5 Sly Ways Banks Push Your Account Into the Red

Banks earn billions from overdrafts — here’s how. And here are five ways to protect yourself.

Overdraft fees continue to be big business for banks, despite a 2010 Federal Reserve rule preventing banks from automatically enrolling customers in overdraft programs.

The changes since 2010 include an increase in the median fee that customers pay for withdrawing more from checking than the account holds. They rose to about $30 in 2013 (a record), up from $29 in 2012 and $26 in 2009. This data is based on a survey of nearly 3,000 banks and credit unions by Moebs Services Inc., an economic-research firm in Lake Bluff, Ill., according to The Wall Street Journal.

Of course, your money mismanagement contributes to all overdraft fees, but banks aren’t necessarily looking to help you stay in the black. Instead, some banks have policies designed to push accounts into the red whenever possible.

Here are five sneaky ways banks squeeze more overdraft fees from their customers.

1. Persuading you to opt for overdraft protection

Let’s start by talking about that 2010 Federal Reserve rule for a minute. Before its implementation, banks could automatically enroll customers in overdraft protection. Now, they must get customers to opt in.

However, it appears some banks aren’t being entirely transparent about what customers are getting into when they sign up for overdraft protection. According to a 2014 survey by the Pew Charitable Trusts, more than half of those who had overdrawn accounts didn’t realize they had opted into a program that would result in fees.

2. Processing largest payments first

Another sneaky tactic is reordering your transactions so the largest items go through first. A representative of the American Bankers Association was quoted in Forbes as saying some banks do this to make sure large, important transactions such as mortgage payments make it through the account. But it seems like a highly convenient way to maximize overdraft fees.

That Pew Charitable Trusts survey also found that all 12 of the largest banks, in terms of deposit volume, either reordered transactions to run the largest first or reserved the right to do so. However, some banks, such as Citi, have since reversed course and are now processing transactions in order from smallest to largest.

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  • Y2KJillian

    In past years, seems we’ve been hit with most of these. Since we began keeping about a thousand extra dollars in our checking account, the inexplicable (until now) overdrafts have stopped. Cheap at twice the price. 8)

  • L Beach

    You may opt out of Overdraft Protection which is certainly a good idea when it comes to POS (point of sale) Debit Card transactions, avoiding a fee. However, this also means that all your automated electronic payments – your mortgage, your insurance premiums, your auto loan payment, etc. – could be declined as well. In this case you will be charged an Insufficient Fund Fee ($35 in the example in this article), plus you could be on the hook for other fees once your Mortgage company finds out your payment was declined. Are you OK with that? Better option: Opt for a Selective Overdraft Protection which will decliine POS transactions but pay ACH/Electronic payments and checks.

  • Kathy Steele Dias

    My banks policy is they won’t charge an NSF for an amount under 5.00.The sneaky part is its not if you are overdrawn less than 5.00 is the amount of the check! I had a 25.00 check come in that left me -5.59 in my checking.The bank charged 35.00 because the amount was 25.00 not the -$5.59

  • Johns.Opinion

    I pay no fees. Why, I know how to manage my money. The real issue here is not the banks, it the careless people who use them.

  • Linda Ruttschaw

    I for one take offense at Johns better than you opinion. Fees are so much more than just a math error or overspending! We had a bank that was fine and fair, then they moved. They choose a new bank and said we would like it, yeah right. We have direct deposit on our checks but now are charged a fee unless we send them all our receipts for debit and checking transactions. If you want to move money around between accounts there is a fee. Our checks hit the bank on given days but if they want to take a fee out the day before there is an overdraft and the fee. Before your picture could be on your debit/credit cards with no fee not any more now there is a yearly fee. Every time we turn around there is a fee. Needless to say I have moved my account and my husband is in the process of moving his.Almost every time we went in there were people jumping ship over their fees. Give me a break why would they need all my receipts (what if I needed one) they have all the transactions already, they say this is better as there are perks you get that offset their monthly fee. It is my money if I want it someplace else (within reason, like maybe every couple months I need to move it from one account to another, why should I have to pay them for doing their job).

  • ModernMode

    I don’t use debit cards. Why would I? I have a no fee credit card with cash back. I pay it off every month. It’s also safer than letting companies debit your account directly.

  • grandmaguest

    Thirty some odd years ago, I had a bank that pulled these stunts on me after having savings and checking accounts (with never an overdraft), mortgage and auto loans with them for years. Never a late payment or any problems. After speaking politely with them regarding the problem and in effect being told “tough luck”, I immediately went to my local credit union and within days moved all my accounts. It took me a short time to refinance the mortgage and car loan (with better rates I might add)….but I had a good FICO score and they were more than happy to have my accounts. When the first bank asked why I had removed all my money and accounts I told them exactly why and in effect told them “tough luck”, plus that I would never recommend them to anyone moving into the community and I never looked back.
    My credit union has treated me with respect, greets me and my family by name and bends over backwards to help us with any financial questions we might have. My children and grandchildren have all of their accounts with them as well. They offered them financial counseling and many other services for free or at a very low cost.
    Some banks are just plain greedy and you are just a number to them. I prefer a bank (credit union in this case) where I am a respected customer and they appreciate my business along with my money!

  • Kent

    Check other banks. They are not all this sneaky.

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