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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 $29 each instance, according to Bankrate’s most recent checking account and ATM fee survey.
One bank that was ahead of the curve was Discover Bank, 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 nonsufficient funds (NSF) fees in 2021. Members who have accounts in good standing may qualify for the Courtesy Pay program, under which the credit union may cover checks or ACH electronic transactions that otherwise would have not cleared due to insufficient funds.
As part of its Extended Courtesy Pay program, Alliant may also cover debit card transactions that would have otherwise overdrawn an account. When transactions are covered through the Courtesy Pay programs, the full amount of the overdraft balance will be due immediately.
Ally Bank eliminated overdraft fees during the COVID-19 pandemic in 2020. The online bank subsequently made the change permanent. In cases where a transaction is declined that would otherwise overdraw the account, the bank does not charge a fee.
Ally also provides a CoverDraft service, which provides a safety net of up to $250 for overdrawn accounts of customers who qualify. If you overspend, your next deposit will be applied automatically to the negative balance.
Bank of America
In 2022, Bank of America stopped charging NSF fees and reduced overdraft fees to $10 from $35. No more than two overdraft fees may be charged in a day. The bank also eliminated the $12 overdraft protection transfer fee through its Balance Connect linked accounts program.
Bank of America earned $392 million in revenue from overdraft and NSF fees in 2022, according to the Consumer Financial Protection Bureau (CFPB), a U.S. government agency that enforces federal consumer financial laws.
In July 2023, the CFPB stated that Bank of America had participated in illegal activities that included double-dipping on NSF fees. In all, the CFPB ordered the bank to pay $250 million in fines and compensation to settle multiple claims.
BECU (Boeing Employees Credit Union)
BECU reduced its overdraft fees to $10 from $25 in October 2022, and it also did away with NSF fees for items returned or rejected due to an insufficient available balance.
BMO Harris eliminated NSF fees and overdraft transfer fees in 2022, and it cut overdraft fees by more than a half — to $15 for each occurrence. The fee changes applied to both consumer and small business accounts. The maximum number of overdraft fees a customer may incur per day is three.
In early 2022, Capital One stopped charging overdraft fees, which ended an annual revenue stream of an estimated $150 million. Prior to that, the bank charged a $35 overdraft fee for those enrolled in its next-day grace period program.
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.
The bank also stopped charging NSF fees in 2021.
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 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 overdraft fees are assessed, they are $35 per item paid, and a maximum of five such fees may be charged per day.
One of the checking accounts offered by Citizens Bank is its EverValue Checking, which may be a good option for anyone who doesn’t want overdraft coverage. Transactions are simply declined that would otherwise overdraw the account.
Fifth Third Bank
In June 2022, Fifth Third Bank eliminated NSF fees for all consumer accounts. The bank charges a fee of $37 for each overdraft, with a maximum of three overdraft fees to be charged per day. These fees are not assessed on individual items of $5 or less; nor are they charged for accounts overdrawn by $5 or less at the end of a business day.
Huntington Bank reduced overdraft and NSF fees in July 2022 to $15 per occurrence. It also reduced the number of times customers can be charged these fees to three per day. The bank won’t charge fees on an account that’s overdrawn by less than $50.
In 2022, KeyBank reduced its overdraft fee to $20 for each occurrence and capped the number of overdraft charges at three each day. Overdraft fees are not charged when accounts are overdrawn by less than $20, and NSF fees are no longer assessed.
In 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 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 2022, Regions Bank eliminated NSF fees and capped its $36 overdraft fee at three instances per day. The bank also no longer charges an overdraft protection fee when funds are transferred automatically between linked accounts to cover overdrafts.
Santander Bank increased its no-fee overdraft threshold to $100 in 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.
Truist Bank now offers two personal checking accounts that don’t charge overdraft fees, including the Truist One account, which provides qualifying customers with a $100 negative balance buffer.
The Truist Confidence Account doesn’t charge fees for overdrafts, returned items or overdraft protection transfers. Transactions that exceed the account balance will typically be declined or returned.
Truist does not charge for overdraft protection transfers from a linked savings, checking or money market account, or from a credit card or a line of credit.
U.S. Bank stopped charging NSF fees in early 2022, and the bank increased the amount an account could be overdrawn without incurring a fee from $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. The overdraft fee assessed is $36 per item the bank pays on your behalf.
U.S. Bank earned $257 million in revenue from overdraft and NSF fees in 2022, according to the CFPB.
Wells Fargo eliminated NSF and overdraft protection fees in 2022, and it also began 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 $1.3 billion in overdraft and NSF revenue in 2022, according to the CFPB.
What banks earn in overdraft fees
Over the first three quarters of 2022, banks earned $5.8 billion in combined revenue for overdraft and NSF fees, compared with $8.6 billion during the same period in 2019, according to the CFPB. This decrease of 33 percent is likely related in part to the changes in bank policies.
A CFPB report that broke down overdraft and NSF revenue in 2021 by bank listed Wells Fargo as earning the highest amount ($1.4 billion), followed by Chase Bank ($1.2 billion), Bank of America ($1.1 billion), TD Bank ($477 million) and Truist Bank ($415 million).
Banks fined for overdraft fees
In early 2022, the CFPB launched an initiative to reduce what it called “exploitative junk fees charged by banks and financial companies” by issuing industry guidance as well as crafting and enforcing rules. The agency describes junk fees as those that are “excessive,” and examples include overdraft fees, return fees, late penalties and out-of-network ATM fees.
The CFPB ordered Regions Bank to pay $191 million to customers in September 2022 for charging “illegal surprise” overdraft fees on “certain ATM withdrawals and debit card purchases” between 2018 and 2021, the agency reported. In a written response, Regions said it “disagrees with the CFPB’s characterizations” but would pay the fee.
Similarly, Wells Fargo was fined $3.7 billion by the CFPB in December 2022, in part for imposing “surprise overdraft fees.” The agency maintained the bank charged the fees to some customers even though they had adequate funds in their account at the time the bank authorized the transaction.
“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,” said Elyse Hicks, consumer policy analyst at Americans for Financial Reform, a nonprofit advocacy organization.
Legislation that would limit overdraft fees
The Overdraft Protection Act of 2021 was legislation introduced by former Rep. Carolyn Maloney, a Democrat from New York, which highlighted CFPB research and sought to limit the dollar amount banks can charge per overdraft fee and the frequency with which the fees could be charged.
Overdraft fees are a practice to which President Joe Biden has also voiced opposition. He advocated for a ban on “junk fees” during his State of the Union address in February 2022, and he subsequently released a statement that his administration was “cracking down on those unfair, hidden ‘junk fees’ like bank overdraft charges…”
Critics of such legislation 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 having a bank with no overdraft fees means for you
Some banks with no overdraft fees 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 financial institutions — 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 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.