Source: CPFB

Banks have been charging overdraft fees for a long time

There can be certain transactions that could put a consumer into overdraft. For instance, paying for a new car or purchasing an expensive gadget, without analysing first your balance, may end up paying huge overdraft fees.   

Banks claimed they give customers flexibility when they allow them to spend more than what they have, but, they will be charged later with overdraft fees. It's similar to the way credit card companies charge interest on balances that are carried forward.

This practice gained widespread criticism, as online banks don’t charge these kinds of fees. Big banks are trying to eliminate or reduce their charges so that people can bank without any hassle. Federal regulators and consumer advocates put pressure on large banks to eliminate overdraft fees.

Numerous banks are trying to cut down overdraft fees

• Switching to another bank after experiencing an overdraft fee can be an option. In the United States, top banks that charge minimum or no overdraft fees are Bank of America, Wells Fargo, Citibank, Capital One, Ally Bank  and Truist.

 

Bank of America, the nation’s second-largest bank in terms of assets said consumers no longer face non-sufficient funds (NSF) fees since February. Last May, the bank said it would reduce the overdraft fees from $35 to $10 per transaction. With these fees, the bank will eliminate the $12 balance connect service charge to transfer funds from linked accounts to overdrawn accounts.

Wells Fargo has eliminated various fees associated with overdrawing since March. The bank will eliminate NSF and overdraft protection fees. It provides a 24-hour grace period to cover overdrafts before incurring a fee.  The bank’s overdraft fee is $35 an item for consumer accounts. It should not be more than three overdraft fees incurred each business day.

Citibank, the fourth largest bank plans to eliminate fees associated with overdraft, NSF, returned items, and overdraft protection.  Citibank provides a safety check feature that will transfer available funds from any linked Citibank savings account to cover overdrafts. The service for those with a CitiGold or Citi Priority account is free, but it charges $10 for those with other accounts.

Capital One has eliminated the overdraft fee since January and replaced it with the "no-fee overdraft" protection. The consumers that were enrolled in the overdraft services were automatically converted to a no-fee overdraft option. Alternative options are declining transactions if it would result in overdrafts or  automatic fund transfer from a linked bank account, if an overdraft occurs.

There is no fixed cap on how many times a customer can overdraw, but there is a dollar limit on how much you can overdraw. Those with overdraft protection are automatically enrolled on the no-fee overdraft plan. You can sign up any time, if you are not enrolled yet in the service.

Ally Bank got rid of the overdraft fees during the COVID-19 pandemic in 2020 and made them permanent.  At Ally, you can overdraw your account without incurring a fee, but, you have a six business days grace period to bring your account back to normal. If you fail to do so, the bank might limit your withdrawals or talk to you to come out with a solution.

If your account gets overdrawn frequently, you can sign up for a free overdraft transfer service to save the hassle of transferring money. Under this service, Ally Bank will transfer money from linked savings or money market accounts in $100 increments. However, this service limits these transfers to six withdrawals per statement cycle.

Truist, a merger between BB&T and Suntrust Bank plans to launch two new chequing accounts, including Truist One account, without overdraft fees. Banking will grant a $100 negative balance buffer for the customers who continuously made deposits of $100 or more for two consecutive months. Truist customers can open a Truist One chequing account, though you won't be automatically migrated.