New Rules for Banks
If you have ever been charged an overdraft fee, you will be happy to hear that the Federal Reserve has banned banks from doing this automatically. Instead of getting charged an overdraft fee for overdrawing your account you will simply be declined at the register if you are using your debit card. Unfortunately, a written check could go through and bounce, incurring fees you must pay.
In addition, banks have found loopholes because overdraft fees bring in a lot of revenue. According to the Center for Responsible Lending, banks made $17.5 million from overdraft fees and related charges in 2009. If you want to be charged an overdraft fee (I’m not sure who does) you can opt-in for it and your bank will try to sell you on opting in. They will talk about convenience and similarities with payday loans, or anything else they can do to get you to opt-in, but you should avoid it. You can find banks without overdraft fees, or at least one in which you can choose not o enroll in their programs that come with fees, with certain stipulations attached.
If you want to protect yourself from overdraft fees just opt-out of the program. However, most banks offer an overdraft protection account, which is a savings account attached to your checking account. If you overdraw on your checking the bank will automatically take it out of your checking, but still charge a fee. The fee is usually about $5, which is better than the $35.
What You Can Do
The first thing you need to do is contact your bank to see if you have overdraft protection on your account. Overdraft protection is a fancy way of saying you allow the bank to let your account get overdrawn and they will charge you about $35 per transaction that overdraws your account. For example, you forget about a $50 check you wrote out two weeks ago and believe you still have that much in your account. So, you spend $30 on dinner, $20 at the car wash, $10 on lunch, $5 on a snack, $5 on a drink, and $10 on gas. That night you find that the check for $50 went through at midnight. So all of those charges overdrew your account. Each transaction costs you $35 in an overdraft fees. So, your account is already down $80. Then the bank charges a total of $140.
Now you owe the bank $220, and if you do not deposit that much into your account by a certain time (usually 5 days) you’ll be charged $5 a day on top of that, and eventually your account will be closed. This example is a very good reason to opt-out of overdraft protection.
What to Look For
When seeking banks without overdraft fees, you must make sure that the bank follows certain laws. Make sure the bank is FDIC insured, allows you to apply for an account online, allows you to conduct banking online, does not charge for ATM withdrawals, and has no hidden fees. Read all of the fine print before you sign up for an account. Many online accounts allow you to set alerts when your bank account is low.
Understand what the bank’s fees are for and why they charge them. An increasing amount of banks are conforming to what we want rather than charging these fees so you can find banks without overdraft fees. Find the links to the banks below in the reference section.
ING Direct is one bank that does not charge overdraft fees and they fit all the requirements.
HSBC has an overdraft protection program for those who qualify but charge a very high interest rate when it is used, so buyer beware.
Citibank has overdraft protection with Checking Plus, a checking account with a revolving credit line.
- “Banks Not Giving up on Overdraft Fees”, MSN Money - https://articles.moneycentral.msn.com/Banking/BetterBanking/banks-have-not-given-up-on-overdraft-fees.aspx
- “Finding a Bank without Overdraft Fees”, ChristianPF - https://christianpf.com/finding-a-bank-without-overdraft-fees/
- “Bank of America Overdraft Fees Dropped: Bank Will End Fees by Summer 2010”, Huffington Post -https://www.huffingtonpost.com/2010/03/09/bank-of-america-overdraft_n_492667.html
- ING Direct - https://home.ingdirect.com/index.html
- HSBC - https://www.us.hsbc.com/1/2/3/personal?home=personal
- Citibank - https://www.citibank.com/us/home.htm