Since their invention in the 1990s, overdraft fees have been a source of income for banks and a source of contention with Americans living paycheck to paycheck. If you’ve ever gotten hit with an overdraft, you know that they are an annoying roadblock to getting ahead.
Overdraft fees are bank fees you’ll see on your bank statement when you spend more money than what’s available in your checking account. Banks charge an average of $35 and can charge more than one overdraft fee in a single day. Some banks charge a max of 6 per day, while others charge as much as 12.
Let’s say you have $10 in your checking account and purchase something for $20. Your bank may clear the transaction, but you will be charged an overdraft fee. When you get paid or make a deposit later, the bank will take back the $10 you owe, plus take their $35 overdraft fee automatically. That’s $45 that you’ve now paid to the bank because you were $10 short. Overdraft fees can start a vicious cycle of debt and prevent people from climbing out of the red and getting ahead.
Another overdraft type is the nonsufficient funds fee (NSF). If your checking account is already in the red, you may get an NSF fee when you try to make a transaction. These fees average around $34 and make banks roughly $15 billion per year.
A third type is known as the overdraft protection fee. This is charged every time a bank transfers funds from another account to cover the overdraft. At many banks, these cost between $10 to $12.50 per transfer. Much like with NSF fees, this can add up quickly and take a heavy toll on your accounts.
A final type is called the extended overdraft fee. Perhaps, the most annoying of all the overdraft fees, this is a fee the bank will take out if your account balance remains negative for anywhere from 5 to 7 days. That means if you go into the red, but pay period isn’t for another two weeks, but you will be charged additional fees on top of your negative balance.
Below is a chart showcasing the main fee types by leading banks as of Q1 2022:
|Bank Fee||Overdraft||Overdraft Protection||Extended Overdraft|
|Wells Fargo Bank||$35.00||$12.50||$0.00|
|Chase Bank||$34.00||$10.00||$15.00 every 5 days|
|Bank of America||$35.00||$12.00||$35.00 every 5 days|
|US Bank||$36.00||$12.50||$25.00 weekly|
|PNC Bank||$36.00||$10.00||$7.00 daily|
Overdraft fees can easily add up and take advantage of people that are already struggling. One $33 overdraft fee often snowballs into hundreds of dollars per month for a single person. 12 million Americans spend $7.4 billion on payday loans every year. Payday loans and their steep interest rates cause systemic cycles of debt that have only worsened in the wake of the pandemic.
In the last three months of 2021 alone, 28% of employees working for a major retailer paid a total of $79,600 in overdraft fees. For Cassandra, a single mom with 2 kids making $24k/yr, overdrafts are unsustainable. A surprise fee could send her into crippling debt and even bankruptcy.
Overdraft fees are not only predatory, they actively hurt the financial health and livelihood of millions of hardworking Americans just trying to get through the day.
In recent years, controversy has surrounded overdraft fees and politicians have proposed legislation that limits the fees. In recent months, many high-profile banks like Citibank, Capital One, and Discover have reversed their stance on overdraft fees and limited or even eliminated them completely.
In May of 2022, Bank of America reduced its fee from $35 to $10. While this is an admirable step in the right direction, millions of Americans are still disproportionately attacked by overdraft fees on a daily basis by a variety of popular banking institutions.
It’s no secret that overdraft fees are an ugly business. Here are 4 steps you can take now to protect yourself, and your finances against them in the future.
By law, banks cannot charge you fees without your consent, so make sure to opt-out of overdraft coverage as soon as possible. This ensures that your bank will not charge you an overdraft fee that you aren’t ready to pay. Without overdraft coverage, you won’t be able to go in the red without your knowledge.
Next, create a budget that works for you. Pinpoint any pain points in your month that may lead to recurring charges or an empty checking account (monthly subscriptions are a great place to start). From there, carefully track your balance, any transactions you make, and monitor every bill you’ll need to pay that month. It’s easier to stay out of the red when you know what bills and expenses are coming your way.
Third, check with your employer to see if they offer Earned Wage Access (EWA) as part of your benefits package. If you work in the hospitality industry, in warehousing, at a quick service restaurant, or similar hourly position, there’s a good chance your employer is looking for this increasingly popular benefit. Payactiv is a premier provider of EWA.
What is EWA? We created EWA to solve the debt cycles millions of Americans face everyday due to predatory payday loans and overdraft fees. With EWA, you can access a portion of your earned wages before payday. It’s not a loan, it’s your money on-demand. EWA gives you the kind of financial flexibility to spend more safely, save more often, and cover unexpected expenses. For the thousands of workers across the country who use it, Payactiv’s EWA bridges the gap between paydays and eliminates the need to live paycheck to paycheck.
There’s even more reasons to love Payactiv. Prioritize your financial wellbeing with our free suite of financial services in the Payactiv app1. These are available to you straight from your smartphone and accessible whether you’re employed or in between jobs.
Pay bills on-time, get smart insights into your spending, and get free 1-on-1 financial counseling if you’re struggling with debt or have other financial questions. The Payactiv app even helps you save on AMC movie tickets and up to 85% on Rx prescriptions. Set money aside for goals you set automatically when you apply for the Payactiv Visa® Card* and get $.10/gallon off Murphy gas when you use it to pay at the pump.
The Payactiv app is a fantastic financial tool built for busy people. Download it today to start putting your financial wellbeing first.
Overdraft fees are stifling Americans’ ability to get ahead in life and prioritize their livelihood. Use the 4 steps above to stop paying overdrafts and start living the life you earned.
Learn more about the Payactiv app and how to avoid overdraft fees.
All content provided on the Payactiv blog is for informational purposes only. Payactiv makes no representations of the accuracy or completeness of any information on this site or found by following any link on this site. Payactiv will not be liable for any errors or omissions in this information nor for the availability of this information. Payactiv will not be liable for losses, injuries, or damages from the display or use of this information.
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