It’s not necessarily surprising that the older folks get, the better they are at managing money and avoiding late payment penalty fees. However, you might be surprised at how striking the difference is between younger and older generations when it comes to the villain of all financial penalties: the checking account overdraft.
According to data from a Consumer Financial Protection Bureau (CFPB) report, young adults between the ages of 18 and 25 are four times more likely to suffer 10 or more overdrafts every year than people 62 years of age and older.
In fact, four in 10 members of the under-25 crowd pay at least one overdraft fee annually, and about one in 10 pays 10 or more overdraft fees each year. At about $34 each, that’s a serious budget-killer for students and young adults struggling to find their way into the workplace.
The modern term for bouncing a check, overdrafts can happen in several ways, including debit card and automatic bill-pay purchases that send an account into the red. Folks who overdraft their accounts by only a couple of dollars past the $0 balance might pay $34 or more in overdraft fees. According to the CFPB, the average charge amount to cause an overdraft fee is $24.
The CFPB says, “Put in lending terms, if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000% annual percentage rate.”
See how your bank compares by exploring the table below.
Overdraft Fees at Top Banks
|Bank of America||$35|
|Fifth Third Bank||$25|
|BMO Harris Bank||$35|
On a positive note, the ability to avoid overdraft fees and late payment penalties clearly improve with age, the CFPB asserts. Only 15% of the 62-and-over crowd pays one overdraft each year, and only 27% of consumers ages 45 to 62 does so. Of the oldest group, a tiny 2.8% pays 10 or more overdrafts annually.
What to Do When You’ve Received an Overdraft Fee
Like many things in life, complaining won’t get you anywhere. But when it comes to overdraft fees and late payment penalties, a well-executed gripe might just save you more than you think. According to a survey conducted by Credit.com, 44% of 1,000 participants reported that they’d successfully had their financial institutions waive their fees. How?
John Ulzheimer, a credit expert at CreditSesame.com, says, “Bank fees are not that hard to get waived, especially if the bank realizes they have something to lose. Many banks don’t want the confrontation…that could result in losing a customer.”
Although you might be jumping for joy at the idea of getting your money back, slow down. There are, in fact, right ways and wrong ways to go about this:
- Address it immediately. Check statements regularly to catch overdraft fees as soon as possible.
- Pick up the phone to save time or visit a branch if it’s convenient. If at first you don’t succeed, try again with another customer service representative.
- Be polite. The company is doing you a favor, and a pleasant attitude goes a long way.
- Go up the food chain. Escalate your complaint if the front-line representative can’t help, and ask to be transferred to a supervisor or manager.
- Toot your own horn. If you use your credit card often, keep a lot of money in the account, or have been a loyal customer for years, say so, and remind them that you could always go to another institution.
Remember: Politeness goes a long way. Banks are more likely to help someone who’s pleasant to speak with than a customer who goes in with guns blazing.
How to Avoid Overdraft Fees in the Future
While it’s an expensive mistake, paying the occasional overdraft fee isn’t the end of the world. The real trouble starts when overdraft fees and late payment penalties become an all-too-common problem and a bad habit — which is clearly the case with the 10.7% of young adults who pay at least 10 overdraft fees annually.
One of the easiest tips to avoid overdraft fees is to simply reject your bank’s overdraft protection so that all debit card purchases are declined. While it’s still possible to bounce a check, you’ll be much less likely to pay overdraft fees for automatic withdrawals and other types of electronic transactions.
The CFBP states, “Consumers who opt-in for overdraft fee services are paying significantly more for their checking accounts than non-opted-in consumers. On average, opted-in accounts pay almost $260 per year in overdraft and NSF fees compared to just over $25 for non-opted-in accounts.”
So, what can you do? Is there any hope for a life without overdraft fees?
Customers who first open checking accounts are automatically enrolled into courtesy overdraft programs by their banks and credit unions. However, there’s nothing “courteous” about the fees that come with these programs. Customers are charged between $20 and $35, sometimes more, per overdraft, and some institutions charge a fee per day until the account is brought into a positive balance. Check the fine print on your account agreement or call and ask your bank. Politely ask to opt-out of overdraft protection, and make sure you have written confirmation from the institution.
To further guard yourself and avoid overdraft fees, consider these tips:
- Use automatic payments
A great way to avoid overdraft fees is to set up an automatic payment from your checking account for insurance bills, loans, and utilities. That way, you’ll have fewer checks to write and fewer checks to keep track of clearing in your account. With automatic payments, you can set a specific date that the money leaves your account, but make sure you note each automatic payment in your check register.
- Keep your check register up-to-date
When you write a check or use your debit card, make sure you record all transactions as soon as possible, but don’t forget about fees. Did you withdraw cash at an ATM at another bank? Is there a monthly fee associated with your checking account? If so, be sure to note any and all fees charged. Although it might not seem like a big deal, multiple $2 and $2.50 fees each month can really add up.
- Sign up for online alerts
This is a no-hassle way to make sure your account remains in good standing. If you sign up for online alerts with your credit union or bank, you will receive a text message or email that tells you when your account falls below a certain limit, say $25 or $100. This way, you’ll automatically be reminded that your balance is getting low, and you’ll know that it’s time to add more cash to your account.
- Stash some cash
No, we’re not talking about hiding hundreds of dollars in a cigar box on the top shelf in your closet. Instead, avoid overdraft fees by adding a small cash cushion to your checking account. Even a small transaction that puts your account into the red by pennies can trigger some serious fees, but having a small amount of money in the account for “just in case” purposes can help to protect you. Any amount you feel comfortable with can help, whether it’s $50 or $100.
- Sign up for true overdraft protection
Instead of accepting expensive courtesy overdraft protection, sign up for the real deal — a program linked to a credit card, line of credit, or savings account. While you might pay a small fee for each overdraft and an annual fee for the service, you’re guaranteed protection if your account is overdrawn. Banks operate “courtesy overdraft protection” and “bounce coverage” programs at their own discretion, so there’s no guarantee that you’ll be covered in the event of an overdraft, and you’re still at risk of bouncing a check. Keep in mind that when you sign up for any type of overdraft protection, either through a bank or one that’s linked to another account, that you carefully read the fine print before proceeding.
- Avoid using debit cards for small purchases
Instead, pay with cash. Using debit cards for small transactions can make balancing your register a huge headache, particularly if you make several signature-based debit card transactions every month. Why? These transactions won’t come out of your account for several days, so you’ll have to keep track of a whole lot of pending transactions when you go to check your balance.
- Avoid using debits cards to rent a car, check into a hotel, or buy gas
Most of these merchants place blocks or holds on your account when you use a debit card, often the full amount you owe plus 20% or more. While money doesn’t actually leave your account, the block will certainly affect your available balance for a couple of days. Just one $50 block from a local gas station could be more than enough to throw your account into the red.
- Review your account statement every month
With most consumers taking advantage of online banking, some feel that keeping track of purchases and checking accounts for accuracy is pointless. However, be sure to reach out to your bank if you find an error in your checking account statement or if you have any questions. Make it a point to remain proactive, and check or balance at the ATM, online, or by visiting or calling your bank. If you have any doubts about your balance, hold off on big purchases until you’re able to sit down and properly balance your checkbook.
- Contact your bank as soon as you slip up
It’s a given: Everyone makes mistakes. If you realize that you’ve overdrawn your account, be sure to deposit enough money to cover the overdraft as well as any fees that your bank will charge as soon as possible. If it’s your first goof-up, reach out to your financial institution and request that they waive the overdraft fee. Depending on the bank, if your account has remained in good standing for a period of time, chances are they’ll delete the overdraft and any associated fees from your account.
Although seeing an overdraft fee and related penalties is enough to make anyone frustrated, there are several ways that you can protect yourself. Sign up for the right type of protection, remain proactive and keep track of every purchase to ensure that your account remains in good standing. Bounced checks can certainly be embarrassing and no one likes to pay fees, but if you follow these tips, hopefully, you’ll be able to avoid overdraft fees keep the money you’ve worked so hard to earn.