Bought a $2.50 cup of coffee and got slapped with a $35 fee? Chances are, most of us have had one overdraft fee hit on us at one time or another. Overdraft fees happen when you overspend the balance in your checking account, and your bank covers the short.
According to a National Consumer Law Center representative, “Overdraft fees are one of the most abusive forms of lending the banks engage in.” In a world of black and white, let’s help you save some green.
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How Much Do Overdraft Fees Cost?
You might have heard the term overdraft fees a lot recently. There’s been a lot of news coverage about major banks either rolling them back or eliminating them altogether. That’s a good first step. Overdraft fees have been lucrative for banks. bringing in $15.47 billion in 2019.
The average overdraft fee is $35, but each financial institution has its own fees and guidelines. For example:
- Bank of America announced plans to eliminate non-sufficient funds (NSF) fees in starting in February and will reduce overdraft fees from $35 to $10 beginning in May.
- Chase charges $34 insufficient funds per item with the first item that overdraws your account by more than $50 and three overdrafts per day, capping the fee at $102 per day.
- Wells Fargo has a $35 overdraft fee per item, which includes overdraft by check, ATM withdrawal, debit card transaction, and per item.
- Citibank has a $34 overdraft fee per item. Citi caps the fee at four daily transactions.
- Capital One/Ally Bank will offer free overdraft protection starting in 2022, in place of the $35 fee. It’s not outright elimination of the fee but more customer-friendly with a grace period. You will need regular deposits to avail of this service.
- US Bank charges $36 per item, but if you overdraw $5 or less, they won’t charge you an overdraft fee. It caps the number of things to four per day for a maximum of $144 per day.
Sometimes the fee can be higher than the overdraft itself. For example, automatic payment for an $8 monthly streaming charge could trigger a $35 fee.
In addition to the overdraft fee, you’ll also accrue interest charges. The interest rate varies, but it can range from 19% to 40% or more. The interest can be calculated by multiplying the daily ending balance on your overdraft line of credit by the daily periodic rate. The periodic daily rates are calculated by dividing the current annual percentage rate (APR) by 365 days, or 366 days in a leap year.
Because banks view overdrafts as short-term loans, some banks will charge a fee for each day your account is overdrawn. These fees range from $5 to $10 and can add up quickly. I’ve seen it as high as $35 each day the account is overdrawn.
How to Get an Overdraft Fee Refunded
Getting an overdraft fee refunded can be a relatively simple process as long as you’re fully prepared before contacting the lender.
Call customer service as soon as you notice the charge. Summarize your fees and prepare a script, if necessary, before contacting customer service. Be polite and say you saw the charge and would like it refunded. Most agents will erase the charge, but they will only be able to do so a limited number of times.
Add Up Your Total Costs
Documentation helps ensure consent and expectations. It helps to tell a narrative for decisions. The proof of evidence comes out of documents. Having the appropriate documents is essential to check bank statements, deposit records, withdrawals, etc. This information will make it easier when you call your financial institution asking to refund the fees.
Prepare to Make a Phone Call
These days, many people hate to make phone calls. Prepare a list of points you want to raise before making the call. Try to contact your bank within a day and have an acceptable reason why the fee should be refunded. Practice what you want to say.
If you’ve been a good customer, and this is your first overdraft, and you’ve never had a late payment, be sure to point that out. If the overdraft was due to a direct deposit or ACH transfer problem beyond your control, make sure to mention that as well.
Contact Your Bank or Credit Union
Most people prefer to handle problems by email, chat, secure message or through the mobile banking app, but for this, an old-school phone call is best. Not every agent has the capability to waive the fee. Start with the customer service phone number listed on your bank statement. Call at a time when you have the flexibility to spend some time waiting on hold. Be very specific about the fee you’d like to have waived and why.
Not all banks have the same overdraft policies, so that’s why it’s important to call customer service. For instance, with Chase, if you have Chase Overdraft Assist, if your overdraft is less than $50, you won’t have to pay the overdraft fee and put the money back in the account within one business day.
Stand Your Ground
Sometimes the representative will immediately agree to waive the fee, but often you’ll meet some resistance. Don’t give up. You can ask to speak to a supervisor, but the best strategy is usually to hang up and call again. If a second agent denies your request, then escalating it to a supervisor is the next logical step.
Be polite when you call. Cite your stellar record with the bank and length of being a loyal customer. If you threaten to pull your business, make sure you’re willing to follow through.
These steps also apply to other fees, like credit card late fees.
What’s an Overdraft Fee?
Anyone with a checking account might be charged an overdraft fee. Overdrafts are triggered when there isn’t enough money in your available balance to cover your transaction, but your bank or credit union pays for it anyway. Then the bank charges you a fee for this service. Overdraft fees apply to:
- ATM withdrawals
- Debit card purchases
- Checks
- ACH payments like online bill payments
Many banks and credit unions offer overdraft protection.
At most institutions, the overdraft fee is a fixed amount, so you might end up paying several overdraft fees on the same day. Know what the cap is for your bank.
For debit cards, you can only be charged overdraft fees on ATM and debit card transactions if you’ve agreed to the fees. Agreeing to the fees would allow you to spend more than your account balance.
What is an Overdraft Line of Credit, and How Does It Work?
An overdraft line of credit is a short-term loan, an overdraft loan where the bank covers pending transactions if there’s not enough money in your checking to cover it—up to a specific limit. The overdraft line of credit automatically activates when you overdraw your checking account.
How to Avoid Overdraft Fees
The easiest way to protect yourself from accruing overdraft fees is to avoid having insufficient funds in the first place.
Turn Off Overdraft Protection
While negotiating the removal of the overdraft fee, ask the agent to turn off overdraft protection services while you are on the phone. When you remove the automatic overdraft coverage, a purchase will be declined if there isn’t enough money in your account.
Track Your Balance
If you notice you have a low balance, transfer funds from your savings account or stop auto payments until you’ve had a chance to add more money. Watch your account balances regularly via a download bank app that tracks your activity and can quickly check it on the fly.
Set Up Alerts
Set up alerts for low balances. Online banking makes this simple and alerts you to stay informed about your finances whenever, wherever, and however you want. For instance, if your balance drops to $250 or whatever amount you choose when you get the alert, you either stop spending or deposit more money into the account.
Link Another Account
You do not need to have an overdraft service to have overdraft protection. Some overdraft protection uses available funds from your linked accounts, usually involving a savings or credit account, to cover a transaction if there isn’t enough money in your checking account.
When there’s not enough cash in your checking account to cover a transaction, the bank will transfer money from the linked account to cover the short. Some banks will charge a fee, but it’s way cheaper than overdraft fees. If you link a credit account, like a credit card or line of credit, you’ll have to pay interest on the overdrawn amount and possibly a transfer fee.
Change Banks
Those that live paycheck to paycheck are the most vulnerable to overdraft fees. According to the 2021 FinHealth Spend Report, households had an average of 9.6 overdrafts in the past year. That’s about $350 a year that consumers are paying in fees.
These ten banks offer checking accounts that don’t charge overdraft fees and save you money.
● Alliant Credit Union – Their no-overdraft fee policy applies to all checking and savings accounts, not just those of current members or members who maintain high balances. They even have a high-rate checking with no monthly service, overdraft fees, minimum credits, and a $20/ month rebate on ATM fees.
● Ally Bank has, as of July 2021, eliminated overdraft fees. An Ally checking account also has no minimum balance requirements and no monthly maintenance fees.
● Axos has zero overdraft fees for people who spend more than what is in their checking account. There are two solutions to this. The first involves not signing up for any protection and letting your card be declined when there are insufficient funds in the account. The second is to sign up for a line of credit with them. The APR is somewhat high at 18%, and the interest begins to accrue the day of the transaction. Axos also offers no monthly fees, full reimbursement for fees incurred while using any ATM in the U.S.
● Betterment is an online-only account with no overdraft fees or account minimum requirements. Betterment will also reimburse all your out-of-network ATM fees worldwide, including foreign transaction fees. Account-holders can also earn automatic cash back at popular retailers and get mobile insurance when you pay your cell bill with their debit card.
● Chime has a new fee-free overdraft feature called SpotMe. They spot members up to $100 on debit card purchases when their balance is low, with no overdraft fees.
● Capital One 360: When you’re negative on your online checking account, Capital One lets you borrow money that you can then pay back month-to-month at a pretty reasonable APR of 12.25%. Suppose you go over your checking account balance by $50; you won’t be fined an overdraft fee of $35 and then be immediately harassed for the $50 the next day. Instead, you would have a $50 debt plus the pennies in interest you would owe by the end of the month.
● Discover does charge a $30 fee if you have a negative balance, but only once a day. Discover would only charge you a single overdraft fee if you overdraw your account for lunch and again at the grocery store. Many banks charge each time you are overdrawn. And you can connect your checking account with a savings or a money market account and get a free transfer at any time.
● Truist plans to launch two checking accounts in 2022 without overdraft fees and nix most existing charges.
● USAA does not currently charge overdraft fees for overdrafts. However, Non-Sufficient Fund Fees apply to transactions that they decline or return unpaid when they determine that your account’s available balance isn’t enough to pay for the transaction.
● Varo Advance has no overdraft fees, no unexpected fees, with no unfair late fees. You have to repay your Advance Plus any Advance Fee within 30 days if you want to get another Advance. You can overdraft your bank account by up to $50 if you meet the eligibility requirements, and you never pay a fee to do it.
Want to know more about how to keep from paying overdraft fees? Check this out:
How Do the Five Biggest Banks Handle Overdraft Fees?
Bank of America
In February 2022, they will remove the ability for clients to overdraw their accounts at the ATM, and in May 2022, they will reduce the overdraft fees from $35 to $10 and eliminate balance Connect overdraft protection transfer fees ($12). They assess the overdraft fee immediately, but if you link your Bank of America credit card to checking for overdraft protection, then the credit card kicks in to cover the shortfall.
They have a full array of solutions for low-cost and no-cost products like SafeBalance, where there are no overdraft fees, and monthly payments are waived for students under the age of 25 and clients enrolled in their Preferred Rewards Program.
Balance Connect
Balance Connect allows Bank of America clients overdraft protection through the ability to link up to five accounts to their checking while increasing simplicity and accessibility through digital sign-up and management.
Chase
Customers pay no overdraft service fees when their account is overdrawn by $50 or less at the end of the business day. Overdraft service fees only begin with the transactions that overdraw the account by more than $50 at the end of the business day.
Wells Fargo
The lender’s overdraft Rewind program is designed to help undo the costly mistake of overdrawing your checking account. Overdraft Rewind applies automatically to every Wells Fargo checking account and waives the overdraft fee from certain transactions that leave your account with a negative balance. All you need to do is make a direct deposit covering the deficit by 9 a.m. local time the next day. There is no additional sign-up or enrollment required.
Citibank
Citi charges a $35 overdraft fee per item and caps it at four transactions a day ($140/day). If you deposit the funds before the end of the day, balance on the day you have overdrawn your balance, and then they won’t charge a fee.
US Bank
US Bank will charge a fee only if the overdraft is over $5.00 or more. If the overdraft amount is more than $5, you’ll have to call and ask for a refund.
What is a Non-Sufficient Fund (NSF) Fee?
NSF is the term used when a checking account holder is overdrawn. There is not enough money in the account to pay the check written against it. The bank returns the “bounced” check to the account holder and charges a returned check charge.
Will an Overdrawn Bank Account Hurt Your Credit Score?
According to the Consumer Financial Protection Bureau, consumer reporting agencies can report the closed account to other institutions. An inactive or an overdraft bank account with fees piling up can impact you for up to seven years.
The Bottom Line
According to S&P Global Market Intelligence data, banks took in $6.13 billion in overdraft revenue in the first nine months of 2021. Most of those who were victims of overdraft fees were people who live paycheck to paycheck.
Overdraft fees are undoubtedly costly, but we give you a way to fight back and provide you with a remedy because sometimes the easiest way to solve a problem is to stop participating in the issue.
FAQs
You want to keep your money secure and insured. That’s why the words “Member FDIC” are so important. Member FDIC indicates that the federal government covers your bank. A Federal Deposit Insurance Corp. (FDIC) insured account is a bank account at an institution where deposits are federally protected against bank failure or theft. The FDIC is a federally backed deposit insurance agency where member banks pay regular premiums to fund claims. The maximum insurable amount is currently $250,000 per depositor, per bank.
Banks and credit unions cannot charge you an overdraft fee for one-time debit card transactions and ATM withdrawals unless you opted-in.
A negative balance is when your account balance is less than zero.
A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts, or several other types of accounts.
Truebill can help you manage subscriptions, lower your bills, and make the most of your spending.
Trim detects recurring charges to see if there are any services that you’d like to cancel. It can negotiate with any cable, internet, or phone provider to lower your bill up to 30%.
Harvest was the only one on this list that helped nip overdrafts and other bank fees in the bud by reviewing your accounts and negotiating for refunds on your behalf. The service uses machine learning to determine which expenses are likely to be refunded and makes the outreach on your behalf. If they’re successful, they keep 25% of whatever has been reclaimed, and the other 75% comes back to you.
Banks charge NSF fees when they return checks, and overdraft fees are when they accept checks that overdraw checking accounts. NSF checks are known as “bounced” or “bad” checks. If a bank receives a check written on an account with insufficient funds, the bank can refuse payment and charge the account holder an NSF fee.