Of the many annoying fees banks charge, the overdraft and overdraft "protection" fees can feel especially maddening: A $4 coffee can turn into $40; moving your own money from one account to another can cost you.
Luckily, that's been changing. In the past week alone, Bank of America and Wells Fargo became the latest major banks to join the growing trend that's a boon for their clients, at least on the surface: reducing or eliminating overdraft fees and nonsufficient fund (NSF) fees.
Bank of America announced it will reduce its overdraft fee — what it charges customers who withdraw more than the amount available in their checking account — from $35 to $10 starting in May. It will also eliminate the fee for overdraft protection — what it charges customers when it moves money from a linked account to cover an overdraft.
Wells Fargo will also eliminate its overdraft protection fees and give customers a 24-hour grace period to cover an overdraft before they incur a fee. And just last month, Capital One eliminated overdraft and NSF fees, which are similar to overdraft fees but typically apply to payments, like checks, not going through because they would result in a negative balance.
That's quite a shift for the big banks, who rely on these fees as huge moneymakers. But it's good news for customers, who will catch a break on fees that previously cost an average of $33.58, according to a study from personal finance site Bankrate, and could be charged multiple times a day. Now, if you mistakenly overdraft buying that coffee, you won't necessarily end up paying for it many times over. Instead, you'll pay less or not at all.
The changes come shortly after the Consumer Financial Protection Bureau (CFPB) announced it is planning a "range of regulatory interventions" for institutions that rely on overdraft fees as a major source of revenue, saying that they are particularly onerous on those who can least afford to pay them.
Not every bank has nixed or changed these fees, and it's up to you to familiarize yourself with your institution's rules. Just the banks mentioned above take three different approaches.
More banks could announce changes to their overdraft policies, in part because of the CFPB, and because they don't want to lose customers to banks that have done away with them, Ken Tumin, founder and editor of DepositAccounts.com, previously told CNBC Make It. With the emergence of online-only banks like Ally — that typically charge fewer fees overall than brick-and-mortar banks — there are more players than ever.
Of course, banks wouldn't just eliminate a major revenue stream without plans to make it up somehow: You should be on the lookout in case banks try to make up the money by increasing other fees or by levying new ones, Tumin says. Monthly checking or savings account maintenance costs might go up, for example, or they could start charging for paper statements, if they don't already.
Still, the changes are good news for those who have made the costly mistake of overdrawing their account.
If your bank charges any type of overdraft fee, you can typically opt out of overdraft protection. In that case, any purchases over your account balance would be declined. You can also set low balance alerts, which can help you avoid them. However, this tactic wouldn't necessarily prevent a check from bouncing.
Or, you can switch to a bank that doesn't charge overdraft fees, like Ally or Capital One. Discover, KeyBank, Wealthfront and others offer free checking accounts that do not allow customers to incur overdraft fees. Chances are, that list will grow longer in the near future.
