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There are many penalties a bank might charge, and an overdraft fee is one of them. An overdraft fee is a small amount of money your bank charges if you make a purchase or payment that costs more than the present amount in your checking account. If the available funds in your account cannot cover the purchase you made, the bank will charge you a penalty for that transaction.
This is standard practice at many banks. Changes are happening right now with overdraft fees, though. We’ll talk about those below and discuss how to avoid dealing with overdraft fees going forward.
Overdraft fees may seem small, but they can pile up quickly. If you’re attempting to secure a personal loan to consolidate debt or trying to come up with student loan payments, overdraft fees can set you back. So, most people would prefer not to deal with them.
However, several banks are eliminating or reducing overdraft fees right now. For instance, Bank of America stated that it would reduce its overdraft fee from $35 to $10 and eliminate its overdraft protection fee. Overdraft protection is money the bank charges you if it has to move cash from a linked account to cover an overdraft error.
Capital One eliminated overdraft fees recently altogether. And Wells Fargo is getting rid of overdraft protection fees, and it is also giving clients a 24-hour grace period to cover an overdraft before it charges for it.
You might wonder why banks are making these changes when overdraft fees and overdraft protection are reliable sources of passive income for them. Mostly, they’re doing it for good publicity.
The Consumer Financial Protection Bureau will soon develop a series of regulatory interventions for financial institutions that rely on overdraft fees as a revenue source. The big banks making these changes are trying to get ahead of this to store up goodwill with their customers.
Not every bank is getting rid of overdraft fees, though. Some will try to get away with charging overdraft fees for as long as they can unless the CFPB outlaws them explicitly.
If you want to make sure you never have to pay another overdraft fee, you can sign up for an account with a bank that doesn’t have any. Capital One and Ally are two options.
You might also go with a bank like Wealthfront, KeyBank, or Discover. They offer free checking accounts that don’t allow customers to incur overdraft fees.
There is one additional way to avoid overdraft fees that is worth mentioning, though. You can be aware of how much is in your checking account and avoid spending beyond that. This is easier than ever today as almost every bank has an easily accessible app you can use to check your balance.
You should keep your ears open about what rules the CFPB comes out with regarding overdraft fees. They may ban them entirely or severely limit when financial institutions can charge them.
In the meantime, though, you can review your bank’s overdraft fee and overdraft protection policies. If your bank still charges overdraft fees, you might switch to one that doesn’t. You can also keep a close eye on how much is in your checking account and not go over that limit. Virtually all banks have apps now, and you can keep tabs on your balance by using one.
As for overdraft protection, you can go with a bank that will allow you to opt out of the service. You can also find a bank that sends you a notification if you try to charge a purchase to an account with insufficient funds.
Overdraft fees have long been a burden, especially for those who can least afford to pay them. It’s great that banks are changing their policies about them and that the CFPB is putting limitations on this practice.
