banks over $15 trillion dollars per year In overdraft or non-sufficient funds charges when customers try to withdraw more money from their account. While these fees can be a big money-maker for many banks, critics say they are a regressive fee that disproportionately targets low-income consumers. While it cannot be denied that these types of fees can be big moneylenders for banks, some banks are starting to reduce or eliminate overdraft fees.
What are overdraft charges?
An overdraft fee, also known as a non-sufficient funds (NSF) fee, occurs when you try to make a purchase with your debit card for more than your available balance. If you have opted for overdraft coverage, the bank may allow the purchase, but then charge an overdraft fee. The amount of these charges varies by bank but is often in the range of $30-$40.
And keep in mind that you’ll get one of these overdraft fees for every purchase you make, where your balance is less than the amount attempted. So if you don’t realize that your bank balance is lower than you think and make a series of small charges, you could face a $40 overdraft fee for each of these charges. Fees can add up really quickly.
Why do banks charge overdraft fees?
So why do banks charge these overdraft fees? The simple answer is that they charge them because they can. While it’s often possible to choose not to sign up for your bank’s overdraft protection program, banks usually ask about it as part of the wave of documents you’ll need to fill out when opening your account. It can be easy to miss out on the paperwork that comes with opening an account.
Thankfully, more and more banks are starting to rethink their position on charging overdraft and NSF charges. Bank of America has announced that they are skip your overdraft fee from $35 to $10, and Capital One has said they plan to Eliminate Overdraft Fees Completely in 2022.
How to Avoid Overdraft Fees
One of the best ways to avoid overdraft charges is to opt out of your bank’s overdraft coverage. Most banks ask if you want to sign up for overdraft coverage when you open your account. While it can be easy to miss out on the mountains of paperwork that comes with opening a new account, if that’s what you’re looking for, it should be easy to decline. If you already have an account, contact your bank to see how you can opt out of overdraft coverage. You may also consider switching banks to a bank that does not charge overdraft fees.
While it’s a little overdraft to say that another way to avoid overdraft fees is to try not to shop for more than your available balance, it’s a good practice to be aware of your balance at all times. If you are not in the habit of checking your total balance regularly, you can download the Mint app and set up alerts to notify you when funds are low.
What to do if you get overdraft charges on your account?
If you get overdraft charges on your account, don’t be discouraged – they aren’t always permanent. If this is the first overdraft fee you’ve received, call your bank and see if they will waive or refund the fee. Many banks are willing to credit the fee amount back to your account, especially if you have been a customer for a long time and/or this is your first time.
Depending on your bank, you may have the privilege of calling your local branch instead of the toll-free normal customer care number. While it may be a little embarrassing to tell Taylor that this happened to you, it can definitely be worth your time. Getting $40 back in your account for a 5 minute call is an hourly rate that’s doable!
If you want to avoid overdraft fees, you have a few tools at your disposal. First, consider opting out of your bank’s overdraft protection program. This may mean that the fee you make will be declined, but in most cases it will be better than being hit with a $40 overdraft fee. Another option you have is to choose a bank that doesn’t charge these fees – this is becoming more and more common. If you do get an overdraft fee, be sure to call your bank and see if they will waive it as a courtesy. Most banks will do this for customers, especially if this is your first bank.