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Overdraft Showdown: How The Big Banks Stack Up

Overdraft services have become a critical competitive lever in the war for retail deposits. Big banks are walking a tightrope between profits and cranky customers.

In May 2012, the Consumer Federation of America surveyed the websites of the fourteen largest banks and collected information on their overdraft fees and practices, processing order for payments from accounts, and fee information for overdraft protection products offered by the bank.

The median overdraft fee is $35, remaining unchanged from CFA’s 2010 and 2011 surveys. The highest overdraft fee in the survey is $37, charged by Fifth Third and RBS Citizens.

Big banks that do not permit consumers to trigger overdraft fees when using debit cards at the point of sale include BofA, Citi, and HSBC. Citi and HSBC also deny overdrafts for no fee at the ATM. The other 11 banks in the survey solicited consumers to opt-in to pay overdraft fees on debit card POS and ATM transactions.

Five banks (Fifth Third, PNC, RBS Citizens, SunTrust, and US Bank) charge tiered fees based on the number of overdrafts in a 12-month period, or by the size of the overdraft.

Two banks (US Bank and Fifth Third) are increasing overdraft fees in late June 2012. Fifth Third will charge $25 for the first overdraft and $37 for all subsequent overdrafts. US Bank will charge $15 for a an overdraft of $15 or less, and $35 for all other overdrafts.

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Overdraft Fees and Limits

Overdraft Fees and Limits

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Almost two-thirds of banks charge a second or “sustained” overdraft fee, structured either as a flat fee or a per-day fee. For example, SunTrust charges $36 on the seventh day an overdraft fee remains unpaid. BofA adds a second $35 fee if unpaid in five days. Chase adds $15 after five days of unpaid overdrafts. RBS Citizens charges $6.99 per day on the 4th-13th day an overdraft is owed. Fifth Third Bank is eliminating its $8 per day sustained overdraft fee.

Over 85% of banks set a threshold to trigger overdraft fees, such as $5 total overdrawn in a day before fees are charged. US Bank sets the highest threshold at $10, while four banks (BofA, Citi, HSBC and RBS Citizens) charge fees when the account is overdrawn by less than a dollar.

All of the surveyed banks except HSBC set a limit on the number of overdraft fees that can be charged in a single day (note, however, that HSBC does not permit overdrafts at POS or ATM). Among all others, fees are limited to three per day at Chase up to ten at Fifth Third. Regions and SunTrust will charge up to six overdraft fees and six insufficient funds fees in one day.

Applying the highest overdraft fee to each bank’s daily limit on the number of fees, consumers can be charged in one day overdraft fees totaling $99 at US Bank to $370 at Fifth Third. HSBC has no limit.

CFA also computed an APR for a single $100 overdraft repaid in two weeks, using the top fee charged by the bank and any sustained overdraft fees applied for that time period, computed as if this were a closed-end payday loan. The highest equivalent APRs are charged by Fifth Third (3250%), RBS Citizens (2779%), PNC Bank (2574%), and US Bank (2158%). After announced changes at Fifth Third and US Bank, the APRs will be 962% at Fifth Third and 2210% at US Bank. The lowest-cost two-week overdraft loans are made by HSBC (on checks) and Wells Fargo, both at 910%, followed by Regions at 936%.

The order in which banks pay transactions has a big impact on the number of overdraft fees customers can be charged, with paying the largest transactions first resulting in more overdraft fees for low balance customers. Banks that continue to pay the largest transactions first for at least one category of transaction include BofA, Capital One, Fifth Third, HSBC, Chase, PNC, RBS Citizens, Regions, SunTrust, US Bank and Wells Fargo.

In this year’s survey, CFA found more variation in bank processing order, based on the type of transaction. For example, some banks process time-stamped transactions in the order received, then other transactions largest to smallest.

All fourteen of the largest banks provide lower-cost traditional forms of overdraft protection, such as transfers from savings or credit cards and overdraft lines of credit. Fees to transfer funds from savings to cover checking account overdrafts range from $10 to $20 per transfer. RBS Citizens charges an annual $30 fee to cover overdraft protection from savings or line of credit.

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Comments

  1. Yet another way to gouge banking customers. With BB&T, they charged me $140, $140 within 2 days and another $105 while waiting for the Branch Manager to call me back over another 2 days. I hate government regulations, but the banking industry brainstorms daily to come up with new ways to gouge their own customers since they know the government will bail them out even if all of their customers go elsewhere…a no-lose proposition.

  2. Dave Colby says:

    I’d prefer to see banks get there income in this manner. If it allows banks to charge less other fees such as debit card fees, statement fees, seeing a live person fees, etc, I say raise the overdraft fee. The bank makes it pretty easy to know how much money you have in your account at any given moment with internet banking, mobile banking, and telephone banking. The consumer should be held responsible to know what payments and checks will be clearing and how much money they need to have in their account to cover. And unless you opted in, if you happen to overdraw your account with a one time debit transaction or ATM withdrawal, there are no overdraft fees.

  3. I found a real simple way to make all of this irrelevant: DO NOT SPEND MONEY YOU DO NOT HAVE.

  4. PLEASE NOTE: The Financial Brand isn’t a personal finance site directed at consumers. This is a B2B website for bank and credit union marketers.

  5. HI, I am trying to download the report. I am clicking the link but nothing happens. Is there more to the report than what is here on this site? Thanks

  6. Hi Tere,

    Thanks for pointing that out. The download link is now fixed. Sorry for the inconvenience.

  7. Joe, marketers have to contend with consumer perceptions, whatever they might be. The study’s data is helpful to financial marketers even if Pew’s position on overdrafts is one financial institutions dislike. The data clarifies who needs/uses overdrafts, so marketers can target their offers more precisely. The study suggests financial marketers might want to re-think the messages they use when communicating with customers about overdrafts (for a good example of that, look at the bottom of this article here.)

    To be clear, The Financial Brand’s objective is to help financial institutions (1) increase OD revenue by (2) getting more people to sign-up for the service and (3) making people feel more comfortable about their overdraft fees so that (4) more people continue utilizing the service. To that end, Pew’s data is useful.

  8. A lot of the details seem to only apply to consumer checking accounts. What differences, if any, are there for these institutions’ courtesy overdraft program as it relates to business checking accounts?

  9. Good question Scott. Unfortunately The Financial Brand is solely focused on retail consumer banking. Very seldom does anything connected to business banking pop up on The Financial Brand’s radar.

  10. I don’t think your link to the report download is fixed yet. I too am trying to download the report – I am clicking the link, but nothing happens.

  11. Hi Jan,

    Sometimes when clicking on a link to a PDF, your browser will download the document to your Desktop or Downloads folder instead of displaying it on screen.

    To help address this problem, the report has now been fully embedded in the article. Click on the icon in the upper-right of the document window. This will open the report in its own, new window. Then you can click the printer icon to download a PDF.

    Alternatively, you could try the “Download Report” button one more time. If you right-click (or CTRL-click) on the report button, you should be able to trigger a “Save Document As…” option.

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