Overdraft Fee Analysis

Overdraft Fee Analysis

Part I:  Review your resources

First, review the overdraft fee chart provided here Overdraft Fees by Bank Links to an external site. by NerdWallet. 

Also, some banks reorder your daily transactions by size, putting the largest transactions first and the smallest last, while others process transactions in the order, they occur. Some checking accounts waive overdraft fees for ATM and/or debit transactions. You can find that information provided here Overdraft Practices by Bank Links to an external site. by NerdWallet. 

Use both resources together in the exercise as follows. 

Part II:  Conduct mathematical analysis

The Scenario:  

• When the day begins, Joshua has $116 in his checking account, and he has overdraft protection
• Before school, he buys his cousin a round trip bus fare for $4 using his debit card
• He then uses the card to get gas in his car for $43
• Once the banks open, a check he gave the school for his senior yearbook clears, and $75 comes out of his account
• Joshua’s Netflix account subscription is automatically debited today, too, so another $10 leaves the account
• After school, he heads out with friends and uses his debit card to buy a $3 coffee
• He sends a person-to-person payment of $15 to his friend Bryant for his share of dinner
• Finally, he finishes out the day with some shopping to buy new soccer gear for $35 using his debit card at the store

Using the information provided by NerdWallet in BOTH charts, determine how much Joshua would pay in overdraft fees at each bank:

1. Citibank
2. HSBC Bank
3. Regions Bank
4. SunTrust
5. TD Bank
6. Wells Fargo

Part III:  What are the results? 

1. How much did Joshua spend on actual purchases throughout the course of the day? 

2. What was his ending balance at the day’s end? 

3. How much did he pay in overdraft fees with the bank you selected?

4. What advice would you give to Joshua? 

Part IV: Analyze the bigger picture

1. How does whether a bank reorders transactions impact the cost of overdraft fees? 

2. If you were selecting a checking account and reviewing account agreements to see which is the best fit for you, which factor matters more -- the size of the overdraft fee or the maximum number of overdraft fees charged per day? Explain your thinking.

3. Why do you think the banks have such widely varying policies on overdraft fees?