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Banks Starting to Cut Hated Overdraft Fees

Bank of America others reduce charges on overdraft transactions Will more banks follow

DigitalVision / Getty Images One of life’s biggest annoyances — getting hit with a hefty overdraft fee when the bank covers a transaction that’s bigger than your account balance — is getting a little less annoying. More and more U.S. banks are rolling back or even eliminating the dreaded overdraft fee.
Bank of America is the latest U.S. bank to provide customers some fee relief. The nation’s second-biggest bank (ranked by total assets) said it was slashing its overdraft fee from $35 to $10 beginning in May, as well as doing away with its non-sufficient funds (NSF) fee in February. (An NSF fee is assessed when the bank rejects a transaction, such as a bounced check, that it knows will create a negative account balance.) Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. The Bank of America fee cuts aren’t the first from the banking industry, which has received harsh criticism for them from consumer advocates and congressional lawmakers. Capital One announced in December that it was completely eliminating overdraft and NSF fees in early 2022, and in June , Ally Bank, the largest digital bank in the U.S., eliminated overdraft fees on all its accounts. Back in the middle of 2019, Discover was a first mover when it got rid of all fees on certificates of deposit, and checking, savings and money market accounts. “It’s great for the consumer, absolutely,” says G. Michael Moebs, economist and CEO at economic research firm Moebs Services. “Any move by a major player [to reduce fees] — and Bank of America is a major player — is very significant.”

Frustrating fees

Overdraft fees are among the most expensive and . The national median (meaning half charge more and half charge less) overdraft fee is $30, according to Moebs Services’ most recent survey of 3,309 depositories. Unfortunately, these fees aren’t going to go away entirely anytime soon. In fact, a dozen of the 16 largest retail banks still charge overdraft fees ranging from $34 to $37.50, according to a recent analysis by personal finance site ValuePenguin. The financial hit to account holders is sizable. Consumers forked over an estimated $11.68 billion in overdraft-related fees in 2019, according to a report released in June by the Center for Responsible Lending. If you include both overdraft and NSF revenue collected by banks in 2019, the total fees consumers paid soar to an estimated $15.47 billion, according to a December report by the Consumer Financial Protection Bureau (CFPB), which was created by the U.S. government in 2010 in the wake of the financial crisis. Entertainment $3 off popcorn and soft drink combos See more Entertainment offers >

Who gets hit the most

Here are key findings of a CFPB study that looked at overdraft and NSF fees paid by opted-in customers, or those that give a bank the OK to charge them a fee to cover overdrafts: AARP Membership — $12 for your first year when you sign up for Automatic Renewal Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. or force them to leave the financial mainstream completely. Your bank should contribute to your overall financial stability and health, not strip wealth from your account with excessive fees,” Phillips says. “There is simply no reason for high-cost overdraft fees to exist.” The rise of upstart online banks, such as Ally Bank, as well as so-called “fintech ” companies and “neobanks ” that charge lower fees and pay higher interest on cash deposits, has pressured traditional banks to pare back fees to retain customers and attract new ones, says NerdWallet’s Bessette. “The than it has ever been,” she says. “Overdraft fees are such a frustrating thing that if you can join a bank that’s never going to put you through that, it’s a really desirable thing.” Still, with some banks already getting rid of fees altogether, Bessette says she was surprised B ank of America didn’t eliminate the annoying and costly overdraft fee altogether. But the trend toward lower fees looks like it is here to stay, and the latest fee cut by a market behemoth like Bank of America could prod other banks to do the same, says Greg McBride, chief financial analyst at Bankrate.com. “This will ratchet up pressure on other large national and regional banks to take similar steps,” McBride says. “For the small share of account holders that generate repeated overdrafts, the wind is blowing in your direction and a broader trend of relief on overdraft fees is afoot.” Adam Shell is a freelance journalist whose career spans work as a financial market reporter at USA Today and Investor’s Business Daily and an associate editor and writer at Kiplinger’s Personal Finance magazine. AARP Membership — $12 for your first year when you sign up for Automatic Renewal Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. More on money AARP Membership — $12 for your first year when you sign up for Automatic Renewal Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. AARP VALUE & MEMBER BENEFITS See more Health & Wellness offers > See more Flights & Vacation Packages offers > See more Finances offers > See more Health & Wellness offers > SAVE MONEY WITH THESE LIMITED-TIME OFFERS