In a recent study of checking accounts at several large banks, a government agency found overdraft fees made up the majority of costs associated with having a checking account.
This data comes from the Consumer Financial Protection Bureau’s 2014 study “Data Point: Checking Account Overdraft.”
The CFPB surveyed accounts at several large banks for an 18-month period between 2011 and 2012. With that data, the Bureau was able to document the real experiences of consumers.
The report paints a different picture than might otherwise be assumed about checking accounts. You might be surprised to learn that on average, consumers pay approximately $118 each year for their account.
Overdraft fees accounted for 53 percent of those expenses.
Banks often market their accounts as free or with a specific fixed monthly cost. That characterization is consistent in the sense that monthly maintenance fees are, on average, less than $1.50 across all accounts. Most people understand that banks charge a fee to use an out-of-network ATM.
They might not budget for overdraft fees. After all, who plans to make mistakes?
How much a consumer will pay for a checking account depends primarily upon whether or not this person chooses to opt-in for overdraft protection. When this occurs, a bank covers any overages the consumer.
It is still possible to pay an overdraft fee even without opting in, as a bad check bounces regardless of whether or not the consumer has opted-in. The opt-in choice only affects overages created from ATM withdrawals and non-recurring debit card charges. Any account can be charged an overdraft for an overage associated with a check or an automatic electronic withdrawal – such as when a person asks the utility company to debit their account every month automatically.
The consumers at the banks surveyed by the Fed paid, on average, a stunning $21.61 per month in overdraft fees.
People who did not opt-in were likely to pay a fee only once per year. Spread across one year, that amounts to slightly less than $3 per month.
When an account remains overdrawn for a period after going negative, some banks will charge an additional “negative balance” fee. Consumers pay more than one billion in sustained negative balance fees every year.