An overdraft fee is a charge that a bank imposes when you spend more money than you have available in your account. When an overdraft occurs, banks can choose to cover the cost of customer overdrafts that come from checks, debit card transactions, automatic bill payments, or any recurring transactions as part of their standard overdraft practices without needing your consent, but they can also charge a fee for that courtesy. The cost for overdraft fees varies by bank, but they may cost around $35 per transaction. Some banks also may charge what are known as continuous overdraft fees, or daily overdraft fees. These are charges assessed every day the account remains overdrawn. Overdraft fees can add up quickly and can have ripple effects that are costly.
In general, for debit card transactions at ATMs or at merchants, consumers must opt-in, or agree up front, that the bank can charge them an overdraft fee for any debit card transaction that overdraws the account. If you don’t opt-in, you can’t be charged a fee. However, your bank may refuse your purchase if it will overdraw your account. If you do opt-in for overdraft protection or coverage, then your bank may pay a debit card purchase or ATM transaction, even if the transaction overdraws your account. You will be charged any overdraft fees that are incurred as a result.
It’s possible that youll be charged a fee for every overdraft you make, depending on your bank’s policy. Overdraft fees have risen over the past 20 years, and they vary from bank to bank, with an average overdraft fee of $33.58. Those who are more financially disadvantaged are more vulnerable to incurring overdraft fees. A vast majority of overdrafts (70 percent) are charged to consumers with low average account balances, between $237 and $439 on average.
To avoid overdraft fees, you can link your savings account to your checking account when your bank provides this option. If you overdraw your checking account, the bank can pull funds from your savings to cover the shortage, as long as you have sufficient funds in your savings account. You can also opt-out of overdraft coverage by contacting your bank and making the request, and then your bank will simply decline any transaction that would result in an overdraft.
