Overdrafts cause some of the steepest fees that bank consumers pay — and some banks have practices that increase your likelihood of being charged. Here’s what you should know.
Ordering transactions from highest to lowest
Banks don’t have to process your withdrawals, purchases and payments in the order they’re received each business day. A little more than 40% of the U.S. banks surveyed in a 2016 study by the Pew Charitable Trusts process at least some types of larger transactions before smaller ones that clear on the same day. And if your account balance can’t cover all of your transactions, the order in which your bank processes them might affect the number of overdraft fees you pay.
If your bank processes your biggest debit first, and it drains your account, you might find yourself charged an overdraft fee for each additional check or debit card purchase that clears that day. The median overdraft fee is $35, according to Pew, meaning those charges stack up quickly.
» MORE: Overdraft fees by bank
In its analysis of 44 of the nation’s 50 biggest banks, Pew did find that 91% limit the practice of ordering transactions from high to low. Some banks reorder only one type of transaction, such as checks, but don’t reorder online payments or other types.
Overdrafts from ATM and debit card transactions
The same report shows that nearly 80% of the banks surveyed allow accounts to go negative from ATM withdrawals and debit card point-of-sale transactions. Debit card transactions create more overdrafts than any other type of checking account transaction, according to a 2014 report from the Consumer Financial Protection Bureau.
Good overdraft practices by bank
Here’s how the 44 banks Pew analyzed handle three of the overdraft practices included in the report. The more check marks per bank, the more consumer-friendly its overdraft practices. Scroll down to see the full list.
|Financial Institution||No ATM overdrafts||No debit point-of-sale overdrafts||No or limited high-to-low transaction ordering|
|Bank of America||Limited|
|Bank of Oklahoma||Limited|
|Bank of the West|
|BMO Harris Bank|
|Capital One Bank||Limited|
|Charles Schwab Bank|
|City National Bank|
|East West Bank|
|Fifth Third Bank||Limited|
|First Citizens Bank|
|First Republic Bank|
|First Tennessee Bank||Limited|
|People's United Bank|
|Banco Popular de Puerto Rico||Limited|