The tide has turned in the world of consumer banking. A fee that has long been a staple of banks everywhere is now going away like SPF 4 sunscreen: the dreaded overdraft fee. One after another, banks are dropping this junk fee—which often starts at $35 or more per infraction—for several reasons. Why?
Fees are Unpopular
When many Americans fell on challenging economic times, during the global pandemic, customer-friendly service policies were put into place during the global pandemic. Many banks offered a reprieve from overdraft fees. Combining shifting consumer spending habits with these forgiveness measures, overdraft bank fees dropped to $10.7 Billion, down from $15.5B levels pre-pandemic, according to the FinHealth Spend RFinHealth Spend Report 2022 — Financial Health Networkreport 2022. Consumers eagerly return to entertainment venues, vacation, and dining thanks to relaxed safety protocols. With renewed spending comes increased changes for overdraft fees.
The most common bank fee categories include overdraft and non-sufficient fund (NSF) fees, automated teller machine (ATM) fees, and account maintenance fees. Ranging from $2 to nearly $40 for each infraction is like a splash of ice-cold water in the face! Let’s face it, there’s never been a time when bank fees have been “popular,” but in the days following the Covid-19 pandemic, some lawmakers agree and have raised concerns about whether or not they are ethical.
Recognizing this issue, mega banks such as Bank of America, Wells Fargo, Chase, Citibank, Capital One, and others are eliminating or reducing many of their standard fees. While it costs them up front—to the tune of a few billion dollars—it pays off for banks in the long run by offering other ways to deal with an overdraft. Current solutions include overdraft protection by linking another account to draw funds from or offering a credit buffer of up to $500 for any overdrawn transaction. These options help keep customers happy and let’s acknowledge that it’s all about retaining customers.
Newer Banks Don’t Have Overdraft Fees
In a competitive world, newer banks attract customers by promising no or few fees. These brands include digital banking as well as mobile-first banking. Growing consumers’ confidence with digital-only banking and mobile-app services moves these lucrative customers out of the firm grasp of fee-hungry institutions.
Established bank brands must adapt to stay competitive and keep their customer base, which has the big boys ditching their overdraft fees.
It’s time to read the fine print. Be aware that not all banks are eliminating fees. Some banks, primarily small and mid-market brands, cannot afford to waive them as they bring in a much-needed revenue stream. Even some larger banks might not eliminate them, but instead merely reduce them. If you’re looking for a bank with no overdraft fees, do your homework before opening an account.
The Undercurrent of Change
Many of us never thought we’d live to see the day banks gave up one of the many fees they imposed on customers in the recent decades. However, two factors are stirring the seas of change: industry competition and regulators.
They face competition from fintech (technology companies providing financial services—think digital-only banks), and the threat of government intervention may motivate them to eliminate or reduce fees. The Consumer Fraud Protection Board (CFPB) has launched a public comment period collecting consumers’ experiences with unexpected “junk” bank fees.
At Organized Instincts, our seasoned team of daily money managers can help you manage your account balance and ensure overdraft fees are a thing of the past. Schedule a free consultation today to learn how you might avoid banking fees altogether.