[Study] Overdraft Fee Trends in 2020

Chang Fu
Feb 08, 2021

2020 was undoubtedly one of the most difficult financial years since the last recession and it has left Americans scrambling to find alternative loan options. Even still, banks are charging consumers for everything from overdrafts to ATM fees — racking up nearly $4.2 million in bank fees from March to September 2020 according to customer data from a sample of 25,000 people. As a reminder, bank fees include things like overdrafts, insufficient funds (NSF), returns, monthly maintenance, and ATM charges. Overdraft fees only include the overdraft charge, NSF fees, and return fees. 

We analyzed a sample of 25,000 Possible Finance customers to find out just how fees trended in 2020, and the results may have you double-checking your account balance.

Key Takeaways:

  • Banks have made a projected $7.2 billion in overdraft fees from March to September 2020 according to our 25,000 sample and projecting the data across the US population.
  • BBVA charges the most overdraft fees on average.
  • Online banks and USAA charge little to no overdraft or banking fees.
  • Even in the wake of COVID-19, overdraft fees increased nearly every month.
  • On average, the cost of total bank fees annually per person is equivalent to about four months of energy bills, six months of diapers, eight months of cosmetics, or four years of a monthly Netflix subscription. 

What Banks Charge the Most Fees? 

Of the 25,000 person sample, 47 percent incurred overdraft fees. On average, banks charged $324 in overdraft fees. The following banks charged the highest overdraft fees per person from March 2020 to September 2020. 

  • BBVA (Median: $282.00; Mean: $487.03)
  • Regions Bank (Median: $255.00; Mean: $458.58)
  • Wells Fargo (Median: $175.00; Mean: $405.50)
  • Woodforest National Bank (Median: $128.00; Mean: $289.21)
  • U.S. Bank (Median: $234.20; Mean: $370.10)
  • JPMorgan Chase (Median: $192.00; Mean: $370.34)
  • First Convenience Bank (Median: $176.50; Mean: $301.44)
  • Bank of America (Median: $167.00; Mean: $274.18)
  • Credit Union (Median: $120.00; Mean: $252.95)
  • PNC (Median: $144.00; Mean: $265.66)
  • Citi Bank (Median: $241.00; Mean: $308.84)
  • Prepaid Debit Card (Median: $89.75; Mean: $136.76)
  • Online Bank (Median: $30.00; Mean: $83.07)
  • USAA (Median: $10.00; Mean: $20.50)

Banks That Released Statements to Waive Overdraft Fees During COVID-19

Since the pandemic outbreak, federal legislation has urged financial institutions to waive overdraft fees and related bank fees. Bank responses have varied, some offering to waive fees on a case-by-case basis. Of the top 10 banks charging the highest fees, the following five have explicitly offered Coronavirus-related waivers or refunds.  

Despite statements about relief options for their customers, these banks are still among the highest for bank and overdraft fee charges since March

How Has COVID-19 Affected Overdraft Fees?

Nearly half of low-income adults have reported struggling to pay their bills since the start of the pandemic, a third of which have dipped into savings or retirement accounts to maintain stability. Even still, the average amount of overdraft fees charged has steadily increased month-over-month since March 2020.

Fees for customers have routinely increased each month, despite news of the pandemic becoming more dangerous as time passes.

  • March: COVID-19 declared a national emergency and lockdowns began.
    • Average Overdraft Fees: $66
  • April: CDC issued guidance for use of cloth face coverings in public.
    • Average Overdraft Fees: $107
  • May: WHO declared a global pandemic.
    • Average Overdraft Fees: $109
  • June: New York began reopening after 100 days of lockdown.
    • Average Overdraft Fees: $119
  • July: COVID-19 infections spiked in six U.S. states during reopening phases.
    • Average Overdraft Fees: $126
  • August: First confirmed case of COVID-19 reinfection.
    • Average Overdraft Fees: $132
  • September: WHO announces ⅔ of the world joined the COVAX vaccine-distribution initiative.
    • Average Overdraft Fees: $147

What Factors Affect Overdraft Fees?

Of our sample, nearly $3.8 million in total overdraft fees has been paid from March 2020 to September 2020, or nearly $146,154 per week. Day of the week is a key factor for when overdraft fees most commonly occur. The most fees are collected Monday’s (24 percent) followed by Tuesday’s (23 percent) and Wednesday’s (16 percent). 

Surprisingly, those who are charged the most in overdraft fees earn an average of $266.25 more per month than those who aren’t charged the fees, likely because lower-income individuals tend to use online banking services, which don’t typically charge bank fees.

Your Fees as Purchases

For the 76 percent of people who are charged bank fees, they will pay an average of $220 over the course of six months. For the entire year, these customers will pay $440 in bank fees.

bank-fees-as-everyday-purchases

For the cost of these total annual fees the average American could purchase:

  • 3.8 months of energy bills
  • 6.2 months of diapers
  • 7.5 months of cosmetics
  • 48.9 months, or 4 years, of a Netflix subscription

How Much Do Banks Make From Your Fees?

earnings-made-by-overdraft-fee-recipients

Since March 2020, almost $3.8 million were collected in overdraft fees alone, contributing to the $4.2 million in bank fees from the 25,000-person sample. 

If those numbers are representative of the entire U.S. population of 328.2 million people, and we assume 1 in 5 people have overdraft fees with 74% of those individuals incurring a penalty, that would mean that since the start of COVID-19, banks have made a projected $7.2 billion in overdraft fees alone.

How to Avoid Overdraft Fees

Most people have faced an overdraft at one time or another. Luckily, there are simple ways to avoid the fees that are associated with the slip-up. 

best-practices-to-avoid-overdraft-fees
  • Turn off automatic overdraft: Banks may have overdraft coverage automatically selected on your account. By turning off this function, your card will be declined if there are insufficient funds instead of having the transaction go through and an overdraft fee applied.
  • Set up balance alerts: Set up automatic alerts every time your account dips below a certain threshold to avoid accidental overdraft charges.
  • Choose your bank wisely: Choose an account with modest or no fees, like a virtual debit card or online bank.
  • Establish overdraft protection: Link another account, like a savings account, to cover any overdrafts. 
  • Transfer the balance of the fee before cut off: If you overdraft on an account, try and recoup the funds in the overdrawn account as soon as possible. In some cases, you may be able to avoid the fees if the outstanding balance is paid before the cut-off. 
  • Request a reversal: Especially in times of financial strain, many banks are willing to reverse overdraft fees. Contact your branch to see if you qualify for an overdraft charge reversal. 

Banks make a significant portion of their profit from bank and overdraft fees. While the fees can often be avoided, sometimes the need for funds cannot. If you find yourself in a pinch for funds, consider an alternative payday loan with fair rates when you’re in the face of unexpected expenses.

Methodology: Data from 25,000 randomly sampled Possible Finance customers and their bank fees from March 1 to September 24, 2020.

Sources: CDC | NCS | New York State | NCBI | ABA | U.S. Energy Information Administration | National Diaper Network

Chang Fu

Chang is an avid writer, among other things, at Possible. He grew up loving reading and writing, creating his own poems and even a book he's now hidden in an old closet, unpublished. His financial experience at a large bank along with his passion for technology to help underserved communities inspires him to write for Possible.

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