The fee that's creeping up at credit unions
July 15, 2013
Conventional wisdom says that if you want lower fees, you should keep your checking and savings accounts at a credit union. However, a new survey reports that credit unions have raised their overdraft fees in each of the last two years as ordinary banks have held their fees steady.
Moebs Services, an economic research firm, has been tracking trends in overdraft fees since 2009. According to its report released in early July, the median overdraft fee for credit unions climbed to $28 in 2013, up from $25 in 2011. That number is closing in on the $30 median fee charged by banks, a figure that hasn't increased since 2010.
"Despite the increases by credit unions, their overdraft fees remain $2 lower than banks, which is still a statistical difference," said Michael Moebs, economist and CEO of Moebs Services, in a written statement.
Institution size may be more important
According to the data collected by Moebs, customers looking for the lowest overdraft fees may want to focus on the size of an institution rather than whether it is a bank or a credit union. The firm found a $10 difference in overdraft fees between the largest and smallest institutions.
Depending on their assets, banks, thrifts and credit unions charged the following median overdraft fees in 2013:
- More than $25 billion in assets: $35
- $5 to $25 billion: $33
- $500 million to $5 billion: $30
- $100 to $500 million: $29
- Less than $100 million: $25
In addition to the size of the institution, there are regional differences in overdraft fees. The Midwest and Western states have the lowest median fees at $29, while the South and East had median fees of $30.
Kansas had the distinction of being the state with the lowest median overdraft fee at $25. Meanwhile, Delaware had a median fee of $34, the highest in the nation. Major cities with the lowest and highest median overdraft fees were San Francisco ($25) and Tampa ($34).
Overdraft fees face scrutiny
The Moebs study comes as overdraft fees face increased scrutiny. Last month, the federal Consumer Financial Protection Bureau issued a report expressing concern with how banks and credit unions are marketing overdraft programs to consumers.
In addition, a May study from The Pew Charitable Trusts looked at the overdraft policies of 36 of the 50 largest banks in the nation. That report discovered 18 institutions had not adopted any of the suggested best practices for overdrafts, such as eliminating polices that reorder transactions and maximize fees. What's more, two banks -- RSB Citizens and Sovereign Bank -- had not only failed to implement the best practices, but didn't have any good practices in place either.
Consumers shopping for a new checking account should be aware of not only the cost of overdraft fees, but also the bank policies surrounding them. For example, they may want to look for banks that don't charge ATM or point-of-sale overdraft fees or those that have grace periods to allow accountholders to bring their balance positive within a certain amount of time without being penalized.
For consumers prone to checking account overdrafts, the amount of the fee may not be as important as the policies that determine the order and timing of these charges.