An overdraft occurs when you spend or withdraw more money than you have in your account. You'll be able to complete the transaction if you've agreed to your bank's overdraft protection policy, but you'll probably get charged a fee. If you don't realize right away that you've overdrawn, you might go on to make a bunch of other purchases, potentially racking up more fees as you go.
For its video, Pew interviewed a number of people on the street, asking them questions about their bank's overdraft policies. Most didn't know that overdrafts typically occur on transactions smaller than $50, or that banks can tack on a fee between $30 and $100 if it happens, or that banks can legally rearrange the order of your transactions and heap on more fees. What's more, banks make billions of dollars per year from these fees.
"The video shows people could use more information and feel overdraft fees should be more in line with banks’ actual costs," Susan Weinstock, director of Pew’s consumer banking project, said in an emailed statement to The Huffington Post. "We hope the Consumer Financial Protection Bureau will watch and take note."
The CFPB, which monitors banks' overdraft policies, also offers these tips on how you can reduce overdraft fees or avoid them altogether:
- Always track your account balance. It seems obvious, but the more you monitor your checking account, the less likely you'll be to overdraw it.