Half of consumers who overdraw their checking account do so by $40 or less, yet it costs them about $58 each time, new research has found.
The study by economic research firm Moebs $ervices found that 34 million consumers, or about 26% of consumer checking accounts, overdraw their accounts by 10 or more times per year.
The median overdraft charge among all banks and credit unions is $28, and merchants charge $30 on average for a bounced check, bringing the grand total to $58, according to the study, which included 1,240 banks, 1,292 credit unions and 832 national retail merchants, including Wal-Mart, Home Depot, Walgreens and Safeway.
Some 20.5% of banks and credit unions do not provide overdraft service. The study also found that 40% of national retail merchants will not accept checks for purchase of goods or services, thus requiring cash or debit or credit card.
Wall Street banks, defined as those with $50 billion or more in assets, charge an average of $34 per bounced check. Community banks and credit unions charge about $25, according to the research.
“Consumers, especially those who overdraw their checking account 10 or more times a year, will pay significantly less in fees if they bank with a community bank or credit union that offers overdraft services,” said Michael Moebs, economist and CEO of Moebs $ervices.
For consumers who end up with a negative balance of less than $100, the most cost-efficient provider of overdraft funds is an Internet or brick-and-mortar payday lender, the Moebs study found.
“Payday lenders have a median charge of $17.50 for a small loan of $100 or less, which is sufficient to cover most consumers’ negative-balance checking accounts, asserted Moebs, who noted that credit unions can capture a great deal of overdraft revenue if they drop their price to below $20.
Overdraft fees vary sharply in different markets, with consumers who overdraw their checking accounts in San Francisco paying a lot less than those who live in Miami. The median overdraft price in San Francisco is $22.50, while Miami’s median is $30.95.
“Obviously, the institutions in the Bay Area of San Francisco recognize the consumer need for a safety net, while in Miami an overdraft is still a penalty,” Moebs said.
Cities that have median overdraft charges greater than $30 include Atlanta, Cincinnati, Dallas, Las Vegas; Minneapolis; New York; Philadelphia; Phoenix; Pittsburgh; Tampa, Fla.; and Washington, D.C. Boston; Kansas City, Mo.; St. Louis; Sacramento, Calif., San Antonio; and San Diego charge $25 or less per overdraft.
What do you think about this? Send us your feedback.
