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The Real Life Impact of Overdraft Fees

By Jackie Lam
July 31, 2019

When you’re low on funds and waiting on your direct deposit to hit your bank account, you’re in no place to pay a hefty overdraft fee. Yet, because many big banks charge an average of $35 per overdraft, a measly five dollar charge can easily balloon into $40. Yikes.

If you’ve had to pay overdraft fees, you’re not alone. According to the FDIC, big banks with over one billion dollars in assets collected more than $11.45 billion in overdraft and non-sufficient funds in 2017. 

To get a handle on how these fees can negatively impact your financial situation, we talked to several people who gave us the low-down. Read on to learn more. 

Unfortunate events happen in threes 

When a glitch caused Ruby Escalona’s credit card bill — which was set on autopay — to be paid twice, he was dinged with three $35 overdraft fees from his bank, totaling a whopping $105.

Because Escalona had put four airline tickets on that month’s cycle, to the tune of a few thousand dollars, those overdraft charges put his bank balance in the negative. Escalona called the bank and explained the situation. 

“While the bank still deemed it was ‘my fault’ for the IT issue, the bank did waive two other overdraft fees because of the debacle,” explains Escalona, who is the founder of A Journey We Love. 

When you don’t track your expenses 

When Jerry Brown was in college, he was terrible at managing his money. He was essentially living paycheck to paycheck.

“Since I didn’t keep track of my expenses, I ended up charging my card when I didn’t have the money in my account to cover the expense,” says Brown of Peerless Money Mentor. 

One semester it got so bad that he was dinged with $200 in overdraft fees. That was quite a bit for a struggling college student.

Now, however, he avoids overdraft fees by tracking his expenses (you can do so with a money app), and setting up an emergency fund. 

When three $5 items end up costing $120 

When Riley Adams and his brother were in college, they stopped by a fast food joint on their way to the movies. Adams’ brother initially didn’t want anything to eat, so Adams ordered a single combo meal for himself. Naturally, his brother got hungry and wanted to order something as well. So, they bought another combo meal. Next, the pair had a hankering for dessert. 

Talk about an avalanche of bank fees. Those three five dollar transactions each incurred a $40 overdraft fee, adding up to $120. As it turned out – due to a holiday – Adams’ paycheck hadn’t hit his bank account yet. The direct deposit went through the next day and the bank forgave the overdraft fees.

“We ended up having all the fees waived after contacting the bank and informing them of the situation,” says Adams, who is a 30-year-old financial analyst at Google and founder of Young and the Invested. 

To avoid this from happening again, Adams reached out to his bank to establish an overdraft protection line of credit. Anytime his checking account balance falls below a certain threshold, there’s an automatic transfer from his savings account. 

Note: If you’re a Chime Bank member, you can sign up for direct deposit and get paid up to two days early. 

When rent is due 

When Michael Lacy was living paycheck to paycheck, he wrote a check to cover his rent. But, he forgot about a few purchases he made the day before: filling up his tank with gas, renting a Redbox movie, buying a hoagie, and picking up a few things at the grocery store. The charges were still pending. 

His bank cleared his rent check first, but the other charges were all hit with overdraft fees. The total damage? A hefty $128. He had enough in his account to cover the smaller purchases, so if his bank cleared the transactions in the order they were made, he would’ve only incurred a single $32 overdraft fee for the rent check. 

These days, Lacy takes 30 minutes to plan all his spending at the beginning of each month.

“Every dollar has a destination, whether that’s spending, saving, or investing,” says Lacy, a personal wealth coach and founder of Winning to Wealth

Working for a big bank

When GP (that’s her pen name) worked at a national bank right after college, she witnessed some customers who were regularly racking up overdraft fees, while others would get dinged for an occasional one. 

The worst case? When a regular customer came in to the branch to see what could be done about her overdraft fees. When GP pulled up her account, the balance was negative, and there were tons of overdraft charges.  

“At the time it happened, the bank would process large transactions first — with the thought that it would ensure mortgage and car payments had priority,” says GP, who blogs at Entirely Money

“The only problem with this is that all the subsequent small transactions would then each be hit with an overdraft fee.”

In total, the overdraft fees that hit this customer’s account added up to over $200. As the bank manager would only give a one-time courtesy credit for a few of the fees, the customer was still stuck with more than $100 in overdraft fees. 

A cluster of ill-timed events

When an overpayment and a direct deposit issue happened at the same time, Jason Vitug’s funds dropped lower than the automatic bill payment that hit the account. 

What’s more, because his bank overdrew his account with the largest amount first, it caused the three smaller payments to be overdrawn. He ended up paying $120 for four overdraft fees. 

“Basically, the bank stated I overdrew my account four times in one day, even though three of those withdrawals would’ve been covered,” says Vitug, founder of Phroogal

To avoid this from happening, Vitug suggests attaching a savings account or line of credit for overdraft protection. Or just stop banking with that bank. 

“Simply choose a bank that won’t overdraft your account, and just refuse payment,” says Vitug. 

To avoid these headache-inducing, frustrating scenarios, avoid bank fees altogether. FYI: Chime never charges fees of any kind. Never ever. 


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