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Overdraft fees are becoming less of a headache for many bank customers, as more and more banks move to reduce or eliminate such fees. The trend comes at a time of increased pressure from federal regulators and consumer advocates to curb overdraft fees, which recently averaged more than $33 each instance, according to a 2021 Bankrate survey.
One bank that was ahead of the curve was Discover, which has a history of not charging overdraft fees — and which eliminated insufficient funds fees for all of its bank accounts in 2019. More recently, various big banks, online banks and credit unions have announced plans to lower overdraft fees or cut them entirely.
Alliant Credit Union
Alliant Credit Union stopped charging overdraft and NSF fees in 2021. Members can opt in to its Courtesy Pay program, which may cover transactions that would otherwise not have cleared due to insufficient funds.
Members must have made deposits into the account of at least $600 within the past 30 days to qualify for the program, in addition to meeting other requirements.
Ally Bank eliminated overdraft fees during the COVID-19 pandemic in 2020. The online bank subsequently made the change permanent. In cases when a transaction is made that overdraws an account, the bank may cover the overdraft up to $250 — at the bank’s discretion — or decline the transaction. No fee is charged in either scenario.
Bank of America
In January 2022, Bank of America — the nation’s second largest bank by assets — said customers would no longer be charged nonsufficient funds (NSF) fees, beginning in February. Starting in May, Bank of America said it would reduce overdraft fees to $10 from $35 and eliminate the $12 overdraft protection transfer fee through the bank’s Balance Connect linked accounts program.
BMO Harris announced in June 2022 that in upcoming months it will eliminate fees for nonsufficient funds and overdraft transfers, as well as cut overdraft fees by more than a half — to $15 for each occurrence. The fee changes apply to both consumer and small business accounts.
The bank, which maintains more than 500 branches in the U.S. as well as online accounts, reduced the maximum number of overdraft and NSF charges a customer could incur to three a day in November 2021.
Capital One said in December 2021 that it would stop charging overdraft fees, which ended an annual revenue stream of an estimated $150 million.
Those enrolled in Capital One’s overdraft services were automatically converted to a no-fee overdraft option. Customers can also choose alternative options, such as having transactions declined that would result in overdrafts or having funds transferred from a linked account when an overdraft would otherwise occur.
In August 2021, the bank also eliminated NSF fees and limited overdraft fees to one a day.
Having a linked savings account or a Citi line of credit can enable customers to have funds transferred automatically to a checking account in the event of a negative balance.
Citizens Bank implemented an overdraft fee grace period in October 2021, which allows customers with an overdrawn account to avoid overdraft fees if the account is brought back to a positive balance by the end of the next business day.
When the grace period was implemented, the bank also announced plans to roll out a no-overdraft-fee checking account in 2022.
KeyBank said in April 2022 that by year-end it plans to reduce its overdraft fee to $20 for each occurrence and cap the number of overdraft charges at three each day. KeyBank also said it plans to:
- Drop overdraft fees when accounts are overdrawn by less than $20
- Eliminate NSF fees
- Provide free overdraft protection for linked accounts
In August 2022, PNC Bank eliminated NSF fees for all consumer deposit account customers. The bank had already stopped charging these fees for its Virtual Wallet deposit accounts in April 2021.
Virtual Wallet customers also have access to the “Low Cash Mode” feature, which provides a limit on overdraft fees to one $36 fee per day. Those who use Low Cash Mode also receive low balance alerts and at least a 24-hour grace period to add funds to avoid overdraft fees. During the grace period, they can also process or decline payments that may otherwise result in overdrafts and fees.
In January 2022, Regions Bank said that in coming months it would eliminate NSF fees and cap overdraft fees at three a day. It also announced plans to no longer charge an overdraft protection fee when funds are automatically transferred between linked accounts to cover overdrafts.
Santander Bank increased its no-fee overdraft threshold to $100 in November 2021, so that accounts overdrawn by less than that amount won’t incur fees. The bank made additional changes to its overdraft fee structure, including reducing the number of $35 fees that could be charged each day for covered overdrafts and returned items and eliminating its $12 overdraft protection fee, which had been charged when funds were moved automatically between accounts to avoid overdrafts.
In January 2022, Truist Bank announced plans to introduce two overdraft-free personal checking accounts in the summer, including the Truist One account, which also provides qualifying customers with a $100 negative balance buffer and a deposit-based line of credit of up to $750.
The bank also said that in coming months it would do away with fees for returned items, negative account balances and overdraft protection transfers for all existing personal accounts.
U.S. Bank stopped charging nonsufficient funds fees in January 2022, detailing the change in its fourth-quarter earnings release. It also said that by June 30, it would increase the amount an account could be overdrawn without incurring a fee to $50 from $5. Once an account reaches a negative balance of more than $50, customers have a full day to deposit funds to avoid a fee.
Wells Fargo said in January 2022 that it would eliminate NSF and overdraft protection fees, and that later in the year begin providing customers a 24-hour grace period to cover overdrafts before incurring a fee.
The bank’s overdraft fee is $35 an item for consumer accounts, with no more than three such fees to be incurred each business day.
Wells Fargo earned $1 billion in overdraft and NSF revenue from January through September 2021, according to the Consumer Financial Protection Bureau (CFPB).
What banks earn in overdraft fees
Though many banks have eliminated or reduced overdraft fees since 2019, in that year banks collectively charged $15.5 billion in overdraft and NSF fees, according to the CFPB. More recently, various big banks received hundreds of millions of dollars in revenue from such fees during a nine-month period in 2021.
The CFPB would consider “a range of regulatory interventions … rather than allowing large institutions to rely on junk fees forever,” the agency said in a December 2021 statement. The CFPB describes junk fees as those that are “excessive,” and examples include overdraft fees, return fees, late penalties and out-of-network ATM fees.
Mergers have decreased competition among banks, giving them less incentive to lower their fees, according to Elyse Hicks, consumer policy analyst at Americans for Financial Reform, a nonprofit advocacy organization. “I can say with certainty, unless supervision and enforcement from the CFPB coupled with legislation to not only end overdraft fees, but create a level playing field for those living on the margins exist, banks will only rebrand overdraft fees as other junk fees and the cycle will begin again,” Hicks said in an email.
Introduced by Rep. Carolyn Maloney, a Democrat from New York, the Overdraft Protection Act of 2021 highlights CFPB research and seeks to limit the dollar amount banks can charge per overdraft fee and the frequency with which the fees can be charged.
Specifically, the pending legislation would require that the amount charged for an overdraft be “reasonable and proportional” to the amount of the overdraft and the cost of processing it. It also would limit the number of overdraft fees an account could be charged to one a month and six a year.
“Overdraft fees are predatory and hit hardest those who can least afford them — cash-strapped hard-working Americans and college students who are struggling to pay their bills, keep a roof over their heads and food on the table,” Maloney said in an email. “It’s not right for a $10 sandwich at a bodega to cost nearly $50 because of a $35 overdraft charge — my Overdraft Protection Act stops this.”
Critics of the bill have argued that consumers who overdraw an account are hurt more by having transactions declined than by overdrafting and paying the resulting fee. Speaking before a House Financial Services Committee hearing in March, Todd Zywicki, law professor at George Mason University, said he questioned whether regulatory intervention might ultimately harm consumers, especially those who are more vulnerable.
If a law were in place to eliminate or curb overdraft fees, those who overdraw their accounts “will have many more bounced checks, declined payments, and will likely end up having to rely more on payday lenders and other alternative financial providers,” Zywicki told Bankrate.
What cutting overdraft fees means for you
Some banks that have eliminated overdraft fees now simply decline any transaction that otherwise would have overdrawn your account. If you’d rather avoid having a transaction declined, an alternative may be to set up overdraft protection. This service can allow funds to be transferred automatically from your savings account to your checking to keep it from being overdrawn.
If your bank currently charges overdraft fees and you want to avoid them, it’s easy to find another bank that doesn’t charge them, thanks to the growing list of institutions that have eliminated such fees.
Other factors consumers commonly consider when shopping for a new bank include high-yield savings account rates and whether a free checking account is offered. Various banks — such as Varo Bank and Chime — also offer perks like access to your direct deposit up to two days earlier than many traditional banks.
Overdraft policies vary among banks, whether they charge a fee for overdrafts, decline overdrafts and charge no fee or allow a grace period for funds to be added to an account before charging a fee. It can pay to shop around for a bank with a policy that best meets your needs, as well as to take advantage of tools like low-balance alerts to help avoid overdrawing your account.