Farewell to bounced-check fees: Big banks overhaul overdraft policies

Farewell to bounced-check fees: Big banks overhaul overdraft policies

Two of the “big four banks” — Wells Fargo and Bank of America — announced significant changes that will reduce fees for overdrafting, which is when a customer withdraws or charges more money than they have in their account. Both firms will eliminate all fees for bounced checks, also called “non-sufficient funds charges.”

In May, Bank of America will also reduce the penalty for overdrafting from $35 down to $10. Plus it will be eliminating the transfer fees for overdraft protection. The fee for bounced checks will end in February. The company explained the full extent of its changes in a Jan. 11 press release.

Wells Fargo joined in the fee-cutting on the same day, announcing it will eliminate its bounced-check charge as well as the fee for overdraft protection, starting in March. The bank will also give customers a 24-hour grace period before imposing an overdraft fee and allow them to access direct-deposit payments two days earlier than before.

Mary Mack, Chief Executive Officer of Wells Fargo Consumer and Small Business Banking, said that the changes “give our customers more choice and flexibility in meeting their needs.”

Here’s what the two banking giants are doing, which institutions are also cutting overdraft penalties, and how you can avoid them in the first place.

For more, learn about the best checking accounts for 2022, the best debit cards for kids, and what banking institutions are doing to help during the pandemic.

What is an overdraft fee?

An overdraft fee is a financial penalty your bank charges you when you spend more money than you have available in your account.

For example, if you have $50 in your checking account and buy a $100 item, your bank may clear the transaction but charge you an overdraft fee because you were $50 short. It will also take the remaining $50 when you make another deposit.

Overdraft fees are a subset of “non-sufficient fund” (NSF) fees: If your bank returns the presented payment — say, a check — without covering the amount, you’re generally charged an NSF.

How much do overdraft fees cost?

Overdraft fees vary by bank, but typically you’re looking at $30 per overdrawn transaction, according to the Federal Deposit Insurance Corporation. If one overdraft charge causes another transaction to come up short, you can be hit with multiple fees all at once.

And the fee is fixed, whether you were short $1 or $100.

Why are overdraft fees such a big deal?

The nation’s top banks generated some $4 billion from overdraft fees last year, Sen. Elizabeth Warren, a Massachusetts Democrat, said in a Senate Banking Committee hearing in May 2021.

Almost one in 10 Americans overdraw their accounts more than 10 times a year — accounting for approximately 80% of all overdraft and non-sufficient funds fees, according to the Consumer Financial Protection Bureau…Read more>>

Source:-cnet

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