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Tom: Why are banks employing these fees so aggressively?

Mellody: The short answer: money. Under a recent rule implemented by the Consumer Financial Protection Bureau, banks with more than $1 billion in assets now need to report on how much revenue they bring in from overdraft fees and other charges. The first report found that these banks made $11.6 billion last year from customers who overdrew their accounts. According to the CFPB, the 594 banks subject to the rule made 8% of their revenue on average from these fees, and these fees accounted for 65.3% of all reported consumer deposit account fee revenues.

Tom: How can account holders avoid these charges?

Mellody: Obviously, the easiest way to avoid these charges is not overdraw your account. There are a number of tools to help you monitor your balances, like text alerts or mobile banking or budgeting apps. The second thing I recommend is speaking with your bank about your current account rules, or reading the fine print if opening a new account, and opting out of any coverage that allows overdraft fees on a transaction or line of credit. Instead, it is better to get a one time non-sufficient funds charge than racking up repeated overdraft fees if your balance goes in the red and is left unpaid for days or weeks.

Another good option if you are worried about these charges is to link it to a second account, like a savings account. When necessary, your bank will transfer money from that savings account to cover a purchase. You may incur a fee, but it’s much smaller than an overdraft or NSF fee. You make this a habit! Your savings are sacred, so this should be rare, and only happen because its better than overdraft charges. Finally, you can consider a prepaid debit card. These cards don’t link to checking accounts, they require you to add money before you use them. Prepaid debit cards generally don’t incur overdraft fees, but some may charge for declined transactions. If you can find a prepaid card without these fees, they are a good way to avoid overdraft and related costs.

Tom: Always great advice. Thanks for joining us, Mellody.

Mellody: Have a great week, Tom.

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Money Mondays: How To Avoid Overdraft Fees  was originally published on blackamericaweb.com

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