When it comes to your checking account, the last thing you want is extra fees. Whether it’s an account maintenance fee, ATM fee or foreign transaction fee -- you want to spend money on the things you’re buying, not the account you’re using to make transactions. But even if you thought you signed up for a totally free checking account, it’s important to understand that sometimes “free” comes with qualifications. An overdraft fee is particularly painful, signaling that you’ve now run out of money -- and that your bank is going to penalize you further. Here’s everything you need to know about how the different banks handle overdraft fees.
What are overdraft fees?
An overdraft fee is a fine imposed by your bank when you make a purchase or payment and your checking account doesn’t have enough money to cover it. Typically, an overdraft fee kicks in when your transaction goes through and your account becomes overdrawn. In addition to overdraft fees, some banks charge nonsufficient funds fees when your bank declines a transaction because there isn’t enough money in your account to cover it. If you write a check for $200 and your account has only $150, a bank might hit you with an NSF fee.
Banks that have eliminated or reduced overdraft fees
While banks have made loads of cash from overdraft fees -- nearly $11 billion in 2021, according to a study from the Financial Health Network -- many are shifting away from them due to pressure from regulators (and negative publicity). Here’s a rundown of some notable financial institutions that have either slashed their overdraft fees or eliminated them altogether.
While big banks are known for big fees, Citi is leading the way forward for financial giants. Starting in June of 2022, the bank stopped charging overdraft fees, returned-item fees and overdraft-protection fees. And if you’ve struggled in the past to monitor your account balances, Citi offers two helpful features to make sure your transactions can be processed without delay:
Safety Check: If you have a linked Citi savings account, you can opt to automatically transfer funds to cover a potential overdraft.
Checking Plus: Certain customers can apply for the Checking Plus program, which automatically transfers funds from a line of credit to cover any overdrafts. Customers in the Account Access program cannot participate.
Capital One eliminated overdraft fees in January 2022, replacing the old practice with what the bank dubs “No-Fee Overdraft” protection. No-Fee Overdraft protection will allow you to overdraw your account without incurring a fee, but once you do, you’ll need to deposit money into your account to cover the overdraft. If you try to use your card once after you’ve overdrawn, but before you fund your account, the transaction will be declined.
You also have the option of allowing overdraft transactions to be declined outright, or you could link to a Capital One savings or money market account to cover overdrawn transactions.
In 2019, Discover removed all fees on its checking, money market and savings accounts, including eliminating its $30 nonsufficient funds fee. If you use your debit card and do not have enough funds in your account, your card will be declined and you will not be charged a nonsufficient funds fee.
If you have a Discover savings account or money market account, you can also enroll in the company’s free Overdraft Protection program. This works by transferring money from your savings or money market account to your checking account if you overdraw on your account. If you do not have enough money in a linked savings account to cover the transaction, your charge will be declined.
Chime is a financial technology company, not a bank, but its bank accounts are FDIC-insured. Chime does not charge overdraft fees, monthly fees or foreign transaction fees -- it also has no minimum balance requirements.
SpotMe, Chime’s optional free overdraft protection service, is available to account holders who make a direct deposit of $200 or more each month to their checking account. When you first enroll, you can overdraw up to $20 on debit card purchases and cash withdrawals. Later, you may be eligible to overdraw for greater amounts, up to $200.
If you don’t enroll in this service or if you try to overdraw by a higher sum, Chime will simply decline the transaction if you do not have enough funds in your account. You won’t be charged a fee if a transaction is declined.
Ally Bank, which provides online banking, waived overdraft fees at the start of the COVID-19 pandemic and decided to permanently eliminate them on all accounts nationwide in June 2021. You’ll never be charged an overdraft fee -- and you can set up extra protection.
For example, if your Interest Checking Account is linked to your Online Savings or Money Market Account, and you accidentally overdraw, Ally will transfer money over, rounded up to the nearest $100. This service limits these transfers to six withdrawals per statement cycle.
You could also qualify for CoverDraft service, which provides up to $250 in temporary relief for a transaction when you overspend. You’ll get 14 days to bring your balance out of the negative, with your next deposit automatically applying to the overdrawn balance. If your account does not have sufficient funds to cover the transaction after two weeks, Ally could restrict your withdrawals.
Aspiration is an online-only financial firm, not a chartered bank, offering a variety of accounts, with a focus on sustainable spending. The firm doesn’t offer traditional savings or checking accounts, but customers can open a cash management account for daily transactions called Spend & Save, which has separate checking and savings balances.
Generally, Aspiration tries to avoid processing transactions if you don’t have sufficient funds. “We are usually able to prevent the processing of checks, ATM withdrawals, debit card purchases or online transfers from happening when our members don’t have enough funds in their account to cover them,” said Aspiration CEO Andrei Cherny.
However, if you do accidentally overdraw and your account falls into the negative, you won’t be charged a fee.
While Chase has made a huge amount of cash from overdraft fees – $1.21 billion in 2021, to be exact – the bank has made some changes since then including eliminating the insufficient funds fee and not charging an overdraft fee unless an account is overdrawn by $50 or more.
Truist bank’s Truist One Banking offers two checking accounts without overdraft fees. These accounts allow you to overdraw without incurring a fee. If you reach a negative $100 balance, transactions will then be declined. This overdraft feature will be available to Truist customers who have made a deposit of $100 or more for two consecutive months.
Bank of America
Beginning in February 2022, Bank of America eliminated its nonsufficient funds fees, and added protection so that customers can’t overdraw their accounts at the ATM. In May, it reduced overdraft fees from $35 to $10 per transaction. Along with reducing these fees, the bank also eliminated the $12 Balance Connect™ service charge to transfer funds from linked accounts to overdrawn accounts. The bank says that overdraft fees have already dropped by 90 percent since the change.
Bank of the West
In September 2022, Bank of the West eliminated all nonsufficient fund fees and extended overdraft fees from its personal accounts. It’s important to note, however, that the bank does still charge $35 overdraft fees, but accounts come with one overdraft fee eraser option that allows you to get one charge reversed in a 12-month period.
Wells Fargo eliminated a few fees associated with overdrawing this year -- but they aren’t going away completely. If you’re enrolled in Wells Fargo’s free Overdraft Protection service, you won’t have to pay fees when a linked account covers an overdraft. You also won’t have to pay a returned item fee, or nonsufficient funds fee, if Wells Fargo returns a check or electronic transaction unpaid.
Otherwise, Wells Fargo still charges $35 if you overdraw your account. However, the bank recently announced its Extra Day Grace Period program, which offers a 24-hour buffer to get your account balance in good standing and avoid the fee.
U.S. Bank stopped charging nonsufficient funds fees in January 2022. It also increased the amount your account can be overdrawn without incurring a fee from $5 to $50. Once your account reaches a negative balance of more than $50, you’ll have until the following day to deposit funds to avoid the $36 fee. You can sign up for a service so the bank can alert you by text message or email if your balance is low, allowing you to replenish your funds and avoid the fee.
In November 2021, Santander Bank increased its overdraft threshold from $5 to $100 so that if your balance is overdrawn by $100 or less, you won’t be charged. If you overdraw more than $100, you’ll be hit with a $35 fee.
Santander also reduced the number of times you can be charged each day for overdrafts, at a maximum of three times per business day. It also eliminated its $12 Overdraft Protection Transfer Fee, meaning you won’t be charged when funds are transferred to your overdrawn checking account from your linked deposit account.
PNC did away with nonsufficient funds fees in August 2022, and the bank offers Low Cash Mode on its checking accounts, which gives customers 24 hours to bring their account balance to $0 and avoid overdraft fees. Plus, overdraft fees are limited to one charge of $36 per day.
Alliant Credit Union
Alliant Credit Union is the largest credit union in Illinois and one of the largest in the country, offering online and mobile banking. In August 2021, Alliant eliminated overdraft fees and nonsufficient funds fees on all checking and savings accounts. Members can also join the bank’s Courtesy Pay program, which will cover checks, electronic payments and transfers that won’t clear due to insufficient funds, but you must deposit the overdraft amount into your account within 30 days. Alliant doesn’t charge a membership fee to enroll, unlike some credit unions, which may charge a base of $5 for signing up.
How to avoid overdraft fees
Overdraft fees are avoidable. Here are four simple ways to make sure you’re never stuck paying extra for letting your balance dip below zero.
1. Opt out: Talk to your credit union or bank about opting out of overdraft fees. Once you opt out, transactions that exceed your available balance will be declined. You’ll want to make sure that you aren’t subject to nonsufficient funds fees, too.
2. Link your savings account: When you link accounts, any amount not covered by your checking account will automatically be covered by your savings account. Assuming you have money in savings, this is a far less costly option. In fact, some banks and credit unions offer this service for free.
3. Sign up for account alerts: Many banks offer low-balance alerts via email or text message. These alerts will notify you when your balance falls below a certain threshold, which can give you a heads-up before you overdraw.
4. Switch banks: As more banks and credit unions stop charging overdraft fees, it’s getting easier to find a bank without them. So, shop around.
Overdraft Protection Act of 2021
Part of the reason that so many banks are rethinking overdraft fees is due to a higher level of scrutiny from lawmakers. Congresswoman Carolyn Maloney introduced the Overdraft Protection Act in 2021 to mitigate the impact of overdraft fees, limit the number of charges to one per month and make other consumer-friendly changes.
While overdraft protection legislation is nothing new -- Maloney has introduced similar legislation in each Congress since 2005 -- the tide is changing. In July 2022, the Financial Services Committee advanced the bill for floor consideration. In late October of 2022, the Biden Administration announced additional steps to combat junk fees from banks. The work has paid off so far: The total amount of overdraft fees dropped by roughly 20% from 2019 to 2022.
A recent study from Bankrate.com showed that the average overdraft fee is $29.80, and the average nonsufficient funds fee is $26.58. Additionally, the fee is usually fixed regardless of the transaction amount -- some banks charge the same whether you overdraw $1 or $100. Some banks also charge you each time you overdraw, even if it happens within the same day.
It depends. Bank of the West offers one overdraft fee reversal per year. Other banks, such as Huntington and Wells Fargo, offer 24-hour grace periods to give you extra time to make a deposit and avoid the fee. If you incur the fee, it’s always worth your while to request a refund. If it’s not a regular thing, some banks will excuse your mistake.
According to figures from the Consumer Financial Protection Bureau, Wells Fargo, Chase, Bank of America, TD and Truist raked in the most money from these fees in 2021.
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