(via Paul Michael at WiseBread.)

 
Not only does Karney paint a great picture of the problem with overdraft fees in today’s banking system, but he also demonstrates how a little bit of push-back by you, the account holder, can make a difference.

We’ve seen this push-back at a larger scale with the class action lawsuit against Bank of America filed on behalf of many of the bank’s customers. The Consumerist describes the case and provides a link where you can claim your $78 share here (must be completed by May 1). Overdraft fees are a huge problem for us and have only gotten worse (see our FABB Snapshot: Overdrawing Accounts Rises As Economy Worsens). Consumer Union estimates consumers were charged $7.8 billion last year in overdraft fees related to debit cards and ATM withdrawals, while the FDIC reports that in 2006, 74% of service charges on deposit accounts were overdraft-related fees (pdf). Still, what we as consumers want isn’t a way to get overdraft fees reimbursed–we want a fair culture within banks that results in reasonable fees and easy-to-understand procedures.

Of course, there are two sides of this coin–the banks’ fees and the consumer’s negligence. Because we consumers as a whole haven’t paid enough attention and given properly organized criticism to these policies, these fees were introduced and became standard over time. Now we can call the practices “unfair,” but unfortunately rhetorical consonance alone need not result in literal payback. As more of us pay close attention to our finances, we begin to wonder: how do they get away with charging $38 for a latte…really? (video) Will social networking sites like Twitter help people organize to change practices by large banks? (For examples of consumer frustration, see the results of a search for “#BofA” or, even worse, a search for “#BankOfAmerica” on Twitter.)

But Not ALL banks charge terribly high overdraft fees; in fact, there are many banks that charge no fees or fees comparable to the inconvenience of the overdraft. Here’s a(n incomplete) list of banks that offer no-fee overdraft protection through a savings account or a line of credit with at least one of their accounts. We don’t intend this list to be our recommendation or stamp of approval, only the facts–if you have an account at one of these banks or are thinking of opening one, make sure you pick the right form of overdraft protection. You could save yourself hundreds of dollars and a whole lotta stress.

A lot of people are using cash more and credit cards less — the number of people using ATMs “a few times a week or more” has grown by 32% (see the figure below). That’s a big percentage change for a service that’s been a part of our landscape for decades.

For banks, frequent ATM users are fee-generating machines. How so? Frequent users are more likely to use another bank’s ATM ($2 – $3 ATM surcharge per withdrawal) and unwittingly take out enough cash to bring their balances to below zero (ATM surcharges plus insufficient funds fee or overdraft protection transfer fee).

Tips to avoid paying ATM (and overdraft) fees:

• Use a bank that rebates ATM fees or is affiliated with a surcharge-free network. Many banks now offer rebates for the fees you incur when you withdraw money from a non-affiliated ATM. Alternatively, some banks and credit unions offer access to networks like Allpoint and MoneyPass, which enable you to use surcharge-free ATM locations all over the US.
• Use ATM locators. If switching banks to one that won’t charge fees for ATM use isn’t a great option for you, a little advance planning can save you a lot of money. It adds up to a lot of money if your bank charges a surcharge whenever you use a non-affiliated ATM.
• Transfer money before the withdrawal if you’re worried about falling below zero. If you have an Overdraft Line of Credit, the bank may charge you only interest until you pay it back. But many banks charge Overdraft Transfer Fees if they’re moving the money from one of your other accounts. You can easily avoid this fee by logging into your online banking site and transferring the money yourself.

Background information and notes: FABB users answer questions to estimate fees of checking accounts in their search results. Since FABB was launched, over 62,000 people have answered these questions to compare checking accounts.