Just 18% of Bank Customers Pay 91% of These Fees. Are You One of Them?

We all have a friend who’s constantly paying overdraft fees.

Whether she’s using overdrafting as a line of credit because she’s flat broke, or is simply ultra-disorganized, it’s not a smart financial strategy.

She’s one of the 18% of bank users who pay 91% of overdraft fees, according to a new study by The Pew Charitable Trusts.

I knew banks made $11 billion from overdraft fees last year, but I had no idea it was from such a small percentage of the population.

If overdrafts are a way of life for you, they don’t have to be.

Here’s what you need to know about overdrafting — and how to prevent it.

Are You a Heavy Overdrafter?

The Pew study examined “heavy overdrafters,” or people who incur more than $100 in overdraft and nonsufficient funds fees each year.

With the average fee clocking in at $35, that’s around three per year.

“For these consumers,” the report says, “overdraft service is not just an occasional courtesy but an extremely expensive form of credit that is also high risk because it lacks the consumer protections that accompany other credit products.”

Of these heavy overdrafters, the study found:

  • 52% paid $300 or more in fees last year
  • 67% have a household income of $50,000 or less
  • 68% are millennials and Gen X-ers
  • 24% pay the equivalent of one or more weeks of wages in fees each year

The purpose of the study — and its startling numbers — is to urge banks to change their policies. But until they do, the responsibility lies on you.

Pro Tip

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How to Avoid Overdraft Fees

Here are four ways to say goodbye to heavy overdrafting:

1. Opt Out of Overdraft Protection

Yes, you can opt out of overdraft protection entirely — and if you’re a heavy overdrafter, this is probably a good idea.

If you do this, your debit card will simply be declined when you have insufficient funds.

It might be a bit embarrassing, but it’s way better than paying a week’s worth of wages in fees.

2. Turn Off Automatic Bill Pay

Normally, I love automating my finances.

But if your bank account balance is often low, just one bill can cause an overdraft.

So turn off auto-pay. Instead, set your bills to be due on the same day each month. A few days prior, sit down and review your finances and pay each bill manually.

3. Start Your Emergency Fund Now

If you set up an automatic transfer of $10 each week from your checking to your savings account, you’ll have $40 in a month, and $520 in a year.

Though it might not seem like a lot, it’ll undoubtedly help with unexpected expenses that might normally cause you to overdraft.

4. Use Apps to Monitor Your Balance

If you have a smartphone, download your bank’s app so you can quickly see how much money you have in your checking account.

And if you have internet access, use a free tool like Mint to monitor your finances.

It’ll even send you an alert when your checking account balance drops below a pre-set amount!

Overdrafting shouldn’t be a often-used tool in your financial arsenal.

We all get in a bind sometimes, but taking these steps will hopefully give you other options to choose from — without a $35 fee!

Your Turn: Are you a heavy overdrafter?

Susan Shain, senior writer for The Penny Hoarder, is always seeking adventure on a budget. Visit her blog at susanshain.com, or say hi on Twitter @susan_shain.