Are Banks Easing Up on Overdraft Fees?
Chase’s recent announcement
As it turns out, the fine print isn’t always bad news. JPMorgan Chase announced recently that they will be making a slight change to their overdraft fee structure: instead of charging a regular fee of $34 per item when an account is overdrawn, Chase will waive the fee for transactions of $5 or less, effective July 22. For example, if you purchase a $2 cup of coffee using your debit card, but your checking account is already overdrawn, the small-dollar purchase won’t trigger an additional overdraft fee of $34.
This change in policy on small-dollar transaction amounts is in addition to what’s already in place: if your total available account balance at the end of the day is overdrawn by $5 or less, there is no fee.
If you’re finding it difficult to understand the intricacies here, you’re not alone. There are really three different means by which a bank might limit their overdraft fees.
1. Reduce or eliminate the fee for small-dollar purchases. The benefit here is to help control the occurrence of multiple overdraft fees once you’ve already gone negative. In other words, a cheap cup of coffee after you’ve already overdrawn your checking account at the grocery store won’t trigger a second fee of over $30.
2. Waive the overdraft fee when the available account balance (after all transactions have been posted for the day) is overdrawn by a small amount. This is basically like saying that if a customer makes a slight miscalculation and makes a $100 purchase when they really only have $99, they won’t get hit with the immediate fee.
3. Reduce the fee for the first overdraft occurrence in the past year. Slipped up just once? Some banks will discount the fee they charge a customer as long as that customer has not made another overdraft in the preceding 12 months.
What’s the deal at other banks?
Chase is actually not the first bank in the US to enact these types of changes. NerdWallet’s analysis of the checking accounts at over 30 banks and credit unions revealed a few other institutions have already pioneered similar exceptions to overdraft fees.
3 Ways Banks Limit Overdraft Fees
|Bank||Regular Overdraft Fee||1. Reduced Fee for Small-Dollar Purchases||2. Waived Fee if EOD Net Available Account Balance is Small||3. Reduced Fee on 1st overdraft|
As a Wells Fargo customer, your first overdraft in a preceding 12-month period is reduced from $35 to $25. You also get the assurance (however limited it may be) that no overdraft fees will be charged if the available balance at the end of the business day is overdrawn by $5 or less.
They may have recently upped their overdraft fees, but at least US Bank still maintains a discounted or waived overdraft fees in certain cases. Effective June 29, fees are reduced to $15 instead of $35 when the overdraft item is for $15 or less. On top of that, no fees apply if the balance at the end of the business day is overdrawn by $9.99 or less.
Like Wells Fargo, PNC has a discounted fee of $25 – regularly $36 – for the first overdraft occurrence in the current and previous 11 service charge cycles (the past year, in other words). They also refund any overdraft fees charged during the day if the available balance ends up being overdrawn by $5 or less.
At $36 per item, SunTrust’s overdraft fee is one of the highest we’ve seen. The only comfort here lies in the fact that they will not assess fees on purchases less than $5
To reference the title question, “Are banks easing up on overdraft fees?” the answer is…not really. In summary, overdraft fees generally remain high and continue to climb, as we saw with US Bank. By removing or limiting the fee charged for small overdraft amounts, banks are only eliminating or reducing a small proportion of overdraft cases. After all, a Pew study reports that the median transaction amount causing a consumer to overdraft is $36, which is far above the threshold of $5 that’s typically set by the banks. Plain and simple, it’s not enough to rely on the banks to limit their overdraft fees. At the end of the day, keeping an accurate and timely record of your own financial transactions is the best way to avoid costly overdraft fees.