The cost of overdraft coverage: how much are you paying?

Banks and credit unions bring in billions in overdraft revenue each year by charging large fees, an average of $34 per transaction, for low-cost purchases such as a cup of coffee or a sandwich. Buy a $3 cup of coffee? You could end up paying more than ten times that amount in overdraft fees.

But there are lower-cost options to your bank or credit union's standard overdraft coverage.

Which one is best for you?

OVERDRAFT COVERAGE COST COMPARISON TABLE

Type of Overdraft Coverage for ATM and Everyday Debit Card Transactions

Charges

Total Cost per Transaction

Sample Effective Annual Percentage Rate Cost

(assuming $100 overdraft for two weeks)[i]

1. None 

$0

$0.00

N/A

2. Debit-card overdraft coverage

$34 per transaction

$34.00

886%

3. Overdraft line of credit

$5 transfer fee plus 18% interest

$5.69

148%

4. Transfer from credit card

$5 transfer fee plus 24% interest

$5.92

154%

5. Transfer from linked savings account

$5 transfer fee

$5.00

N/A



[i] Some financial institutions offer cheaper forms of overdraft lines of credit and linked savings accounts, where no transfer fee is charged. Among these alternatives, only overdraft lines of credit and transfers from a credit card are covered under the Truth in Lending Act, and therefore subject to an APR calculation. The APR calculation given for a $34 overdraft fee is thus for illustrative purposes only. Because a transfer from an accountholder's saving account—unlike the other options--is not an extension of credit made by the bank, we do not include an APR in this case.