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September 24, 2021

The enormity of bank overdraft charges

Banks are smart, they really are.

They know that, no matter how many times they rip out our hearts, we all have to come crawling back somehow.

Oh, you like our smiling tellers and cushy leather chair mascots, huh? Good to know. How about a massive hidden fee while you’re here?!

So, shrewd as they are, it should come as no surprise that – when the economy tanked – banks had a little insurance.

In an age when many other profit models have fallen, new data shows just how much banks have been leaning on the much-derided overdraft charge all this time.

According to the New York Times, banks now make more on overdraft charges (a stern $27 billion this year alone) than they do on credit card penalty fees.

And while that number may not peak much interest across a global scale, here’s a point that’s fit to print:

Many experts tell the Times that, without their profits from overdraft charges, many banks would go under.

“An estimated 1,000 banks and 2,000 credit unions (would) fold within two years (if there was no overdraft cash flow),” writes the paper.

“That is because 45 percent of the nation’s banks and credit unions collect more from overdraft services than they make in profits.”

Crazy, no? That overdraft charges propped-up so many of the world’s financial institutions to this  extreme surprised me, I admit, but maybe it shouldn’t have under further consideration.

Many banks, especially in the States, charge up to $34 for every transaction completed over your balance. So, if you’re sitting pretty at $9.50 in your chequing account and you go out and buy a $15 dinner and $10 movie ticket on separate transactions, those $25 purchases could actually end up costing you 93 bucks the way some banks operate.

Of course, banks will tell you those fees are there to “protect” you from the unholy embarrassment of the INSUFF. FUNDS alert, and I suppose that can be validated on some level. And then there is the whole well-you-broke-morons-should-know-how-much-money-is-left-in-your-deadbeat-account-anyway argument, and that’s appropriate too, I guess.

But for anyone who teeters close to the $0 line in their account, please heed this report as a heads-up to the enormity of what your bank exposes you to.

Because with profits like $27 billion annually, why would they ever want to stop?

By Jason Buckland, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...