How overdraft fees can get you into trouble

Of the annoying fees that banks charge for the “privilege” of accessing your money, overdraft fees are arguably the most nerve-wracking. Most banks charge $35.00 for each purchase that exceeds the amount currently in the account, on top of the actual cost of the offending purchase. So that $4.00 mocha frappuccino that overdrafts your account could cost upwards of $40.00.

A study by the Consumer Financial Protection Bureau found that these types of expenditures and fees are fairly common. They found that the fees associated with overdrafts are on purchases of less than $24.00.

The CFPB also found that 75 percent of overdraft fees come from merely 8 percent of consumers. Fees are commonly lodged against 18 to 25 year olds who frequently use their debit cards. Consumers who have multiple overdrafts average $900.00 in such fees each year. Not surprisingly, banks generate a great deal of profit from these fees. In fact, more than half of their income from checking account fees come from overdrafts, so they are not about to end anytime soon.

Because of this, it is helpful to keep diligent track of your expenditures to ensure that no surprises come up (through automatic debits or recurring withdrawals) that can create havoc with your account. With more payments being made electronically, more people are resorting to automatic payments to make things easier, when they might be setting themselves up for unsettling fees.

One suggestion is to contact your banking institution to see if you can set up your accounts to have transactions denied if they would result in the account being overdrawn.