Overdraft fees are one of the most annoying charges bank customers face, especially if you get hit with more than one at a time. MyBankTracker takes a look at just how many overdraft fees banks can charge you in one day, and how to get around them.
If you’ve ever run your checking account into the red on accident, you know how expensive overdraft fees can be. In fact, overdraft is one of the highest fees banks charge and they cost consumers roughly $31 billion.
Aside from the fact that these fees tend to be so costly, the other thing that makes them so burdensome is that banks can charge you more than one in a single day. If you have multiple transactions that end up getting returned for insufficient funds, the overdraft fees can put you in an even deeper hole. Sidestepping the fees is a little easier if you understand how they’re applied.
How transactions are made
Common sense would tell you that banks would process and post transactions to your checking account in the order that they occur, but in reality, that’s typically not how it works. In fact, many banks routinely reorder debit transactions based on the amount, rather than the date on which it occurred. This can be done low to high or high to low and the way the bank chooses to do it ultimately determines whether or not a customer incurs an overdraft fee.
The most common argument banks use in favor of this practice is that it ensures that customer’s largest expenses, such as a mortgage or car payment, get paid ahead of smaller debits. A study of 44 major banks conducted by Pew Charitable Trusts found that half of them actively engage in high to low reordering. Among big banks, Bank of America®, Wells Fargo and Chase have a “limited reordering” rule, which means they generally don’t reorder debit card purchases or ATM withdrawals, but checks may still be posted high to low.
You should also keep in mind that reordering rules may also apply when you’re putting money into your account, not just taking it out. If you make a large deposit in the morning and a smaller one in the afternoon before the daily posting cutoff time, there’s no guarantee that the larger deposit will hit your account first.
If you’re counting on a check you deposit to post by a certain date and the bank credits the smaller one to your account first, there’s a good chance you could end up in overdraft.
Tip: Big banks typically waive the overdraft fee on transactions that are less than $5.
Daily limits on charges
If multiple charges to your account get returned for insufficient funds, the bank can apply an overdraft fee to all of them, up to the daily limit. The maximum number of overdraft fees you can be charged in a single day varies from one bank to another.
At SunTrust, for instance, you can be charged a maximum of six $36 overdraft fees in a single day. You can also incur up to six $36 returned item fees, for a total of $432. The returned item fee is a separate fee the bank charges when a transaction goes unpaid because your account is overdrawn.
At the other end of the spectrum, Chase limits the total number of overdraft and returned item fees they charge in a day, to three.
On top of the daily overdraft charges, banks can also impose an extended overdraft fee if your account remains overdrawn for a certain number of days consecutively. The fee may be the same as the regular overdraft fee, although some major banks charge less. Typically, you have between five and 10 days before the extended overdraft fee is applied. Some banks only charge the fee once but at PNC Bank, the fee is $7 a day after the first five business days have passed, up to a maximum of $98.
How overdraft fees compare at big banks
Some banks are worse than others when it comes to how high their overdraft fees are and how many of them they can stick with you in a day. To give you an idea of how overdraft fees compare at different banks, we’ve included a breakdown of what the top 10 U.S. banks charge.
|Bank Name||Overdraft Fee||Overdraft Fee Daily Limit||Extended Overdraft Fee|
|Bank of America||$35||Maximum of 4 per day||$35 after account is overdrawn for 5 consecutive business days|
|Branch Banking & Trust (BB&T)||$36||Up to 6 overdraft or returned item fees allowed per day||$36 after account is overdrawn on the 7th calendar day|
|Capital One||$35||Maximum of 4 per day||N/A|
|Chase||$34||Maximum of 3 per day||$15 after account is overdrawn for five consecutive business days|
|Citibank||$34||Maximum of 4 per day||N/A|
|PNC Bank||$36||Maximum of 4 per day||$7 per day for each the account is overdrawn after the first five business days, up to $98|
|SunTrust||$36||Up to 12 overdraft/returned item fees allowed per day||$36 after account is overdrawn for 7 consecutive business days|
|TD Bank||$35||Maximum of 5 per day||$20 after account is overdrawn for 10 consecutive business days|
|U.S. Bank||$36||Maximum of 4 overdraft fees and 4 returned item fees allowed per day||$25/week starting on the 8th calendar day after the account is overdrawn|
|Wells Fargo||$35||Maximum of 4 per day||N/A|
Should you take advantage of overdraft services?
Aside from paying attention to your account balance and keeping track of when money’s going in and out, you have the option of getting overdraft services on your account. Banks typically offer a few different choices and the plan you choose determines whether you end up paying overdraft fees.
At SunTrust for example, you have three options: Overdraft Coverage, Overdraft Protection and Overdraft Assurance. At the coverage level, the bank allows your transactions to go through and you agree to be charged the $36 overdraft fee on items that get returned. You have to specifically opt-in to overdraft coverage; otherwise, debit transactions that would put your account in the negative, would be simply be denied.
If you go with overdraft protection, your checking and savings account would be linked and any time you go over, SunTrust automatically transfers money from one account to the other to cover it. You don’t pay an overdraft fee, but there’s a $12.50 charge that applies every time there’s a transfer.
Overdraft Assurance is a line of credit that’s linked to your checking account that you can use to cover the gap until a deposit goes through. There’s a $7 monthly fee for the service and if you don’t repay the money within three days, the bank charges you interest.
Tip: Avoid using your debit card at gas stations, hotels or anywhere else that puts a “hold” on funds in your account, since this could affect your available balance and trigger an overdraft.
No-cost ways to sidestep overdraft fees
While signing up for automatic transfers or an overdraft line of credit can help you to avoid the overdraft fees, you’re still going to pay a price for these services. The simplest solution if you’re trying to avoid an overdraft fee is to not opt-in to any of these services, which would prevent any transactions from going through when you don’t have the cash to cover them.
Signing up for direct deposit through your employer ensures that your paycheck hits your account on time, which makes it easier to plan ahead for bill payments and any automatic drafts you’ve got set up. If that’s not an option, you could set up recurring transfers from your savings account to cover the gap until you get paid.
Finally, you can sync up your checking through Mint, which will keep tabs on your bill due dates and balances and send out alerts when one of your accounts is getting low.