How Top Banks Charge for Overdrafts

As America’s banks mismanage themselves into a hole, then come to the government demanding vast infusions of cash to get them out of it, attention has justifiably turned to their practice of charging sky-high overdraft fees.

By now everyone has heard vexing anecdotes about the $40 cup of Starbucks. A person uses their ATM card or writes a check to pay for their morning fix, but they’re too close to their account margin and the purchase makes them overdrawn. While the bank pays for the cup, they charge a $35 penalty for the overdraft protection “service.”

Blame for the overdraft lies squarely with the bank customer, of course, but by the same token $35 (sometimes higher) is extreme, and leaves the person in a far worse place than before. Where is the “protection” in that?

Moebs Services, Inc., a leading financial-services industry analyst, concluded the following in a 2009 survey of banking overdraft statistics:

  • 44.5 percent of all banks and credit unions have OD income greater than net income.
  • Higher overdraft fees were led by Wall Street banks, which charged a median price of $35 per overdraft vs. all financial institutions, which charged a median price of $26 per overdraft.
  • The South continued to lead in overdraft charges regionally, with a median charge per overdraft of $29.00 vs. $25.00 for the North, East and West regions.
  • Some national retail merchants charge more than $35 for a bad check, exceeding even the Wall Street banks.
  • 45 percent of Wall Street banks tier OD prices, vs. 2 percent of Main Street banks and credit unions. The OD charges range from a first-time charge of $25 up to a $35 charge per incident.
  • 54 percent of all financial institutions offered a formal overdraft program, down significantly from 69 percent in 2008.
  • 86 percent of all financial institutions that offer overdraft services allow the consumer to opt-out at any time.
  • Less than 20 percent of all financial institutions pay checks in the order from large to small, with the vast majority paying checks in the order of presentment to the financial institution.
  • 35 percent of all financial institutions allow consumers to overdraw their accounts at an ATM or with a debit card, charging a median of $26 for this service.

As grim as all this may be, America’s banks have come to realize that sky-high bank fees make for rock-bottom press. As a result, many have not only set aside their plans to charge more, they’ve lowered their fees. To get a sense of who, specifically, is charging what, Go Banking Rates took a look at the overdraft practices of some leading national banks: