Withering under sharp inflation and increasing corporate layoffs, U.S. adults aren’t catching any breaks on banking fees – even after financial institutions promised to cut customers some slack on administrative charges.
It was only two months ago that a major study from Pew Trusts stated that banks were following through on promises to curb fees.
“The 25 largest U.S. banks by branch count have made substantial changes to their overdraft policies in the past 12 months that could save consumers more than $4 billion annually,” Pew stated.
Among the top 25 banks, more than half have said they would no longer charge insufficient-funds fees on personal-checking accounts, and a similar number have said they would not charge more than three overdraft fees a day, Pew reported.
“A majority also will no longer charge fees to transfer money from consumers’ other linked accounts to cover overdrawn transactions. Previously, these transfers carried a median price tag of $10.”
New Data Take Issue With Banks’ Fee Efforts
Now, a new study from Bankrate states that financial institutions are not only hanging around, but they’re also inflicting significant damage on consumers.
“Despite the well-publicized reduction or elimination of overdraft and non-sufficient funds fees by some banks, these fees are still being charged by most banks and are not going away anytime soon,” the study noted.
Overdraft fees are still charged by 96% of accounts surveyed, and they are still charged by 87% of accounts surveyed, the study stated.
Additionally, average ATM fees have risen to their highest levels since 2019, with the surcharge -- the fee levied by ATM owners on non-customers withdrawing funds -- cresting at $3.14, up 1.9% from 2021.
“Don’t let your guard down with regard to overdrafts,” said Greg McBride, chief financial analyst at Bankrate. “The overwhelming majority of banks and accounts still charge for overdrawing the account, whether the payment is honored or rejected.”
Banks Making Adjustments – but Not Killing Fees
Data that indicate banks are back to slamming consumers with heavy overdraft and ATM charges is confusing at best and ominous at worst.
After all, financial institutions had made clear they'd heard consumer complaints about high fees and would heed the call.
“Actually, banks are following through on their promise to reduce consumer banking fees,” said Caleb Reed, a personal-finance expert and founder of TheDollarBudget, a consumer finance advisory platform.
For example, Ally Bank (ALLY) did away with overdraft fees in 2020 during the coronavirus pandemic and made the change permanent shortly after pandemic restrictions were lifted.
Now when an account is overdrawn by a transaction, the online bank may cover up to $250 or simply decline the transaction altogether. “In both cases, Ally Bank no longer charges a fee,” Reed said.
Like Ally Bank, several of the largest U.S. banks (including Capital One, (COF) Bank of America (BAC) and Wells Fargo (WFC)) have also done away with their overdraft fees or have made substantial changes.
Yet instead of taking fees out of customer accounts outright, banks have also altered the way they treat bank overdrafts.
“One way banks are trying to cut back on fees is by making it more difficult to overdraw your account,” said Daniel Chan, chief technology officer at Marketplace Fairness, a finance and cryptocurrency educational platform.
For example, Bank of America will now charge an overdraft fee of $35 if you overdraw your account by more than $5.
“Previously, the bank would charge a $35 fee for any overdraft, no matter how much you overdrew your account,” Chan noted.
“Other banks, such as JPMorgan Chase (JPM) and Wells Fargo, have also instituted new policies that make it more difficult to overdraw your account – but will still charge $30 to $35 fees if you violate overdraft limits.”
Changes, Yes. End to Overdraft Fees? No
Banks will still charge customers penalties and fees, but experts expect financial institutions to dial those charges down and implement better terms.
“Some banks have also extended the grace period, added a buffer amount before charging fees, and removed nonsufficient-funds fees,” said Jeffrey Zhou, co-founder and chief executive at Fig Loans in New York.
“Banks profit billions of dollars yearly from overdraft fees. To me, the reformation makes it a fair deal between these financial institutions and consumers like us.”
If you’re worried about overdrawing your account and incurring costly banking fees, there are a few action steps you can take.
“For bank customers, know the stipulations associated with the type of bank account being used, such as how much the buffer is and when the billing cycle ends,” Zhou said.
“If you can sign out of overdraft coverage, do so or decide on an artificial buffer so you don't overspend.”
Also, keep track of your account balance so you are aware of how much money you have in your account, Chan said.
“Another strategy is to set up overdraft protection, which will allow the bank to cover any overdrafts in your account up to a certain amount,” he noted. “Or, try to find a bank that does not charge overdraft fees at all.”
Banks that don't don't charge any overdraft fees include Ally, Citi and Capital One, while many banks offer no overdraft fees on select accounts.
