Overdraft charges are a relatively modern phenomenon. Rewind to about a decade ago before the advent of overdraft protection programs. At that time, banks did not charge overdraft fees. Instead, if you wrote a check that was too big, it would just bounce. Sure, you would be charged a bounced check fee (which admittedly could be quite high) but you didn’t have the frequency of overdraft fees that so many people see today showing up on their checking account statements
Notably, it is not just the overdraft protection programs themselves that cause the problems we have with overdraft fees today: it is the combination of debit cards and overdraft protection programs that is the culprit in our collective overdraft problems. Like overdraft programs, debit cards are a relatively-recent invention by the banking industry.
The reason why:
debit card + overdraft protection program enrollment = deadly combination for bank customers
is that when you have both through your checking account, your bank will actually allow you to make a charge at a store, gas station or other merchant even if your bank account balance is too low to support the charge at that time. In other words, instead of denying the debit charge, your bank will honor it – and then charge you a fee for doing so. And, these fees can range from $25 to $35 per overdraft in the case of many national banks.
Even particularly responsible bank customers who carefully keep an eye on their purchases and check their account balances regularly can run into problems. It’s likely that you have had at least one overdraft charge in your lifetime. In fact, you may have had multiple charges within the last month alone! And, just 3-4 charges can add up to a $100 in fees.