Overdraft Fees | Bank Overdraft Charges

Overdraft fees and bank charges are often viewed by banks as an easy way to generate revenue, however small the amount, from their account holders. Bank overdrafts and overdraft fees can occur for a variety of reasons, also which account holders are not aware of.

Overdraft Fees from Priority Deposits

For example, some banks process larger checks before processing smaller checks. In doing so, those depositing smaller checks are at a higher risk of receiving an overdraft fee or non-sufficient funds fee from the bank. In a way, you as a consumer may be "penalized" by your bank with a lower priority for processing your deposit if your deposit is of a small amount compared to the other deposits the bank has to process. If your bank is prioritizing deposits based on the amount of the deposit, then you are at higher risk of receiving a bank overdraft charge from your bank.

 

Overdraft Fees from Deposit Holds

Another reason bank overdraft fees may occur is because some banks will hold onto deposits for up to 3 business days before clearing the deposit, even though the bank has already received the funds from the issuing bank. One might wonder, why would a bank hold a deposit for up to 2 days after having received the deposit from the issuing bank? The answer is simple. The bank uses the deposits for "leverage", which basically means the bank uses the deposit to improve their financial standing on their financial reporting balance sheets. In doing so, the banks make themselves look like they have more money than they actually have. There are many benefits to the bank for holding deposits as their own for a period of time before releasing the deposit to the account holder. This waiting period imposed by the account holder are unnecessary and may result in a bank overdraft charge for the account holder. As you might expect, if your deposits are held and you expect to use those deposits to pay bills or make purchases, you become at higher risk to overdraft from your account and receive bank overdraft charges.

 

Overdraft Fees from Bank Lending

Banks make most of their money from lending, and from interest charges. In order to lend money, whether for home loans, cars, furnishings, credit cards, business loans, or other purposes, the bank must have cash available at the time of the request for a loan. The more money the bank lends, and the more frequently the bank issues a loan agreement, the more frequently the bank receives income from interest charges on that loan and over time the bank's overall financial status is far higher than it was at the time of lending. This is also assuming that the parties borrowing the funds from the bank repay the loan with interest. Since overdraft fees commonly earn an average of $29 billion per year, by holding onto your deposits, your bank also increases it's ability to loan money to other people, organizations, or even other banks. Therefore, your bank's own lending process and lending policy may compel itself, as an institution, to leave you at higher to overdraft on your account, and then receive overdraft fees and non-sufficient funds charges.

Are Bank Overdraft Charge Fraudulent?

When you put it all together, the system many banks have in place to manage your money is based on a fundamental conflict of interest. The bank wants you to deposit your money, so they can hold onto it and use it, and then penalize you for having insufficient funds. You counted on having access to your deposit to cover your bills, which you might have paid on time and without overdraft has the bank released your funds to you at the time of your deposit or shortly thereafter. In some business and ethical standards, this might be considered a form of fraud to some people. Although the overdraft fees may apply on a small scale, the volume of overdraft fees the bank charges amount to a substantial amount of revenue for the bank, in both fees, late penalties, and interest payments from the lending the bank has available from holding your deposit. Although it may be possible to recover your overdraft fees in certain cases, however doing so involves a hassle with your bank and perhaps a tedious process with your bank.

 

Protect yourself and your money, and eliminate the possibility of overdraft charges and unnecessary bank fees by enrolling in our our VISA debit card. Our VISA debit card has no overdraft fees and simply declines a transaction if your funds cannot cover the transaction.