Banks Without Overdraft Fees

A bank overdraft occurs whenever withdrawals from a bank account exceed the balance available. Here are some of the reasons for overdrafts, according to Wikipedia:

1. Taking out a short term loan to oneself, knowing one is short on funds.

2. Failure to keep track of deposits and withdrawals.

3. ATM or debit card overdraft.

4. Temporary hold is placed on a deposit.

5. Unexpected electronic withdrawal.

6. Merchant error.

7. Chargeback to merchant.

8. Unexpected bank fee is charged.

9. Bank error.

10. Victimization - the account may have been a target of identity theft.

All that said, what is the MAIN reason overdraft fees have become such a big drain on the bank accounts of typical, responsible consumers?

As explored above, there are clearly many possible reasons why someone may overdraft on their account. However, one of the most prevalent and pernicious reasons for the increase of overdraft fees is the rise of the debit card. According to Tim Smith, CEO of Probity Financial Services, in 2006 there were 25.3 billion debit card transactions made.

Here's why debit card use can lead to more overdraft fees. You see, back about 10 years ago we all tended to write lots of checks (instead of using debit cards) as our main source of non-cash payment for consumer transactions. And, when we had insufficient funds our checks would just bounce - sometimes causing a fee to be charged by the payee's financial institution. Nowadays, if a debit card user is overdrawn on their account but has signed up for overdraft protection, the bank will allow the transaction to be made - and then charge an overdraft fee for it.

In other words, the "overdraft protection program" that most of us are automatically enrolled in upon account sign-up is actually the cause of many of our overdraft fee woes. We are not actually "protected" at all. Rather, this protection program is an excuse to charge more overdraft fees.

Pretty sneaky of big banks, isn't it? And, don't for one minute think that this is all by accident. Overdraft fees are a very important source of revenue for banks - about 3/4 of their deposit account service fee-related revenue, in fact. If it were up to banks, this overdraft scheme will never go away. They are making too much money off of the backs of the consumer for that!