It’s official: ATM and overdraft fees are out of control

Money is hard enough to manage as it is. It certainly doesn’t help anything when your money starts eating itself.

That’s essentially what happens when we’re forced to pay ATM and overdraft fees – spending money suddenly costs us money. A lot of money.

Recent reports have revealed that Americans paid well over $6 billion in ATM and overdraft fees to the nation’s three largest banks (Chase, Bank of America, and Wells Fargo) in 2015. That works out to roughly $25 for every adult in the country. And doesn’t include fees charged by any of the thousands of other banks and credit unions in the United States.

Money for nothing

The average surcharge for using an out-of-network ATM to draw cash out of your account is $4. It’s the kind of fee that may seem feasible once in a while, but for those who use cash regularly and don’t have easy access to an in-network ATM, it can be crippling over time.

Also, $4 is not an insubstantial quantity of money. You may feel comfortable spending $4 for an (admittedly overpriced) cup of coffee), but remember, you aren’t actually purchasing anything when you pay an ATM fee. You’re just accessing your own money. Imagine if you had to pay someone a fee every time you took something out of your own refrigerator?

Spending vs. borrowing

That said, the vast majority of that $6 billion is actually tied to overdraft fees.

According a study conducted by the Consumer Financial Protection Bureau, the average overdraft fee is $34. The majority of transactions that trigger overdraft fees, however, are for $24 or less, which makes the cost of convenience offered by overdraft accounts all the more astronomical.

For example, let’s say you thought you had $20 in your account. You use your debit card to make a $15 purchase. It turns out you only had $10 in your account, though. Your overdraft protection covers the missing $5 and charges you an additional $34 in the process. Now your account is $39 in the hole.

To put it another way, the bank loaned you $5 and then charged you nearly seven times the value of the loan in fees.

For consumers walking a financial tightrope every month, these kinds of fees are like a hurricane gale. They make it exceedingly difficult just to get back to zero.

Steps for avoiding unnecessary fees

Seeing how much money American consumers pour into these fees is a solid reminder that it doesn’t have to be this way. Here are a few tips and suggestions for cutting down and hopefully eliminating these fees from your monthly expenses.

Plan ahead. One of the number one reasons why we end up withdrawing cash for an out-of-network ATM is because we realize we need cash unexpectedly. Try to consider where you’re going and when you might need cash. Going to a new restaurant? Check first to make sure they accept credit cards. Cash-only businesses are rare, but they’re out there.

Consider future needs. If you are forced to withdraw cash from an out-of-network machine, think beyond your immediate need. You might only need $20 right now, but what about later? Remember, every time you go back to that machine, it’s another fee.

Opt out of overdraft. Many people with overdraft protection on their checking accounts and debit cards don’t even know they have it. Without this protection, transactions that are greater than your available funds would be rejected, which could be embarrassing or inconvenient, but would ultimately save you money and future financial distress. Financial institutions are required to allow you to opt out of overdraft protection at any time.

Chose credit over debit. There are a lot of benefits to using credit cards responsibly. The danger only really presents itself when you start spending money you don’t have. However, if you use a credit card as a substitute for your debit card – that is, spending only what you have available – and then use your checking account to pay your credit card in full at the end of the month, you’ll avoid overdraft fees and positively impact your credit score.

Use banking apps to manage your balances. Finally, if your financial institute of choice offers an app to track your account, you can use that keep an eye on your spending and balances. It’s a handy way to verify how money you have available and avoid any unintentional overdrafts.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.