Overdraft fees charged by banks have come under scrutiny by federal regulators in recent years, but the charges vary widely, a new study shows.
The range of prices banks and credit unions charge customers who withdraw more money than they have in their accounts is $45 on the high end and $5 on the low end, according to a recent study of more than 2,800 institutions. An overdraft occurs when the bank chooses to cover such transactions.
The lowest was charged by an Iowa bank and the highest by a Florida credit union, according to Lake Forest, Ill.-based Moebs Services, which collects statistics about financial services companies’ pricing. The median overdraft fee in the survey was $30.
Banks generally have two schools of thought about the prices they charge for overdrafts, says Mike Moebs, Moebs Services chief executive and economist.
“Penalty pricing” is when an institution doesn’t want consumers to overdraw their accounts so they charge a high price to discourage the behavior. Critics consider this gouging as a way to maximize revenues, but it can also cause consumers to change their bank.
“Safety net pricing” is when the price is set low to help consumers who are having financial struggles or who do a poor job of tracking their finances. Critics say some banks keep their prices low as a way to lull consumers into complacency, encouraging more overdrafts — and revenue — in the process.