Overdraft Fees are “Normal” Expenses Too

Published July 30, 2018

With the summer quickly approaching, it’s time to reflect – on your bank account. Free time is expensive. Activities, gifts, family feasts, and house decorations cause consumers to dip into their hard-earned savings, leaving them vulnerable to overdrawing their accounts and incurring overdraft fees.

Banks market their overdraft protection programs as a fix for holiday overspending, yet few consumers fully understand how overdrafts work and the great costs they incur.

Overdraft protection is an opt-in bank program that allows consumers to spend more money than they have in their checking accounts- with a fee (usually $35). If you have overdraft protection enabled (according to a CFPB report nearly half of people don’t remember signing up at all) and try to buy a $200 bike with $75 dollars in your account, your bank will complete your payment and lend you $125. Once you have enough money, they will automatically take the $125 dollars owed and will charge you an additional $35 fee. The Consumer Financial Protection Bureau estimates that consumers pay $17 billion in overdraft fees every year.

Banks do not effectively educate customers on their overdraft protection programs and the associated overdraft fees. According to a Pew study 75 percent of people don’t realize that signing up for overdraft protection is a choice. Below you’ll find information to better help you understand and avoid overdraft fees in the future.

How can I avoid overdraft fees?

The best way to avoid overdraft fees is to carefully keep track of your finances and avoid overspending (many banks have personal finance apps that help). But life is unpredictable and holiday and back to school shopping is expensive. Often you have to spend more than you currently have in your account. The easiest way to avoid overdraft fees is not to sign up for, or to disconnect from, overdraft protection programs. If you don’t sign up, banks will not allow you to spend more than you have in your checking account, but you also will not be charged hefty overdraft fees.  Before making a choice about overdraft protection ask your bank about their offerings. Some banks, like Bank of America and Chase, will automatically waive overdraft fees for overdrafts of less than $10.

Some banks also allow you to link your savings and checking accounts so that if you do overspend, funds from your savings account will automatically be transferred to your checking’s account for a small fee.

There are also several apps on the market that connect to your bank account, and for a low monthly subscription fee, or no fees at all, will deposit cash in your accounts when you are at risk of incurring fees. You will find a review of these money earning apps on the blog OverdraftApps.com.

If you do incur overdraft fees, CALL YOUR BANK. Nearly 50% of people who speak to their banks immediately after incurring fees get those fees removed.

What is being done about overdrafts?

There are both public and private efforts to solve the overdraft problem. The Consumer Financial Protection Bureau is testing new overdraft literature, in hopes of helping bank customers better understand their choices. There is also a recent surge of online content to help raise awareness about overdrafts and many new private technology companies working to help people spend money wisely and avoid overdraft fees.


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