounced check is a different situation in that you’d typically get whacked with check return fees by the entity cashing the check if it is a company). Wow, isn’t your bank awesome – they are totally looking out for you!
My bank is awesome!
Well, not exactly. There is the little matter of the “convenience fee” that the bank takes for providing you this service – something on the order of $35. Now that might not sound like a huge deal (although if you are scraping so close to the bottom of your account balance that you are overdrawing it, $35 is probably a significant penalty!). But this adds up to big business for the banks. According to Forbes.com, Bank of America took in $692 Million on overdraft fees in only THREE months this year! Almost 20% of customers end up getting charged an overdraft fee while almost 4% rack up 5 or more in a year! Read that again – $692 Million in three months for a single, albeit large, bank!
What to do?
Clearly, you really want to avoid ponying up some of your dough into BoA’s billion-dollar-kitty of overdraft fees. One step would be to simply not sign up for overdraft protection (or un-sign-up if necessary). Interestingly, congress is changing the way this works next year and not allowing banks to automatically opt customers in for overdraft protection. Instead, a customer would have to explicitly sign up. But all of this is really just treating the symptom and ignoring the real problem, right?
Let’s be frank here, accruing one of these fees is really a matter of your personal negligence. Obviously you know that you should not be trying to take out more money than what currently resides your account (you do know that, right?). So if you do that, it’s most likely a matter of you not keeping abreast of your account balances. In this day and age of internet banking and smartphones, you do not have a good excuse for not knowing your account balances when you are out making purchases or hitting the ATM.
So, keep up to date on your current balance. Try to build in a little bit of cushion into your account so you don’t have to worry about negative numbers (I know, that’s not possible for everyone).
And remember: $692 Million in three months!!
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3 Responses to “Overdraft Fees Mean Big Bucks for your Bank”
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I never opt for accounts where you have to pay a fee to receive “Special Benefits”. Most of the time these special benefits are completely useless or are already covered via other free sources. I think that the danger of allowing yourself to go overdrawn is that you never get back on an even footing, which commences the downward spiral into more serious debt issues.
@Jonathan – that’s a really good point. Once you get to a point where you are overdrawn or close to being overdrawn, it’s really hard to get your head back above water. And have to pay extra fees will certainly not help in the least!
Overdraft fees on current and savings accounts should be abolished the ball is already rolling in the UK with many banks reducing the fees and there is the ability to claim them back by filling in a form and sending it off to your bank.