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Overdraft fees are a silent but costly aspect of personal finance. The most recent Forbes Advisor Checking Account Fees Survey found the average overdraft fee is $24.38, with traditional brick-and-mortar banks charging the highest fee compared to other banking institutions.
But what’s most striking about overdraft fees is that they are disproportionately shouldered by those who can least afford them. The 2021 FinHealth Spend Report, an annual report that gauges the financial health of American households, found that costs related to everyday financial services are hurting low and moderate-income Americans the most.
Overdraft banking fees, specifically, cost consumers $12.4 billion in 2020. Though it’s a decrease from the authors’ findings of overdraft fees totaling $17 billion in 2018, it’s still steep. Stimulus payments, combined with reduced expenses, may have contributed to the decline.
Overdraft fees are a long-standing political hot potato. And with President Joe Biden casting his eye on banking reform, it’s possible the U.S. could see the practice be more tightly regulated in the near future.Overdraft Fees Suck Money Out of the Pockets of Those Who Need It the Most
Overdraft fees—and the subsequent fees that can occur as a result of them—are a penalty for consumers who spend more than what’s in their bank account. In many cases, the overspending is accidental.
Instead of simply declining the transaction, banks will charge fees to cover it—and while this can be helpful for individuals who might be in a pinch, they can trigger additional fees and cause financial strain.
The FinHealth report in partnership with Prudential, looks at the overall cost of “everyday financial services,” such as credit, payment transactions, account fees and...