Fine print: hidden risks in your checking account

June 19, 2012

What’s the safest place for your money other than the mattress? A checking account backed by the U.S. government’s Federal Deposit Insurance Corporation comes pretty close. Right? A report from Pew Charitable Trusts highlights hidden fees and costs that chip away at accounts that consumers think of as a safe-haven for their cash.

Banks are continuing key banking practices that put consumers at financial risk and potentially expose them to high and unexpected costs for little benefit.

Take overdraft fees: they cost Americans $29.5 billion last year, according to the study. Here are some more detailed findings from the report:

Bank overdraft penalty fees are disproportionate to the size of the median overdraft amount. Overdraft fees will cost American consumers an estimated $38 billion in 2011—an all-time high. The median overdraft amount is $36, yet the median overdraft penalty fee is $35. In addition, the majority of checking accounts charged an extended overdraft fee after a median of seven days if the fees and principal were not paid. The median extended overdraft fee was $25.

Banks reserve the right to reorder transactions in a manner that will maximize overdraft fees. Overdraft penalty fees are imposed each time a withdrawal is posted to an account with insufficient funds to cover it at that moment. Banks can maximize the number of times an account “goes negative” by reordering deposits and withdrawals to reduce the account balance as quickly as possible. Posting withdrawals before deposits and posting withdrawals from largest to smallest have the effect of maximizing overdrafts. Currently, no federal regulation governs posting order.


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