Survey: Bank overdraft fees tumble to 13-year low while ATM fees are back on the rise

Banks have been reducing or eliminating overdraft fees at an unprecedented rate over the past year or so, as they face heavy public pressure to curb what one consumer watchdog has referred to as “junk fees.” In fact, the average overdraft fee of $29.80 is down 11 percent from last year’s record high, according to Bankrate’s 2022 checking account and ATM fee study. However, an overwhelming majority of accounts surveyed (96 percent) still charge a fee for overdrafts.

Unlike overdraft fees, not all bank fees are on the decline. Bankrate’s study found the average combined cost of an out-of-network ATM transaction to be $4.66, the highest amount since 2019. The average ATM surcharge levied on non-customers hit a record high of $3.14 per transaction.

The study also found that 46 percent of noninterest checking accounts are free — meaning they don’t charge monthly service fees — which is down slightly from 2021. Unlike top-yielding savings accounts, checking accounts that bear interest continue to pay record-low yields, the survey found, despite several Federal Reserve interest rate hikes in 2022.

For the study, Bankrate surveyed 10 banks and thrifts in each of 25 large U.S. markets. Information was gathered regarding checking accounts that bear interest and those that don’t, as well as ATM fee policies. Here are the highlights of the study.

Key findings:

• The average overdraft fee declined to a 13-year low of $29.80, which is down 11 percent over last year’s record high of $33.58. The average nonsufficient funds (NSF) fee decreased to $26.58, the lowest since $25.81 in 2004. While these averages have gone down and some accounts have entirely eliminated such fees, 96 and 87 percent of accounts surveyed still charge overdraft fees and NSF fees, respectively.
• The combined total of the average out-of-network ATM fee assessed by one’s own bank and the average surcharge levied by the ATM owner increased to $4.66, the highest since 2019. The surcharge on non-customers ($3.14) reached a new high, up 1.9 percent from $3.08 last year.
• Among the metropolitan areas covered in the survey, the city with the highest average total combined ATM fees is Atlanta, where you’ll pay around $5.38 for using an out-of-network ATM. Meanwhile, you’ll find the lowest combined average fees in Los Angeles at $4.21.
• The number of free checking accounts has decreased slightly in 2022 to 46 percent (down from 48 percent last year), although 99 percent of noninterest checking accounts are either free or can become free when certain requirements are met. These may include maintaining a set minimum balance or having your paycheck directly deposited.
• The average yield on interest checking accounts remains at a record low, and the most common payout is 0.01 percent annual percentage yield (APY). And while the average monthly service fee of $16.19 is down slightly from last year, it’s the second highest ever tallied.

Overdraft fees: Lowest in over a decade

Overdraft and NSF fees on the decline

An overdraft fee may be charged by a bank when you withdraw more money from your account than the amount you have in it and the bank pays that overdraft. The average overdraft fee in 2022 is $29.80, which is down 11 percent over last year’s record-high average of $33.58 — the lowest since 2009 when the fee averaged $29.58.

Like overdraft fees, the average NSF fee decreased as well in 2022 — dropping to $26.58, which reflects a 21-percent decrease from last year’s record high of $33.58. It’s also the lowest average NSF fee since 2004 when the average was $25.81.

Banks charge an NSF fee when there isn’t enough money in an account to cover a transaction, and the bank does not honor the transaction. Ways to avoid these fees include linking a savings account to your checking account in order to cover any shortfall, as well as keeping tabs on your account balance before initiating transactions.

Overdraft fees may be down on average, but still prevalent

The trend among banks to reduce or eliminate overdraft and NSF fees comes at a time when proposed federal legislation would limit their ability to charge such fees. The Consumer Financial Protection Bureau (CFPB) has also called for an end to these fees, releasing a report that revealed 20 banks each earned between $50 million and $1.4 billion in overdraft and NSF fee revenue in 2021.

While average overdraft and NSF fees are lower than they’ve been in more than a decade, they’re not completely going away just yet. Fees for overdrafts and nonsufficient funds are still charged by 96 percent and 87 percent of accounts surveyed, respectively.

“Don’t let your guard down with regard to overdrafts,” says Greg McBride, CFA, Bankrate chief financial analyst. “The overwhelming majority of banks and accounts still charge for overdrawing the account, whether the payment is honored or rejected.”

ATM fees: Combined total charges hit a three-year high

Fewer banks charging their customers for out-of-network ATM use

Using an out-of-network ATM can result in multiple fees per transaction. Your own bank may charge you for using an out-of-network ATM, while the bank that owns that ATM may impose its own surcharge. Currently, more bank accounts than ever — just over 40 percent — do not charge their own customers for out-of-network ATM transactions.

Among accounts that do charge their customers out-of-network ATM fees, $2.50 remains the most common amount, while the average fee charged is up 1 cent to $1.52.

Banks raise fees for non-customer ATM use

On the other hand, the average surcharge imposed by banks for non-customers who use their ATMs is up to a new high of $3.14. This marks the 21st time in the past 24 years that the average surcharge has set a new record high. The most common ATM surcharge amount reported by banks is $3.

For the fourth consecutive year, all of the ATM-owning banks surveyed reported charging non-customers for ATM withdrawals.

The combined total of the out-of-network ATM fee assessed by your own bank and the ATM surcharge levied by the ATM owner increased 1.5 percent, from $4.59 to $4.66, the highest since 2019.

“Staying within your bank’s ATM network is the sure-fire way to avoid fees,” McBride says. “If going outside the network, you run the risk of being hit with fees from both your bank and the ATM-owning bank.”

In addition to limiting your ATM use to in-network machines, another way to avoid ATM fees is to get cash back at the checkout line when using your debit card at places like grocery stores or other retailers.

Where you live can play a role in what you’ll pay in ATM fees. Atlanta has the highest average fee, $5.38, which is up from $5.23 in 2021. ATMs in Los Angeles charge the lowest average fee, $4.21, a 31-cent increase from last year’s survey. Consumers in Atlanta, Detroit, Phoenix and Cleveland pay about 20-25 percent more on average for using out-of-network ATMs than those in Minneapolis, Seattle and Los Angeles.

Highest ATM fees by metro area

Source: 2022 Bankrate checking account and ATM fee study

Noninterest checking: Service fees up, along with minimum balance requirements

Decrease in free checking accounts

The number of free checking accounts — those that do not have a monthly fee regardless of balance or activity — was down slightly from last year among banks surveyed, but they are still widely available. Nearly half (46 percent) of noninterest checking accounts are free, down from 48 percent last year.

“Will a vanishing act on free checking accounts be the eventual fallout of declining overdraft fee revenue?” McBride says. “There is not much evidence of that to this point, but it does bear watching.”

Service fees on the rise

Among noninterest checking accounts that charge a monthly service fee, the average amount increased to $5.44 this year, the highest since 2019. This also reflects a 7 percent increase from $5.08 last year. The monthly service fee most commonly charged is $12, which has been the case every year since 2015.

The average noninterest checking account balance needed to avoid the monthly fee rose by 6.4 percent to around $539, from nearly $507 last year. This marks the first increase in the average balance requirement since 2015, although the amount remains at the second lowest level since 2010.

Top ways to get fees waived

More than half (53 percent) of noninterest checking accounts waive the monthly fee based on direct deposit, account balance, transaction activity or a combination of direct deposit and transaction activity. Of these, the most commonly offered method is direct deposit, with 44 percent of accounts waiving the fee solely based on the account holder receiving direct deposit — which is up from 41 percent during the past two years.

In all, 99 percent of noninterest accounts are free or can become free relatively easily, with a direct deposit requirement being a low hurdle for most account holders to clear.

Free checking accounts are highly accessible to many consumers, thanks to accounts that charge no fees or make fees easy to avoid. However, additional funds not needed for living expenses may be better off placed in an interest-bearing account or used for debt reduction.

“There is no need to strand a significant balance in a checking account when that excess cash can be put to better use by shoring up emergency savings, paying down debt, or increasing retirement savings contributions,” McBride says.

Interest checking: High fees, rock-bottom yields

Yields remain at a record low

The average yield on interest checking accounts remains at the record low of 0.03 percent first established last year, despite the fastest pace of Federal Reserve interest rate hikes in decades. While yield increases outnumbered decreases by 2 to 1, the overwhelming majority of accounts (97 percent) carry an APY of 0.1 percent or less. The most common yield remains 0.01 percent for the 11th straight year.

Steep monthly fees are hard to avoid

The average monthly fee for interest checking accounts is $16.19, which is down 1 percent from last year’s record of $16.35 — but still the second highest ever tallied. The most common monthly fee for these accounts is $25, for the ninth straight year.

Avoiding that fee requires an average minimum balance of $9,658, which is down 2.4 percent from last year’s record of $9,897. The averages for both 2021 and 2022 have been up sharply since 2020 when it was $7,550 — which was itself a record high at the time.

“The average monthly fee and balance requirement on an interest checking account declined slightly, but they’re coming off record highs, so this isn’t what account holders would consider to be relief,” McBride says. “Both are still at the second highest levels on record.”

In fact, the average balance requirement has more than tripled in the past 15 years, from $3,316 in 2007 — and has risen five-fold from the $1,866 average in 2002.

Maintaining a set minimum balance is often what’s necessary to avoid the monthly fee on interest checking accounts, and 75 percent of interest accounts surveyed require a certain balance for the fee to be waived. Alternatively, 15 percent of accounts surveyed will waive the fee for customers who meet direct deposit requirements.

Just 7 percent of interest checking accounts surveyed are free accounts, unchanged from last year.

How to avoid common bank fees

Many bank fees are on the rise, but they can often be avoided when you know what to watch out for.

ATM fees

Instead of paying fees to use an out-of-network ATM, consider these alternatives:

• Request cash back when you make debit card purchases at participating stores.
• Choose a bank that has plenty of in-network ATMs near you. This can help ensure you’ll always have access to a fee-free ATM that won’t subject you to extra charges.
• Select a bank that reimburses an unlimited number of out-of-network ATM fees, or a set number of them per month. This practice is common among online banks. Some credit unions and brick-and-mortar banks also reimburse these fees for qualifying accounts.

Checking account monthly service fees

While 46 percent of noninterest checking accounts are free — meaning they don’t charge service fees, regardless of your balance — most of those that do charge such fees make them relatively easy to avoid. Depending on your bank’s rules, you may be able to avoid this fee by doing any of the following:

• Maintaining a set minimum balance.
• Having your paycheck directly deposited into the account.
• Meeting set requirements regarding a combination of direct deposit and transaction activity.
• Those with multiple checking accounts may be able to avoid minimum balance fees by consolidating the accounts.

Switching to a bank with a free checking account is an alternative for those who find their bank’s fee-waiving requirements too difficult to meet.

Overdraft fees

An overdraft fee may be charged whenever you overdraw your account and the bank temporarily lends you the money to cover transactions. Some banks do not charge for overdrafts, and the trend among banks has been to curb overdraft fees — although 96 percent of banks surveyed by Bankrate indicated they still charge fees for overdrafts.

These fees can be avoided in a number of ways:

• Opt out of overdrafts: Telling your bank you do not want overdraft coverage is one way to ensure you won’t be charged fees if the account becomes overdrawn due to debit card or ATM transactions — although this also means any transactions that result in a negative balance will be denied by the bank. An account that has been opted out of overdrafts for debit and ATM transactions could still be subject to NSF fees if there are insufficient funds to cash checks or cover electronic bill payments.
• Sign up for overdraft protection: Overdraft protection is a service provided by the bank that ensures overdrafts are covered by transferring funds from a linked savings account or line of credit. While an overdraft protection transfer can also result in a fee, it may be less than the fee you’d be charged for an overdraft.
• Monitor your account closely: Watching your finances carefully can help ensure you don’t overspend and overdraft your account. Helpful tools include budgeting apps as well as low-balance alerts you can sign up to receive from your bank through its smartphone app.

Methodology

Bankrate conducted the survey among a total of 10 banks and thrifts in each of 25 large U.S. markets; one interest checking account and one noninterest checking account, as well as their associated ATM fee policies, were surveyed from 245 financial institutions offering consumer checking accounts; 237 interest checking accounts and 232 noninterest checking accounts were surveyed between June 13 and July 1, 2022.