Overdraft Fees Are Costing Americans $8 Billion. Are You One of the Impacted?

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KEY POINTS

  • Big banks made $8 billion in overdraft fees over the year.
  • These fees are disproportionately paid by people who can least afford it.
  • Overdraft fees can be avoided by leaving more money in your account and checking up on your balance regularly, or even by switching banks. 

The amount big banks make off overdraft fees is shocking.

Overdraft fees are a huge problem for millions of Americans. In fact, the total cost of these fees comes in at $8 billion over the course of the year -- and this expense is disproportionately borne by low-income individuals who have the least amount of money in the bank. 

While the specific amount of these fees can vary by financial institution, it's typically around $30 for each instance when someone tries to take more money out of their bank account than is available to them. These fees add up dramatically, with customers who pay them accounting for more than half of all the profits made by mass-market checking accounts offered at the biggest U.S. banks. 

Unfortunately, those who pay these fees can often find themselves in a precarious situation since they already had little or no money in their accounts to cover their costs, and now the bank has taken more of their cash. 

If you're one of the many who is impacted by overdraft fees, it's important to understand your options.

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What should you do if you're affected by overdraft fees? 

If you are hit with overdraft fees on a regular basis, chances are good you already know the damage these can do to your finances. Because they can be so damaging, it's important to find ways to avoid them.

In an ideal situation, you would be able to make sure you don't get hit with overdraft fees by keeping some extra money in the bank, so if you forgot about a charge or if transactions processed in an unexpected order, you would still have a cushion in your account. But, the reality is that this is impossible for many people who simply do not have a lot of extra money to keep in their checking accounts.

You can also keep careful tabs on your account, using an online app to check your balance before you charge something on your card or signing up for alerts if your balance drops too low. This is one solution if you don't have a lot of cash to spare, but it can be tedious and it's not a foolproof approach because unexpected things can still happen.

The best option to avoid overdraft fees

Finally, your last and best option is probably to find a bank that doesn't charge overdraft fees at all if you're in danger of being hit by them. A growing number of banks have dropped these fees in light of increased oversight on the part of the Consumer Financial Protection Bureau, and because fewer consumers were paying them when more people had extra money during the stimulus.

It will still take research to find a bank that won't charge you, as a recent Morning Consult survey found 7 in 10 customers were charged after overdrafting their accounts.  But if you can put in the time to find a bank that promises -- and follows through -- on its no overdraft guarantee, you don't have to find yourself being one of the many consumers helping the banks make $8 billion in annual profit. 

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