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Bank Overdraft Fees at All-Time High

Written by Nickel - 48 Comments

Did anyone else see today’s headline about bank overdraft fees? According to a recent report, U.S. banks are on pace to collect $38.5 billion worth of overdraft fees this year.

Can that number be right? Assuming that it is, then every man, woman, and child* in the United States will have paid an average of a little more than $125 apiece in overdraft fees by the end of they year..

On a per household basis (and assuming an average of 2.59 individuals/household*) this works out to roughly $325. Even more astonishing is the fact that just 10% of bank customers account for nearly 90% of these fees.

All I can say is: Wow. No wonder Matt hates big banks. ;)

I can’t even remember the last time we had an overdraft. How much do you expect to pay this year in overdraft fees?

*Note: Population numbers and household sizes are based on census estimates.

Source: CNN/Money

Published on August 11th, 2009 - 48 Comments
Filed under: Banking

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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48 Responses to “Bank Overdraft Fees at All-Time High”

  1. 1
    MikeS Says:

    I expect to pay nothing. I’ve got Electric Orange with ING. If I happen to mess up the timing of my payments and over draw my checking account, the line of credit will kick in. Since I usually check my balance quickly every day, any overages can quickly be addressed with a transfer from my Orange savings account. They’re not making any money in fees from me.

  2. 2
    Joe Says:

    Zero. I haven’t paid any bank fees, not even an ATM fee in 10+ years.

  3. 3
    Daniel Says:

    Zero. I don’t pay bank fees. In fact, even though I work for the state and the state offers a CU, since the state employee credit union charges $1/mo for the checking account, I refuse to open a CU checking account. I haven’t paid checking account or other fees in over 20 years, and I don’t intend to start today.

  4. 4
    KC Says:

    It doesn’t surprise me. When you overdraft each time something goes through you are charged $35. The bank then snail mails you a notice saying you are overdrawn. By the time you get the snail mail notice you could have several debit charges, checks, and other charges go through at $35 a pop. It adds up quickly. The banks aren’t exactly speedy about telling you. If someone (and many people are) living paycheck to paycheck this can easily add up quickly.

  5. 5
    Jason R Fisher Says:

    I would guess that the readers of this blog are not the 10% that are paying most of the fees. I haven’t paid a bank fee in years of any kind, overdraft, over limit, ATM or any other kind.
    Now, I don’t even pay interest that isn’t tax deductible.

  6. 6
    Penny Says:

    Before my hubby and I tied the knot, he was paying HUNDREDS of dollars per month in overdrafts and advances—it was insanity.

    After his half of the rent checks to me bounced, I took over, and now all his debts are paid off and we have a healthy (joint) savings account. Doing this made it easier for us to get married, too—I know what’s going on, and he’s also less stressed about “dealing” with bills. For us: this arrangement works. And yes; I keep all payments and accuonst transparent for him—no secrets!

  7. 7
    finco86 Says:

    I expect to pay zero too. But this gets harder and harder as the banks think up new ways to make money. My bank changes a fee if they automatically invoke the line of credit to cover an overdraft situation. I am thinking about moving to a new checking institution but it is a hassle to get everything moved. Guess I have to suck it up one way or the other.

  8. 8
    Jeremy Olexa Says:

    I won’t pay any bank fees either.

  9. 9
    Rosa Says:

    I don’t pay overdraft fees, haven’t in years, but I got a credit card last year and I’ve paid late charges twice. It’s just infuriating. I need to get paying the thing (I pay it off in full each time) into my routine somehow, so I don’t keep missing the deadline – each time by just a day, too.

  10. 10
    Heather Says:

    I’ve never payed an overdraft fee…YIKES! You would think in today’s world where internet banking is HUGE that more people would know how much money was in their bank account. More reasons why I love USAA, they even pay us back for ATM fees!

  11. 11
    LOL Says:

    KC #4) I second that. What the bank does when you overdraw your checking account, is that they process the withdrawals in decreasing amount: meaning they process the highest withdrawal first (I know BofA does this).

    They then charge the $35 fee for EACH of the little items, instead of just once for the one big item. It’s a scam, and I’m with Matt on this one.

    See this article where some companies are starting to eliminate the ‘over-the-limit’ fee on credit cards:

    http://www.usatoday.com/money/.....fees_N.htm

    I hope this fee elimination applies to checking (debit) accounts as well.

  12. 12
    Kevin@OutOfYourRut Says:

    KC (4)–That actually happened to me when I was out of town attending my fathers funeral! I deposited a check that was dishonored, and the bank hit me with at least 7 OD charges. In most cases, the OD fee was higher than the amount of the check written.

    When I told them I was out of town and why, they said that per bank policy they could waive only three of them and I was on the hook for the rest.

  13. 13
    Rachelle Says:

    I’ve paid $70 in my entire life (23 years of age). One $35 in 2005 and one this year. I’m hoping to keep it this way. The best way to avoid this is internet banking. Make sure you know where you stand whenever you’re going out shopping and then you won’t overdraft. But yeah, it is definitely a small percentage of people that are giving these banks their profits.

  14. 14
    Gabe Says:

    I guess if you are a reader of this blog, you are on top or at least trying to get on top of your finances… probably not the group most likely to end up paying this crazy fees.

  15. 15
    Stephanie Says:

    I just overdrafted my account by accidentaly withdrawing money instead of transfering too, between my checking and savings. They are linked accounts in the same bank so hopefully (crosses fingers) they will waive the fee.

  16. 16
    Jacqui Says:

    I don’t get the fuss over overdraft fees. Yeah, the fee is crazy high – but you only get it for spending money you don’t have in your account! If you do that, you deserve the fee. (Mind you, I do still think there’s some very unfair practices in overdrafting – like the way they trick you into paying multiple fees because they reorder your transactions.)

    But you’d think people would learn their lesson a little faster…

    I’d be willing to bet that at least half the population of the US *didn’t* pay overdraft fees last year – so that means the average schmuck paying these fees paid 200+! Ouch.

  17. 17
    Thomas Says:

    None. I paid $39 last year on a single overdraft. The reason: I transferred too little from ING savings to my big bank to cover bills. A simple math error that cost me $39. A mistake I won’t make twice.

  18. 18
    LOL Says:

    Jacqui: I personally would love the option to ‘opt-out’ of the banks ‘courtesy’ of paying my tab when I overdraft. I’d rather have my checkcard declined at the register, than to be surprised by a $35 fee, which of course compounds and causes more overdrafts.

    And it is easy to get caught up into this mess: somebody writes you a check that NSF’s 2 weeks later for example. I’m sure many a landlord has been burned by this.

    At a minimum, the bank should give you 24 to 48 hours to make the account right, before their ‘courtesy’ fees kick in.

  19. 19
    SingleGuyMoney Says:

    I haven’t paid an NSF fee in years. I always watch the balance in my account and I have my savings account linked to my checking account as a backup.

    I can understand the occasional NSF fee. We are human and mistakes happen but if you have several NSF fees a year, you may need to take a long hard look at the way you manage your finances.

  20. 20
    RB @ RichBy30RetireBy40 Says:

    If I ever got an overdraft fee, I would instantly move ALL my money elsewhere. I cannot stand it when banks nickel and dime their customers. You want to charge me $20? Well, them I will happily move my $250,000 elsewhere.

    Fees are horrible. Banks need to differentiate with better customer service.

    Best,

    RB

  21. 21
    The Bear Says:

    I used to work for a big bank (Fifth Third Bank). I would deal with people who would overdraw and then complain to me. There really wasn’t much I could do ( I could not reverse fees), but I still got an earful. I always found it funny that there were banks that charged lower fees, banks that work with you to set up OD protection, and even banks that did not figure up overdrafts by doing batch processing then processing the biggest withdrawals first (this is how banks nail you). After hearing how much they hated us, they still kept coming back. It seems like people saw their bank as somebody they were in a bad marriage to that they were trying to work out the problems, rather than as a business who should earn your business.

    After I left that job, I got a joint account with my fiancee (now my wife) with another big bank (US Bank). It was not a problem until we were $28 overdrawn, then charged $140 in fees! This happened because we had 4 small debit card transactions, but I forgot about a $50 auto-withdrawal which hit that evening. They would not waive any fees, so we took our money to a local credit union and we couldn’t be happier.

    Why do banks charge such high fees on overdrafts? Why do they process your biggest withdrawals first? Because they can, and their customers do NOTHING about it, except complain about it. If people started moving their money to institutions that were not so aggressive in their overdrafts, then banks would be forced to change their practices.

    BTW, I did overdraw once with my new credit union. They sent me an e-mail (and even a text message if I sign up for that). I was charged a single $25 fee. Had this happened with my old bank, I would have been hit another $140 in fees because there were 4 smaller debit card transactions that were made before the large check cleared.

  22. 22
    insurance license Says:

    My wife just yesterday got hit by a $100 over draft fee for drawing $1 over her balance. We just couldn’t believe it! I could not understand who’s fault could it be. She couldn’t tell who to blame. Even if we were to blam ourselves fo it, the $100 figure could just not allow us to do that. It felt like we had been done wrong. There is no justification of such a high fee and it clearly shows that the intentions of the banks are to steal our money. The governments must take responsibility in such cases.

  23. 23
    KC Says:

    @Rosa – I know what you mean about trying to remember to pay the credit card. I did that once too and it infuriated me that I paid a late fee and interest fees. So every time I get paid (bi-weekly) I check my credit card, too. This solves two problems. The first is I make sure everything is ok and all the charges are mine. The second is I go ahead and set up a scheduled payment for the amount due on the last statement. If I’m looking at my cc bill every 2 weeks I can’t miss a payment. Schedule that payment as soon as you see that statement post.

  24. 24
    The Bear Says:

    As I said, this is another situation of people treating their bank as a spouse, and not as a business who should always be trying to earn your business. Instead of expecting the government to do something about it, it would be a lot easier to do something yourself, find a better bank.

    A few years ago, I needed a new alternator in my car. I went to a nearby mechanic. The mechanic did their job, but tried to sell me a new battery too, for $89. My battery was under warranty so I told them not to change it. I took my battery somewhere else to be checked, and it worked just fine. That mechanic lied to me. I will never go back there. Why can’t people treat their expensive banks the same way they would treat a crooked mechanic?

    Insurance license- I would suggest doing 2 things here. 1) go to the bank and threaten to take your business elsewhere if they don’t reverse those fees (usually they will reverse at least part of it if they have never done so before), then 2) take your business elsewhere. With such a small amount, it may have been a small math error that allowed it to happen. Since it will probably happen again, you could find yourself paying that fee again at a later date. Find somebody who is not going to nail you so badly with fees.

  25. 25
    LOL Says:

    RB30 (and others): My Credit Union charges a $30 fee per overdraft, plus also $5.95 a month just for a checking account. BofA has a $35 fee per overdraft (free checking).

    What banks do you use, and what are their fees? If someone has a better alternative to BofA, then I’d move over, but I don’t think banks are really competing in this area — they all will screw you if you overdraft.

    Anyhow, I keep a $2k buffer at all times to stay out of accidental overdrafts in my checking account. Rest of the money goes to Vanguard and Ally savings.

  26. 26
    Daniel Says:

    @LOL (#25) – Probably any credit union would be better than any megabank. I personally use a couple of credit unions, and ING Direct. Definitely check out ING Direct.

  27. 27
    H Lee D Says:

    While I am not a model of amazing finance, this is an area where I am good to go.

    I’ve never paid a fee to a bank for a service (with the exception of interest on a credit card in college 10 years ago, and interest on home/auto/student loans). I’m careful with my checkbook, never use the ATM, and don’t have problems.

  28. 28
    Jacqui Says:

    @LOL I agree – but since I never use a debit card it’s not the situation that kinds to mind. You’re absolutely right that the debit card causing an overdraft should be declined. Just like an over-limit credit card ought to be declined. And an electronic bill-pay set up on the bank’s side should fail rather than pay out anyway & charge a fee unless you opted for that overdraft line of credit.

    But a overdraft caused by writing a check that bounces or allowing companies to do direct electronic debits when you don’t have the funds should result in a fee. I for one always initiate my payment’s on the merchant’s side (Amex, National Grid, etc.). I wouldn’t expect the bank to let me off for messing up that kind of thing.

  29. 29
    Rosa Says:

    Jacqui, LOL – we had the experience of our bank changing the way not just the debit card but the ATM card worked – my partner keeps a small amount of cash in his old student checking account at a bank that has a lot of ATMs. When he originally got the card, it would not withdraw money if the money wasn’t there.

    So two years ago he withdrew some money and got an overdraft fee. The bank did refund the fee when he called to complain (It was $39!) but they said

    1) the change was to serve the customer (yeah, right)
    and
    2) there was, technically, absolutely no way they could change it so it wouldn’t allow the withdrawal if the money wasn’t there.

    It’s ridiculous, and it’s transparently done to increase fees – just like my first late charge on my new credit card, which happened because the statement did not arrive until the day the payment was due, and the company counts electronic payments on the due date as processed the next day.

  30. 30
    Joe Ciskey Says:

    “How much do you expect to pay this year in overdraft fees?”

    Nothing.

    In the 3-4 years I’ve had my bank account, I have never had an overdraft. I have $200 in overdraft coverage that must be paid off at the end of the month, but I’ve never had to use it. I’m horrible at keeping exact track of my account balance, but it’s not that hard to keep a rough total running in your head, and avoid spending more than you can afford.

    A balance book isn’t that hard to use either, I’m just a bit lazy. If you’re getting charged overdraft fees, it’s your own dang fault, no excuses. Get a balance book, and use it. Check it against the bank, but use it to track every purchase you make. Your spending will probably go down, as well.

  31. 31
    insurance license Says:

    We know who’s fault it is after all… we know it’s ourselves we’ve got to blame. But is the penalty fair?

    That’s the real question, here.

  32. 32
    Sandi Williams Says:

    I had my identity stolen and purchases made online to my account. The bank charged me overdraft fees. I called the phone numbers in regards to the internet charges and the charges were credited back to my bank account. I called the bank and told them that it was identity theft and the charges were being credited back to my account and to my surprise the bank would not reverse the overdraft fees. I closed my account with First Bank and will never do business with them again.

  33. 33
    CJ Woodring Says:

    My bank is operating illegally. But what can one do?

    Each month, my car payment is automatically withdrawn on the 22nd by another lending institution. This month, when I went into overdraft two days later at the ATM, I expected the usual $28 OD fee, which I accepted.

    What my bank did was to REPOST not only the car payment from 2 days before, but several other transactions using my debit card and going back 4 days.

    I manage my account online and view it a couple times a day. For TWO DAYS I had the same balance, with transactions posted correctly. How can this be legal to repost with later dates? As a former bookkeeper, I would have been thrown in jail for cooking the books like this.

    Any advice out there please???

  34. 34
    CJ Woodring Says:

    P.S. to above. Instead of the $28 OD fee I expected (and deserved) it was $114. No wonder the crooks are making big buck$.

  35. 35
    insurance licensing Says:

    @CJ… this is just the kind of two pennies they’re after. We might give them up considering that it’s not much but most of us are getting such charges and when you add them up, you’ll get a number that we can’t even imagine. banks have a plan to make big bucks out of this over-draft fee. If you have the proof, do everything possible to at least get your money back. but be careful to how far you go, because when we sign agreements with them, we give them full authority to do as they please.

  36. 36
    CJ Woodring Says:

    Luckily, I’d spoken the day before with the guy at the bank, and he’d pulled up my account screen and had seen what they’d done. And that was BEFORE the major scam. He was able to authorize an $84 refund to my account so I’m out “just” $28.

    My son dropped that bank for this reason. He actually ended up taking photos of his ‘puter screen (the online bank statement) to verify his claim.

    Everyone complains the govt. is gaining waaay too much power and authority. Well, yeah. Because these greedy buffalos won’t monitor themselves……

  37. 37
    CJ Woodring Says:

    I might add that this isn’t about me. Or most of us in temporary situations where overdraft is needed.

    This is about how our society is set up to keep the poor and oppressed …. poor and oppressed.

    This doesn’t happen to affluent people who have savings accounts from which funds can be transferred. Bank overdrafts, late fees on other accounts, etc. are set up to penalize the very poorest. If folks don’t have the money to pay on time, these predatory vultures will make them pay more.

    It’s disgusting, immoral and should also be illegal. How people with ethics can work for these institutions is a mystery to me.

  38. 38
    The Bear Says:

    @CJ good for your son for moving his money. As I said in a previous post, when I worked for a bank, people complained about the high OD fees, but they kept coming back. People yelled at me over it, although I could not reverse their fees and I wasn’t the one who set the fee rate (that was done by Vice Presidents whom customers never meet). But since they don’t move their money to another institution, the banks will keep their fees where they are, or higher. If people decided not to put up with it, they would move their money to another bank. Instead, too many people think that they are married to their bank and thus think it is too difficult to leave. The government may or may not do something about this (don’t count on it), so the best thing for consumers to do is to quit doing business with banks that do this.

  39. 39
    CJ Woodring Says:

    What you say is valid, Bear. But when your income has been cut by 2/3, as mine has been (and it had nothing to do with the economy) try moving your accounts around.

    Credit unions won’t accept you into legit OD programs (and I’ve tried) because suddenly your debt/income ratio is too high. Well, duh. Go figure. Imagine theirs would be, also, if they lost most of their income.

    As I said, the system is designed to keep the downtrodden down.

  40. 40
    The Bear Says:

    Even if they don’t get you OD protection, at least their ODs will not hurt nearly as bad. Do you have OD protection? Paying over $100 in fees still seems high.

  41. 41
    CJ Woodring Says:

    It’s not exactly what I’d call OD protection. It’s a $500 OD allowance –– supposedly a customer “service” (as if). Within that $500, they ding you $28 for each transaction.

    Customer service? Hmmmm.

  42. 42
    jack Says:

    The banks are legally stealing from us! The only way to change this is to write to your congressperson but don’t get too hopeful as most all of congress accepted tens$ of thousand$ from banks as contributions. Conflict of interest, you make the call. But plz write to them!
    I subspect that the people saying they don’t have these unconscionable fees are trying to sell something or are banksters.
    criminals+banker+bankster.
    Why else would they be googling bank fees?

  43. 43
    Daniel Says:

    @Jack (42) – that isn’t the “only way.” Another way is to stop doing business with banks that charge outrageous fees. Or, quit kiting checks. Or, both.

  44. 44
    CJ Woodring Says:

    Well said, Jack. I totally agree to both points. When possible.

    Having said that, you obviously haven’t lost 2/3 of your income through a nefarious takeover that had nothing to do with the economy. (Or lost it by any means.)

    If you had, you’d know most of us do (legally) what we can to survive. And institutions such as banks make sure they take advantage of that fact: Whether people are temporarily or chronically down on their luck, the banking industry’s intent is to keep them there. Reprehensible!!

  45. 45
    William Says:

    Banks are so greedy. I earned 56 by 5 hour hard working. they charge that in a seconds. Fk bankers!

  46. 46
    Becky Says:

    I think it’s pretty harsh to assume people who get overdraft fees are poor at managing their finances or are out buying things they can’t afford. I have had a lot of overdraft fees for the past 3 months as I struggle to get back on my feet financially (was laid off for 4 months). I do not spend a dime on personal luxuries of any kind and now work 60 hours a week as a master’s level therapist for a non-profit agency. My salary is insultingly low and every month I think I am finally getting my head above water when I am hit with an insurance with-drawl for my car or some other transaction that is due the day before I get paid… then boom 35 dollar fee. I just canceled my cable television and until my health insurance kicks in for my job in June, I have no health insurance. I live a meager meager life and I am still about 5 dollars over what I owe on basic bills each month so the extra 35 fee is a real slap in the face. I drive a piece of crap and live in a crappy apartment and still the cost of living is too high. I may be the only employed person with a master’s degree considering applying for welfare….I’m guessing the banks could care less.

  47. 47
    happy bank customer Says:

    It’s interesting how many people here are complaining about bank fees. After reading all of the comments here it is evident that the majority of people should not have a bank account. If you cannot use a register book than don’t place your money into a bank. I have always used a register book and have come across at the most 3 bank fees in my entire 15 years of banking. Two of the fees were caused by incoming wires and the other was an atm withdraw. I believe all of the banks offer overdraft protection. It’s funny how people don’t want to accept responsibility for there own actions. If you are living paycheck to paycheck than why aren’t you more thorough about your book keeping. Another words……SUCK IT UP if you are placing yourself in that situation.

  48. 48
    Howard Says:

    Anyone know of a bank that will hold items that might cause an overdraft, and inform the account holder? I can’t qualify for overdraft protection, and my bank (53.com) chooses to snail me me and apply my deposits after all items process [making it look like the balance never went positive]. They have policy that is a moral hazard, rewarding them for how they choose to process items.

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