What Is An Overdraft Fee?

By Grace Kilander

An overdraft fee is when you don’t have enough funds in your account to cover a transaction, but your bank pays it anyway and then charges you a fee on top of holding you accountable for the amount it fronted you. 

So yes, while you might be able to purchase that $6 coffee, you’re going to get slapped with a hefty $35 overdraft fee later. That delicious venti caramel mocha latte is not worth upward of $41. What’s worse, say you stop at the drugstore right after to pick up a few things, you’ll get hit with more overdraft fees before you can even notice. 

Yikes! We haven’t even touched on returned check fees and daily fees. Let’s take a look at why you might be getting charged and where you can bank to escape the looming charges.  

Why Am I Being Charged An Overdraft Fee? 

An overdraft fee is when you don’t have enough money in your bank account to cover what is being withdrawn, and your bank or credit union covers that transaction and then charges you.  Simple enough, right? What isn’t easy to remember are all of the extra fees that may come along with insufficient funds, returned checks, and overdraft protection charges. Check out a few ways you are being charged for fees similar to overdraft.    

Returned Check Fees

If a merchant or automatic payment overdraws your account, it will be flagged as NSF (insufficient funds or non-sufficient funds). You do not have to be paying with an actual check to get this charge. You may be charged a fee by the merchant you attempted to pay and by your financial institution if this occurs. 

Overdraft Protection

Overdraft protection is a program set up by you with your bank where you allow the bank to link another account and pull funds from there in the event of an overdraft. This option often comes with a service fee ranging from $10 to $36 and still requires you to cover the withdrawn amount as well.

Overdraft settings are when you place settings on your accounts directing your bank on what to do when there are no funds to be withdrawn, including the accounts linked with overdraft protection. Your banking institution does reserve the right to decline payment, and you may be subjected to additional charges.  

Deposited Item Returned Or Cash Item Returned

This type of fee is charged when a check or other item was accepted for deposit or cashed and is returned to the bank unpaid. 

For example: If you deposit a check and it bounces, you’ll be hit with a deposited item returned (or cash item returned) fee.  Usually, these fees range from $12 to $15. Some banks refer to these as “Return Item Chargeback”. Are you confused yet? We are! 

Stop Payment Fee

This fee is when the account holder places a stop processing order on a check or payment that has not been processed yet. The fee is typically in the range of  $30.

Every bank is different when it comes to what, when and how they charge.  Read the small print before you start depositing your hard-earned money. Remembering all the financial lingo is enough to make your head spin! Below, we have put together a shortlist of large banking institutions to give you the low down. 

Who Charges Overdraft Fees?

Most traditional banks, credit unions, and credit card companies throughout the United States charge for overdraft accounts, returned checks and insufficient funds fees. The chart below breaks down checking account overdraft charges at 4 major banks. 

BankOverdraft FeeDaily Unpaid Fee PenaltyDaily Overdraft Fee Maximum
Chase$34$0$102 (3 per day)
PNC$36$7$144 (4 per day)
Bank of America$35$0$140 (4 per day)
Citi Bank$34$0$102 (3 per day)

Can You Get Overdraft Fees Removed? 

Our partner Cushion can help you get your bank and credit card fees refunded automatically, which can add up to a lot of money back in your wallet.

Also, depending on your history with your bank, they may waive one or two overdraft fees annually. Try calling your bank after bringing your account current and request for the fee to be removed.  They may take factors into consideration such as your direct deposit, longevity, and number of accounts. 

Don’t be too surprised if the bank doesn’t honor your request a second or third time.  According to this report in 2017 by the Center for Responsible Lending (CRL), banks with $1 billion plus in assets made over $11 billion dollars in overdraft and insufficient funds-related fees from its customers. These automatic additional charges to their customers is a huge moneymaker for them.  

Keep in mind these reports do not contain small community banks or credit unions, which would likely only increase that number. What gives? We are going to go over exactly what is an overdraft fee, why are you paying it and how can you prevent them? 

What If I Don’t Pay The Overdraft Fee?

Any money you deposit into a delinquent account applies to the outstanding balance.  If it remains negative for 60 to 120 days, your account will get transferred to the collections department. From there, your account gets closed and will put a damper on your credit score. No Bueno!

Want to Avoid Overdraft Fees?

Looking for a new bank account with no overdrafts or minimums? The RoarMoney account from MoneyLion aims to decline charges when funds are not available, preventing you from more debt. If your balance is close to overdraft territory, simply transfer money quick in the app to cover the overdue balance or get an Instacash advance to deposit funds instantly with zero interest.  

You can even set up text or email alerts to let you know when withdrawals have been made to your account or your account balance is getting low. This will keep you informed daily of your spending habits.

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