It’s no secret that big banks are getting richer off the backs of everyday people. What’s different now is that we know just how much richer.
According to a new report from the economics research firm Moebs Services, banks made a record-setting $34.3 billion in 2017 alone. That’s more than $100 per year for every last man, woman, and child in the United States. It seems especially unfair since 75% of the people paying these fees already have problems paying their monthly bills, according to a Pew Charitable Trusts study.
About now you may be wondering how you can avoid the troublesome overdraft and NSF fee . Read on to learn about these fees and how to pocket more of your hard-earned cash.
Overdraft Fee Rules Have Been Changing
Remember the 2008 financial crisis? One of the byproducts of that chaos was that banks needed to start asking for your permission to enroll you in overdraft protection services. To make up for any money lost by people opting out, they instead billed you for this service – in the way of fees.
Asking for your permission first was supposed to make the banking process more transparent. But, banks found sneaky ways to get around it, such as by not fully explaining your options and getting you to sign on the dotted line while you fill out a barrage of paperwork necessary to open your bank account (do you remember consenting?).
Overdraft Fees Have Been Increasing
Overdraft and NSF fees are on the rise. Back in 2000 when the Backstreet Boys were still a thing, big banks charged a median overdraft fee of $18, according to Moebs Services. If that price kept pace with inflation, today’s price should be $25. Instead, it’s $30, meaning that banks are charging more than their fair share.
Even credit unions—which are usually lauded as being more consumer-friendly—are charging increased overdraft and NSF fees. Again, back in the year 2000, most credit unions were charging a median overdraft fee of just $15, three dollars less than banks. If credit unions kept pace with inflation they should be charging $20.86 per overdraft, but instead, they are charging a median fee of $29—almost double what they were charging 18 years ago.
One glimmer of hope is that the economists from Moebs Services believe that the rise in overdraft fees has currently peaked at around $30. Of course, only time will tell.
How to Avoid Overdraft Fees
Even though overdraft fees can be a hairy trap when you’re least able to deal with these sneaky charges, there’s good news: overdraft fees are entirely avoidable. You just need to be prepared. First, you need to understand what exactly an overdraft fee and a NSF fee are, then you learn how to avoid them.
Banks can charge overdraft fees when an account lacks sufficient funds to cover a withdrawal or other debit transaction. If the account holder has overdraft protection, the bank will supply funds in order to cover the overdraft. If not, a negative balance can build and overdraft fees can be imposed for every subsequent transaction. This is an NSF fee, or Nonsufficient Funds fee. In addition to the fee the debit will not be paid. This could lead to even further charges by the vendor or service provider.
Not all hope is lost! Here are some options to steer clear of these fees altogether:
Look for a Bank That Doesn’t Charge Overdraft Fees
Believe it or not, it is possible to find a bank that doesn’t charge any overdraft fees. Because these fees add up, it can be well worth your time to switch to a fee-free bank. In addition, Chime Bank also processes your direct deposit paycheck two days earlier than most banks, which can be especially helpful during those tricky times when you’re still living paycheck-to-paycheck and most likely to incur overdraft fees.
Opt Out of Overdraft Coverage
Did you know that you can actually opt-out of overdraft coverage at any time? If you didn’t know this, you’re not alone: 70% of banking customers weren’t aware of this either, according to a Pew Charitable Trusts study. This means that any purchases you make that will overdraw your account will be declined. You won’t be charged for that purchase and you won’t be slapped with an overdraft fee.
Yet beware, this still isn’t a foolproof, fee-free option. If you pay for something with insufficient funds in your account, you may have to pay a non-sufficient fund (NSF) fee. Luckily, debit card transactions and ATM withdrawals aren’t subject to this tricky fee; those purchases will just be declined outright with no NSF fee.
On the other hand, if you write a check and don’t have sufficient funds to cover that transaction, banks can charge you an NSF fee. You can also get dinged for making a recurring electronic payment that results in a negative balance.
Keep a Close Eye on Your Budget and Checking Account
One of the most common ways people end up with overdraft fees or NSF fees is when they write checks and forget to reconcile their spending with their budget. Either that or they forget to check on their checking account balance altogether.
To avoid falling into this trap, it’s a good idea to both keep tabs on your checking account and update your budget every few days.
Always Carry Extra Cash or a Credit Card in Your Wallet
If you’re out and about, try to carry extra cash or a credit card for emergencies. By using your credit card, for example, you can pay off the charges in full so that you won’t owe any interest charges. At least this way you won’t be staring at overdraft or NSF fees if you inadvertently pay for something without enough funds in your bank account.
Hold Onto Your Money
Just remember, where there’s a will, there’s a way. Even though Americans are paying more in overdraft fees than any time since 2009, this doesn’t mean that you need to fall prey to these charges. You can instead follow these tips to avoid overdraft and NSF fees. You can also switch to a bank or bank account that will never charge you fees. After all, it’s your money and you deserve to keep it.
Chime is a modern bank account that is based entirely online. It has an award winning mobile app that allows you to manage your finances at any time and from anywhere. The best part is that Chime doesn’t charge any fees. And that includes overdraft or NSF fees. With Chime, if you attempt to make a transaction which would lead to a negative balance in your account, the transaction is simply declined. That’s it. Chime makes it easy for you to manage your account, check your balance, pay your bills, and even save money for the future.