Overdraft fees are back in the news, thanks to Senator Elizabeth Warren grilling JPMorgan CEO Jamie Dimon over the practice in May and Ally Bank joining the list of institutions forgoing the practice in June.
Banks typically charge overdraft fees when you overdraw your checking account. Instead of having your debit card declined or the purchase canceled, your bank will cover the difference and charge you an overdraft fee, usually about $30 to $35.
These costs can get expensive quickly. An overdraft fee of $35 on a $100 purchase quickly becomes a $135 purchase. That markup is significantly higher than what a typical credit card would charge in interest.
Plus, you may not get notified right away that you’ve overdrawn your account, and instead, rack up multiple fees per day. Big banks tend to cap the number of overdraft fees at four to six per day, but some allow up to 12, according to ValuePenguin’s analysis of policies at the 16 largest U.S. consumer banks.
And if you do have multiple charges that come in on the same day, some banks process the most expensive transaction first, causing consumers to incur more overdrafts, a 2018 report by the Center for Responsible Lending found.
Some banks automatically waived overdraft fees during the pandemic, but more than a few still required customers to call and specifically request the waiver. And many of those protections have now expired.
But there are some banks that offer year-round free checking accounts that do not allow customers to incur overdraft fees. Here’s a list of the major providers as of July 2021:
- Ally Interest Checking account
Type of bank: Online
Account minimum to open: $0
Current interest: 0.1% APY on balances less than $15,000
ATMs: More than 43,000 no-fee Allpoint ATMs (Ally provides a $10 reimbursement per statement cycle for fees charged at other ATMs nationwide.) - Axos Rewards Checking
Type of bank: Online
Account minimum to open: $50 (Axos also has an Essential Checking account that is free to open and also does not charge overdraft fees, but does not provide interest.)
Current interest: up to 1.25% if you meet direct deposit and debit card usage requirements
ATMs: Unlimited reimbursements of all domestic ATM fees - Betterment Checking
Type of bank: Online
Account minimum to open: $0
Current interest: 0% (Betterment’s checking account debit card provides cash back on debit card purchases each month.)
ATMs: Unlimited reimbursements of ATM fees worldwide - Discover Bank’s Checking account
Type of bank: Online
Account minimum to open: $0
Current interest: 0% (Discover’s checking account provides 1% cash back on up to $3,000 in debit card purchases each month.)
ATMs: More than 60,000 fee-free ATMs - Fidelity Cash Management account
Type of bank: Online
Account minimum to open: $0
Current interest: 0.01% APY on balances less than $100,000
ATMs: Unlimited reimbursements of all domestic ATM fees - Key Bank’s Hassle-Free account
Type of bank: Online; brick and mortar
Account minimum to open: $10
Current interest: 0%
ATMs: More than 40,000 KeyBank ATMs and Allpoint ATMs nationwide - Wealthfront Cash
Type of bank: Online
Account minimum to open: $0
Current interest: 0.1% with a minimum balance of $0.01
ATMs: More than 19,000 no-fee ATMs
Capital One’s 360 Checking account is free and offers a range of overdraft options, including signing up for auto-decline to avoid overdraft fees. But the bank is not completely fee-free. Capital One charges a $9 non-sufficient funds fee for bounced checks, regardless of overdraft coverage.
TD Bank is also planning to release an essential banking account next month that will not allow customers to overdraft, but will carry a monthly fee of $4.95. The bank is also revising its overdraft fee policies on other accounts, including lowering the maximum number of times customers can be charged overdraft fees each day and only triggering the charge if customers overdraft by more than $10.
Chime’s free checking account also allows customers to overdraw their accounts by up to $200 without incurring overdraft fees for those who receive at least $500 in monthly direct deposits.
It’s worth noting that many of the banks listed above are online-only banks or banks with a limited physical branch footprint. Big banks such as Bank of America, Chase, Citi, U.S. Bank and Wells Fargo also provide checking accounts that do not charge overdraft fees, but do charge maintenance fees. However, those monthly fees can be waived in certain circumstance, such as for teens or if you enroll in specific bank programs.
