3 Reasons Bounced Checks May Be a Thing of the Past

If avoiding overdraft fees is important to you, you now have more banking options.

Overdraft fees are a huge moneymaker for banks. For example, in 2020, with Americans receiving stimulus checks to help keep them afloat, banks still managed to collect $12.4 billion in overdraft fees. Two years earlier, in 2018, consumers paid a staggering $17 billion in fees.

Given the billions of dollars banks collected for bounced checks and rejected debit card transactions, it's interesting to watch how many financial institutions are rethinking the practice of walloping customers when their accounts are depleted. Here's a sample of recent changes:

• As of Jan. 13, 2022, Capital One eliminated overdraft fees. The bank calls their new program "No-Fee Overdraft" protection. It works like this: A customer overdraws their account, but rather than get hit with a fee, they are required to deposit money into the account to cover the overdraft. While there's no limit on how many times a customer can overdraw, there is a dollar limit on how much they overdraw. According to the bank, that limit is based on their deposit history and risk profile.
• Discover® Bank offers a free overdraft protection program that is linked to a savings account or money market account.
• Chime also offers free overdraft protection through its SpotMe program. Any enrolled member who makes a direct deposit each month of at least $200 can overdraw their account by up to $200 each month. Like Capital One, the amount the customer can overdraw is based on their deposit history and risk profile.
• JPMorgan Chase is not eliminating fees, but the bank has changed its policy, giving customers a full day to get funds into an overdrawn account. It will also allow its customers to tap funds from direct deposited paychecks two days early.
• In 2020, in response to COVID-19, Ally Bank got rid of overdraft fees. Although the economy appears back on its feet, Ally has decided to let those fees go entirely. Once an Ally customer overdraws their account, they have 14 days to make things right by depositing the overdrawn funds. For customers who wish to link to a free overdraft service, the bank will transfer money from a savings or money market account in $100 increments.
• Truist (a result of a merger between Suntrust and BB&T Bank) plans to introduce two new checking accounts this summer, each with no overdraft fees. Rather than allow customers to overdraft their accounts, Truist One Banking will automatically put a $100 "buffer" into the account of a customer who spends more than they have.
• Beginning in May, powerhouse Bank of America will cut its overdraft fees from $35 to $10 per transaction. While it's not quite as generous as the moves made by other banks, Bank of America is also getting rid of a $12 fee it now charges for transferring money from a linked account.
• Wells Fargo is also cutting down on the fees it collects. Customers will have a 24-hour grace period to bring their accounts back into the black without paying a fee. Like Bank of America and JPMorgan Chase, the policy change may not be as liberal as the more generous rules introduced by other banks, but they do represent a step in the right direction.

3 reasons banks are dropping these money-making fees

1. Competition

It wasn't long ago when banking options were limited. You had a few brick-and-mortar banks in your area. You picked one and opened a bank account (and possibly, got a free toaster for your trouble). Today, there are a multitude of banking options, including credit unions and online banks. With so many financial institutions to pick from, it makes sense banks are finding ways to be more competitive.

2. Branding

No bank wants to look like a dinosaur when compared to other banks. Now that a growing number of financial institutions offer no-fee banking, any bank that doesn't risks looking both greedy and like a dated throwback.

3. Avoiding legislation

Banks are not suddenly growing a corporate conscience. What they're doing is reading public sentiment and trying to get ahead of a potential problem. In 2021, both the Senate and House of Representatives proposed bills to limit overdraft fees. Because these fees disproportionately fall on Americans who can least afford them and because it has not appeared the banking industry would police itself, legislators have decided to involve the government. As banks move toward change, it's with one eye on Washington.

Like a snowball rolling downhill, it's easy to imagine more banks will adopt forgiving overdraft fees. It's either that or get left behind.