Overdraft Fees are Big Business for Banks — Which Banks are Dropping Them?

New York, July 19, 2016: A Capital One ATM on the streets of Manhattan with people walking by.
Roman Tiraspolsky / Getty Images

If there’s anything that can get the blood boiling for bank customers, it’s being charged an overdraft fee for making payments that exceed their available balances. Although research from the American Bankers Association found that most customers (62%) say it’s reasonable for banks to charge overdraft fees, it’s a sure bet nobody is happy about it — except maybe the banks themselves.

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U.S. consumers who frequently overdraft their accounts drive more than half of the profitability of mass-market checking accounts, Bloomberg reported last week. Overdraft fees provided billions of dollars in additional revenue for some of the nation’s biggest banks in 2021, while boosting the profits of smaller ones.

Wells Fargo led the way with $1.41 billion in overdraft fees last year, Bloomberg noted. Other banks that collected more than $1 billion in overdraft fees were JPMorgan Chase ($1.21 billion) and Bank of America ($1.14 billion). The next highest was TD Bank, collecting $477 million in overdraft fees.

A Better Way to Bank

In 2019, prior to the COVID-19 pandemic, U.S. banks and credit unions collected an estimated $15.5 billion in overdraft and non-sufficient funds fees, according to the Consumer Financial Protection Bureau. The typical overdraft fee is $35.

Bank Clients Paying Multiple Overdraft Fees Charged More Than What They Can Afford

CFPB research found that consumers who pay more than 10 overdraft fees per year end up paying nearly three-quarters of all overdraft fees. On average, these consumers pay $380 in overdraft fees during the course of a year — and they are usually the ones who can least afford it.

One problem is that consumers are often confused about the rules concerning when overdraft fees kick in. In many cases consumers are in a race to get deposits credited to bank accounts before payments are charged, only to find out that deposits often lag in terms of when the money actually hits the account.

Bank customers who have been charged an abundance of overdraft fees worry that that the fees will make it more difficult to catch up and cover future expenses — an especially big worry in the current environment of high inflation and looming recession.

A Better Way to Bank

In response, many banks are either lowering their overdraft fees, expanding their overdraft protection options, or eliminating the fees altogether.

Last year, Capital One Financial said it would get rid of the fees, according to Bloomberg. Citigroup followed suit in Feb. 2022. Meanwhile, Bank of America lowered its overdraft fee to $10 and Wells Fargo said it would end its NSF fees. Toronto-Dominion Bank expects a major decline in overdraft and NSF fees after it implemented a new policy allowing customers to overdraw their accounts by up to $50 before incurring a charge. A similar policy was adopted by JPMorgan.

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Those moves should give many consumers relief from overdraft fees. But the majority still get hit with them. Seven in 10 bank customers who overdrafted their accounts said they are still being charged, according to data from Morning Consult.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.

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