Overdraft fees aren’t just limited to those of us living paycheck-to-paycheck. These charges can strike anyone, at any time, but they are easily avoided with careful management of your personal finances. Unfortunately, mistakes still happen and chances are you’ll still face an overdraft fee at some point in your lifetime. In that case, it’s helpful to know just how much you could be paying, and how to limit the impact on your budget.
Overdraft fees can be a confusing affair, made worse by the fact that banks often profit greatly from them. In recent years, the government has stepped in to stop banks from automatically enrolling customers in overdraft coverage, but the “service” is still largely misunderstood by consumers. Not surprisingly, this lack of information often leads to more fees. Resources like helpwithmybank.gov provide answers to some common questions, but here is some of the most critical information you need to know.
When you sign up for a checking account, you generally have 1 of 3 options regarding overdrafts:
- Opt out – Transactions that will result in a negative balance are rejected at the point of sale, meaning no fee but also no purchase. Keep in mind that bounced checks and recurring automatic payments could still cause a fee.
- Opt in – overdraft coverage – The bank can choose to process transactions with insufficient funds, but charge an overdraft fee for the convenience, meaning your debit card won’t be declined at the register, but you will face a hefty fine.
- Opt in – overdraft protection -The bank will automatically transfer funds over from a linked account (usually savings) to cover a transaction. A fee still applies, but it’s usually much lower (about $10-$12 per instance)
Read more about these three options and how to avoid overdraft fees here.
We’ve analyzed overdraft fees and policies at some of the biggest banks in the country to help you quickly understand what you might encounter.
Banks With No Overdraft Fee
|Capital One 360 | 360 Checking|
|Monthly Fee||Minimum Balance||APY|
Capital One 360 (an online bank) takes a different approach when it comes to overdrafts. Rather than charging an exorbitant fee for spending more money than you have available, they treat the transaction more like a short-term loan. You’ll pay a small amount of interest on the negative balance until you repay what you “borrowed” – very much like a credit card!
Overdraft Fees at Top U.S. Banks
|Bank||Overdraft Fee||Max Fees per Day||Overdraft Protection Transfer|
|Bank of America||$35||4||$10.00|
|Note: Extended overdraft fee of $35 charged when account remains overdrawn for 5 consecutive business days|
|Note: No overdraft fees if account is overdrawn by $5 or less at the end of the day|
|Capital One 360||$0||N/A||N/A|
|SunTrust||$36||6 Overdraft items, 6 Returned items||$12.50|
|US Bank*||$36||4 Overdraft items, 4 Returned items||$12.50|
*Effective beginning August 10, 2013
Already in the red?
If you’ve already been hit with an overdraft fee, the first thing you should do is try to pay back the balance as soon as possible. The fee information above clearly shows that if you neglect to take action for a few days, you could face even more fees in the form of “extended” or “sustained” overdraft fees.
If overdrawing your account is becoming more of a habit, rather than a one-time mistake, you should look into opting out. This will mean you might not be able to buy that cup of coffee in the morning, but you also won’t be paying an extra $36 for it, since your debit card will be declined. Overdraft protection plans are another option, but clearly this route isn’t exactly free either. These transactions can still run you up to $12.50 per instance and they’ll also make it that much easier to drain your savings account!
Image: MoneyBlogNewz / Flickr source