Overdraft Fees Are Dwindling, Study Finds (Published 2023) (2024)

Are the days of overdraft fees almost over?

The dreaded bank fees are shrinking, even as the share of households paying them remains the same, new financial research shows. And banks are increasingly offering their customers alternatives like small installment loans.

Banks charge overdraft fees to cover shortfalls when customers spend more than the amount in their checking accounts. (Banks may also charge “insufficient funds” fees as a penalty when they let a payment bounce.) Once offered as a courtesy, overdrafts grew to become a lucrative source of bank revenue.

But for a variety of reasons, including pressure from regulators, banks have been pulling back from charging the fees. Last year, bank revenue from overdraft and similar fees fell an estimated 6 percent from 2021, to $9.9 billion, and remains “far below” prepandemic levels of about $15.5 billion, according to a report from the Financial Health Network, a nonprofit focused on financial stability.

The typical overdraft fee is $15, half the amount it was two years ago, according to Moebs Services, a financial research firm. (Its calculation is based on more than 3,600 institutions, including banks, credit unions and financial technology companies.)

Experts say several factors besides the scrutiny from financial regulators are behind the drop, including a consumer backlash and competition from new digital money tools. The Consumer Financial Protection Bureau has been scrutinizing fees for financial and other services, and is mulling updates to overdraft rules, leading some banks to make changes.

Other steps that banks are taking to ease the burden of overdraft fees include giving customers a “grace period” of one day to cover a deficit before charging a fee; waiving fees on small overdrafts, like overspending by $5 or $10; and limiting the number of overdraft fees that may be charged in a single day.