Is 2021 The Beginning Of The End For Overdraft Fees? – Forbes Advisor


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If you’ve ever been saddled with an overdraft fee, you’re familiar with the unpleasant feeling of getting charged for not having enough money in your bank account. And you’re not alone if you consider this fee unfair.

Overdraft fees are among the most controversial bank fees and have been a topic of public debate in recent months. In May, the U.S. Senate held hearings into how and why banks charge fees to customers for having insufficient funds in their accounts and criticized bank CEOs for refusing to stop charging overdraft fees during the pandemic.

In June, U.S. House Rep. Carolyn Maloney reintroduced the Overdraft Protection Act, which would reduce the total number of overdraft fees that banks can charge to one per month or six per year.

During 2021, several major banks and credit unions have announced that they are no longer charging overdraft fees. Let’s take a closer look at the latest trends in overdraft fees and how they may affect your choice of bank or credit union.

Overdraft Fees: What They Are and How They Work

An overdraft fee occurs when you don’t have enough money in your checking account to cover a transaction. For example, if you make a debit card purchase, write a check or pay an online bill for $500, but you only have $400 in your checking account, your account is overdrawn by $100.

If you have overdraft protection on your account, the bank will still allow your transaction to be processed, allowing you to pay your bill or write your check. Overdraft protection often involves linking a savings account or credit card to your checking account, so that any overdrafts are automatically covered by that additional account. But even if you have overdraft protection, the bank might still charge you an overdraft fee.

Non-sufficient funds (NSF) fees are similar to overdraft fees, but NSF fees occur when you do not have overdraft protection on your account. In this case, your bank will not allow your account to go below zero, your transaction will be declined and your bank may charge you an NSF fee.

Exact amounts of overdraft fees depend on the bank or credit union, but it’s clear that overdraft fees have generated significant revenue for financial institutions. During 2020, banks charged U.S. consumers $12.4 billion in overdraft fees. As of Sept. 2021, the average overdraft fee was $24.93, according to Forbes Advisor’s 2021 checking account fees survey.

Why do banks charge overdraft fees? These fees could be considered a convenience charge. If you spend more than the balance in your account, the bank charges an overdraft fee to correct the situation. It’s also a nudge to stay on track with your budget and spending.

But critics of overdraft fees have argued that these fees are excessive and predatory, punishing lower-income people for not having enough money in the bank. Research from the Consumer Financial Protection Bureau (CFPB) has suggested that overdraft fees could be discouraging unbanked low-income people from getting bank accounts.

Online Banks: Changing the Landscape of Overdraft Fees

In recent years, some of the best online banks and neobanks have been introducing new online checking accounts that do not charge overdraft fees or that offer convenient alternatives to overdraft fees. Here are a handful of those institutions:

  • Axos Bank: Does not charge overdraft fees or NSF fees on its Essential Checking or Rewards Checking accounts.
  • Discover Bank: Does not charge overdraft fees.
  • nbkc bank: Does not charge overdraft fees.
  • Chime: With Chime’s SpotMe service, you can overdraw your account by up to $20 on debit card purchases without being charged an overdraft fee. Chime offers a SpotMe allowance of up to $200, depending on your account history. (You also need to receive at least $200 per month of direct deposits to qualify for SpotMe.)
  • Huntington Bank: Offers its 24-Hour Grace feature to give you extra time to make a deposit to avoid overdraft fees. Huntington also offers a feature called the $50 Safety Zone—if you accidentally overdraw your account by $50 or less, you won’t be charged an overdraft fee. On June 1, 2021, Huntington also announced a new service called Standby Cash, which lets eligible customers qualify for an instant line of credit up to $1,000; this line of credit is connected to the customer’s checking account and can help thwart overdraft fees.

Overdraft fees are becoming less common, and several banks now offer no-fee, or low-fee, checking accounts. But even if your bank charges overdraft fees, there are a few ways you may be able to get your bank to waive an overdraft fee, if you act quickly and especially if there are extenuating circumstances.

Banks and Credit Unions Canceling Overdraft Fees

Several banks and credit unions have recently announced that they will no longer charge overdraft fees.

Alliant Credit Union

Alliant Credit Union, a $14 billion digital credit union, announced on Aug. 2 that they are eliminating overdraft fees and NSF fees on all checking and savings accounts. In a statement, Dennis Devine, president and CEO of Alliant Credit Union said, “Our biggest priority is doing what’s in the best interest of our members, and that means challenging historic norms like overdraft and non-sufficient funds fees.”


NorthOne, a small business banking app that partners with The Bancorp Bank to provide banking services, announced on June 29 that it had eliminated all overdraft fees and NSF fees for its current and future customers.

“Fees like NSF and overdraft began a long time ago as a deterrent and cost recovery mechanism, but have since become an entire industry and profit center for many traditional banks,” said Eytan Bensoussan, CEO & Co-Founder of NorthOne, in a company statement. “That’s not right. And this can be especially painful for many small businesses. We’re excited to eliminate NSF and overdraft fees for NorthOne customers and make our pricing even more transparent and simple.”

Ally Bank

Ally Bank, one of the leading digital banks in the U.S., announced on June 2 that it had eliminated overdraft fees on all accounts, with no requirements or restrictions. Ally Financial CEO Jeffrey Brown said in a company statement, “Overdraft fees are a pain point for many consumers but are particularly onerous for some. It is time to end them.”

“Nationwide,” continued Brown, “more than 80% of overdraft fees are paid by consumers living paycheck to paycheck or with consistently low balances—precisely the people who need help stabilizing their finances. Eliminating these fees helps keep people from falling further behind and feeling penalized as they catch up.”

The Future of Overdraft Fees

At a moment when financial institutions are under pressure from regulators to treat customers more fairly and help people improve their financial success, overdraft fees are out of step with the times. Especially during the Covid-19 pandemic—when so many people have lost jobs, fallen ill or suffered financial hardship—many critics of overdraft fees see these charges as unfair and harsh.

Corporate America is also under pressure to do more for social justice and racial equality, and overdraft fees could be seen as a symbol of systemic injustice whose time has passed. Ally Bank’s announcement that they were eliminating overdraft fees also mentioned data from the 2021 FinHealth Spend Report, which found that 95% of consumers who paid overdraft fees in 2020 were “financially vulnerable” and disproportionately Black and Latinx.

Banks and credit unions need to make money to stay in business and, if they stop charging overdraft fees, they may raise other fees or reduce interest rates to make up for that lost revenue. But it appears there is growing momentum behind the movement away from overdraft fees.

Even among banks that still charge overdraft fees, we may start to see more banks introduce innovative products and options to help customers avoid these fees, such as Huntington Bank’s 24-hour grace period or instant line of credit. On Sept. 8, Bank of America announced its new Balance Connect, which gives customers the ability to link up to five other Bank of America accounts, enabling transfers when additional funds are needed, for a $12 fee—significantly lower than an overdraft fee.

The debate about overdraft fees is ultimately part of a larger conversation about what banks and credit unions need to do to help their customers succeed. Instead of imposing fees on customers for overspending their account balances, perhaps this is a moment of opportunity for financial institutions to offer better products and services to create stronger and more supportive relationships with their customers and, in the process, create a fairer banking system for all.

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