With the rise of online banking over the past several decades, balancing a checkbook has essentially become a thing of the past. Today, with the click of a mouse, we can pay our bills, check our bank accounts and transfer money to other sub accounts.
The convenience of everything is great, but the ease and convenience of banking today can make it tough to keep track of certain things. For instance, auto payments can be set up to deduct your checking account for certain bills, something that you might just come to rely on over the ensuing months with the hope that there’s enough in there to make the appropriate payment.
The good news is that if there’s not enough money in your checking account, most banks have you covered — for the right price. While this may come at a cost, other banks have instituted 24-hour periods where overdraft fees are waived if the consumer is able to correct the issue within the time span. And while bank overdraft fees may seem like no big deal to many, they could wind up being a much bigger deal in the coming months. That’s because the Consumer Financial Protection Bureau, or CFPB, has reopened the regulations that currently govern overdraft fees.
In other words, if the traditional overdraft regulations — which have been in place since 2010 — are revised and adjusted, any overdraft to your checking account could wind up costing you a whole lot more.
Overdraft Fees: What You Need to Know
It’s estimated that banks collected $11 billion in overdraft fees in 2018. And that’s just the big banks, not smaller community banks and credit unions, as those institutions are not required to report this data. In fact, it’s estimated that the average overdraft fee is $35. Basically, this means that anytime a check bounces or you spend more than what’s in your debit/checking account, the average consumer is on the hook for about a tank of gas worth of a penalty. And while this may seem significant, things could get a lot worse.
Now, the CFPB is poised to reassess the current bank overdraft regulations. There’s no word on how much more banks may be able to charge for overdraft fees if the regulations are changed, but it’s probably safe to assume that there will be some sort of update to these nearly decade-old rules in the future.
What You Can Do
Are you a frequent overdrafter? It’s estimated that about 10 percent of all bank account holders are frequent overdrafters, getting hit with overdraft fees up to 10 times per year. It’s these frequent offenders that constitute nearly 80 percent of all overdraft fees. So if you’re one of these frequent offenders or just want to be better prepared in order to avoid potentially stiffer overdraft penalties, here are some things to keep in mind:
- Don’t autopay: Setting up automatic payments are nice in that you’ll never miss an on-time payment, but too many can be difficult to keep track of. Forget about a certain scheduled payment, and you could be hit with an overdraft fee if there’s not enough money in the account. Instead of setting up auto payments, schedule monthly bill payment reminders on your phone. This way, you’ll stay on time with payments without having to worry about overdrafting.
- Look into overdraft protection: Some banks offer 24-hour overdraft forgiveness, but you have to catch your mistake within the 24-hour window to qualify. You can also look into overdraft protection plans with your bank or credit union, though there’s often an additional expense tied to this.
- Link a backup account: Many banks and credit unions will let you link a savings account to your checking account, so in the event that you overdraw on checking, your savings will come in to bail you out. Yes, there’s often a fee when this occurs, but it’s usually a drop in the bucket compared to what you’ll pay in an overdraft fee.
Larger overdraft fees are likely on the way, are you prepared? Now’s the time to start brushing up financially or making the appropriate adjustments. Tomorrow, any overdraft fee could become much more expensive.
Regards,
Ethan Warrick
Editor
Wealth Authority
