March 2016 – Overdraft Services and Fees

All firms covered in this report provide customers with an overdraft protection option allowing the banks to transfer funds from a linked client account into the client’s checking account to cover any overdrawn checking account balances. Seventy-seven percent of banks also offer overdraft coverage, which authorizes a bank to fund the ATM overdraft or debit card purchase on the customer’s behalf at a cost to the customer. Surprisingly, most firms do not allow customers to opt into all overdraft service offerings online – a practice that would benefit account holders greatly.

Overdraft protection transfer fees are consistently lower than overdraft coverage fees, with overdraft protection transfer fees ranging from no fee at all to $12.50 and overdraft coverage fees ranging from $34 to $38.50. Each firm that offers overdraft coverage applies its standard nonsufficient funds (NSF) or returned item fee to the coverage. Most firms (61%) also assess an extended overdraft fee – a fee assessed when an account remains overdrawn – with no clear trends for when the fee will be applied or what the fee will be.

Firms could easily stand to improve fee transparency and the location of fee information on bank sites. Fee information is difficult to locate on a few sites, where links to fee information are found in the footer or obscure site locations. Further, fee details are sparse and spark confusion, particularly in regard to the conditions of extended overdraft fees. While customers may struggle locating and understanding fee information, accessing overdraft services on the private site is much easier. Generally, firms that offer these services online do so directly on the account details page or within the account services information, and provide clear enrollment instructions with links to disclosure information. Many firms provide overdraft-specific FAQs as a resource.

Additional key findings include:

  • 44% of banks offering overdraft protection require customers to call or visit a bank to opt in or out
  • 50% require customers to confirm that they have read and understood the terms to enroll
  • 67% use a fee threshold wherein overdrafts below that threshold do not incur a fee (generally $5)
  • 94% have a maximum number of times a fee can be assessed per day