Even if you don't want to admit it, even if you're embarrassed to admit it, you're very likely among the estimated 50 million Americans who have been overdrawn on their checking account in the course of any given year.
According to The Center for Responsible Lending, over 50 million Americans overdrew their checking account at least once over a 12 month period, with 27 million account holders incurring five or more overdraft or non-sufficient funds (NSF) fees. Given the state of the economy and mainly with overdraft fees rising 35 percent in the two year period between 2006 and 2008, this isn't difficult to believe.
Last year, banks earned nearly $24 billion in overdraft fees from you, their customers.
$24 billion in a single year earned off your money.
This year, U.S. banks are on track to make $38 billion in overdraft fees.
What's more, the Center's research shows that spending on overdraft fees exceeded spending on common household items like books, postage and even fresh vegetables. And unlike prior years, most overdraft fees are now triggered by ATM and debit card purchases and not paper checks.
If $35 per item isn't enough to dig you a deeper hole when you're already overextended, some banks have no limit on the amount of overdraft charges placed on your account each day, even hitting up your account as many as 10 times per day! Worse still, some such as U.S. Bank, reportedly charge $8 per day on top of everything else until the overdrawn funds are completely repaid.
Are changes on the way? Not really. The Business Journal of Milwaukee recently reported that Chicago-based Harris Bank is "eliminating overdraft and non-sufficient funds fees if a customer's account is overdrawn $5 or less" and "limiting the number of fees for overdrafts and non-sufficient funds to four per day."
But let's be realistic, when most people go overdrawn, it's probably going to be for more than $5 at a time. Who are they kidding? Are you really going to go overdrawn on a pack of gum? Most likely it's a $20 and up charge that will do the damage.
How about this for a sneaky practice? Many banks reserve the right to clear the largest debits off your account first, followed by the smaller ones, which can easily drain your account much quicker. A quick phone call to my own bank this week confirmed this exact practice.
Other minute changes are scheduled to occur at banks JPMorgan (Chase), Bank of America and Wells Fargo, who are three of the country's largest banks. But some of these changes may begin as late as next year.
So what can you do? How can you avoid being overdrawn on your checking account and protect yourself from falling victim to one of these practices?
- Know what you're up against: It really pays (no pun intended) to read the privacy policy pamphlets and "changes to your account" letters that you receive either by email or snail mail regarding your checking accounts and all of your bank accounts for that matter. When you keep aware of new fees or changes to existing bank charges, you'll be better able to be prepared to watch your account and have added information to use when you contact customer service or a bank representative with grievances about charges to your account. Ask if your bank allows you to opt-out of overdraft protection which generally either allows transactions to go through regardless of funds or links to another account you have, such as a savings account.