National banks begin lowering, eliminating fees for overdrafts, insufficient funds

Overdraft fees may soon be a thing of the past. Bank of America announced Tuesday it's doing away with non-sufficient funds (NSF) fees and reducing overdraft fees from $35 to $10. Experts say excessive fees from banks have been under the microscope for a while and believe it may just be a matter of time until all major banks jump on board.

For some, buying that $3 coffee can cost 10 times as much if their bank balance happens to be $2.64 when they swipe their card.

The buyer will likely be slapped with a $35 overdraft fee from their bank, but financial institutions are walking that back. 

"That's great. I think it's a wonderful idea because they shouldn't be charging those exorbitant amounts anyway," Tampa resident Barbara Gage said.

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Bank of America, the nation's second-largest bank, is the latest to do away with non-sufficient funds fees or NSF fees starting in February. They're also reducing overdraft fees from $35 to $10 beginning in May.

"Those fees are going to be de-emphasized. They predominantly hit younger and lower income consumers. So there's an increased reputational risk at play here for banks that still stick to that old model of thirty-five bucks a pop," Chief Financial Analyst Greg McBride said.

As McBride explains money coming into banks from overdraft fees and NSF fees isn't revenue that comes from somebody who slips up once. According to a recent survey by the FDIC, roughly 90% of overdraft revenue comes from about one in seven customers.

"If they're going to appeal to younger consumers, the customer of the future, then having some flexibility or some give on things like overdrafts that really have a pronounced impact on younger consumers is a step in that direction," McBride said.

Capital One is taking an even bigger step forward than Bank of America eliminating fees altogether.

JP Morgan Chase, the nation's largest bank, announced in December it's eliminating NSF fees and has significantly increased the amount a customer can overdraw before overdraft fees are charged.

"When one of the bigger banks makes a step in the direction of significantly dialing back reliance on overdraft fee revenue, it's going to put the microscope even more on those that are still reliant on that," McBride said.

Beginning this year, JP Morgan Chase customers will have until the end of the next business day to boost balances in order to avoid overdraft fees. Also, customers will have access to direct-deposited paychecks up to two business days early.