“Hefty overdraft fees are often imposed for transactions that are quite small, the Consumer Financial Protection Bureau found in a July study…

…For debit card transactions, for example, the typical overdrawn amount is around $24 and paid back to the bank in less than a month, yet overdraft fees for such transactions are about $30, that study found. In short, many banks can turn a tidy profit on customers who have trouble making ends meet.”, Anna Bernasek, “In Checking Accounts, the Less You Have, the More You May Pay”, New York Times

“I haven’t done the math, but “eyeballing it”, I believe that there is not much economic difference, to a consumer, between a payday loan and paying overdraft fees on a checking account. Yet one is despised and the other is a mainstay product of Too Big to Fail Banks.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Your Money | Datapoints

In Checking Accounts, the Less You Have, the More You May Pay

By ANNA BERNASEK

Inside

Financial complexity doesn’t happen only on Wall Street. Even a basic checking account is often no longer simple, because account rules and fees can vary widely — so widely, in fact, that the annual cost can range from zero to more than $700, according to the 2014 survey of checking account costs by WalletHub, a consumer finance information and social networking site.

The general rule is that the less money you hold in a bank, the more you pay the bank in fees. The biggest fees fall on consumers who overdraw their accounts, a common practice among less-well-off customers, whom WalletHub calls “cash strapped.” People in this category typically don’t have credit lines or savings accounts to cover them when their balances drop below zero, and their fees add up.

To assess the amounts paid by these customers, WalletHub examined the annual fees on a checking account for someone who overdraws 12 times a year, uses an out-of-network A.T.M. once a month and averages an end-of-month balance of $50. The range of costs was enormous: as low as $2.83 at Capital One and as high as $735 at M&T Bank. (Capital One’s costs were low largely because it charges an 11.25 percent annual percentage rate on the amount a customer actually overcharges, instead of charging a fixed dollar amount in overdraft fees, which is typical in the industry. In addition, Capital One doesn’t assess out-of-network A.T.M. fees.) Over all, the average annual cost of a checking account for consumers in this category was $499.02.

People with more money tend to pay lower fees. In fact, WalletHub found, the average annual cost for customers whose monthly balance never drops below $5,000 and who use only their own bank’s A.T.M. machines was just $17.85.

That’s why customers who are short on cash can be valuable for banks. Hefty overdraft fees are often imposed for transactions that are quite small, the Consumer Financial Protection Bureau found in a July study. For debit card transactions, for example, the typical overdrawn amount is around $24 and paid back to the bank in less than a month, yet overdraft fees for such transactions are about $30, that study found. In short, many banks can turn a tidy profit on customers who have trouble making ends meet.

A version of this article appears in print on September 21, 2014, on page BU7 of the New York edition with the headline: The Less You Have, the More You Pay

Posted on September 22, 2014, in Postings. Bookmark the permalink. Leave a comment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: