New on FinoLib · Volume V: Personal Finance
I have just published a new article on FinoLib, my free finance education library: How to Avoid Bank Fees: Credit Unions vs Online Banks. It is part of Volume V: Personal Finance. Below is a summary of the topic in plain, expert language, so you can follow the idea even before you open the full article.
The idea in plain words
Banks make a lot of money from small fees, and the biggest is the overdraft fee, charged when you spend more than you have. You can usually avoid it by saying no to overdraft coverage on debit card purchases, keeping a small cushion in the account, and turning on low-balance alerts. When choosing where to bank, compare fees, interest rates and how easy it is to reach your money. Banks, credit unions and online banks all carry the same federal insurance, so safety is not what separates them.
Key points
■There is no federal cap on overdraft fees; the median at large banks charging one was $35 (CFPB, 2023).
■A $34 fee on a $24 overdraft repaid in three days costs as much as a loan at about 17,000% APR.
■The opt-in protection covers ATM and one-time debit transactions only, not checks or automatic bills.
A closer look
An overdraft happens when a bank pays a transaction anyway even though the account doesn’t have enough money to cover it, then charges a fee for having done so. A non-sufficient funds (NSF) fee is the reverse — the bank declines the transaction and charges a fee regardless. Both exist because of the same underlying event: spending or a scheduled payment exceeding the available balance.
A worked example
Worked Example — Compare the Scenarios: What a Checking Account Costs in a Year
Average fees from Bankrate’s 2025 survey; forgone interest = extra balance × (4.00% − account APY) × (1 − 22%). The household already keeps $4,687.80 in checking. Account Arithmetic Cost a year A. Branch checking, $5.47 monthly fee not waived $5.47 × 12 $65.64 B. Interest checking, $15.65 fee waived by a $10,705 balance ($10,705 − $4,687.80) × (4.00% − 0.07%) × 0.78 $184.45 C.
Under the hood
Under the Hood: Why Overdraft Is Priced Like a Loan and Paid by a Few
The CFPB found that most debit-card overdraft fees were triggered by purchases of $24 or less, that the median fee was $34, and that more than half of overdrawn consumers were back above zero within three days. As an annual rate: $34 ÷ $24 × 365 ÷ 3 = 172.4, or about 17,000%. The revenue is concentrated: in 2011–2012 account data, the 9% of accounts at the study banks with more than ten overdraft and NSF items a year paid 79% of all overdraft and NSF fees. So the default matters more than the price: since 2010, no opt-in has meant no ATM or debit overdraft fee.
Decision rule
If your checking costs more than about $60 a year in maintenance and ATM fees, or you paid more than one overdraft or NSF fee in the past 12 months, then move to a no-monthly-fee account, decline debit overdraft coverage, and set a low-balance alert at one week of needs ($2,343.90 × 12 ÷ 52 = $540.90 here). Assumes switching takes a few hours once. Ignore it if the account earns you something worth more, such as a mortgage-rate discount, or you deposit cash often.
The costliest mistake
Opting in, then running near zero. The day before payday, with $0 available, four debit purchases of $6, $12, $9 and $15 ($42) are each paid as an overdraft at a bank charging $35 per item with no daily cap: 4 × $35 = $140, or 333% of what was bought. Without the opt-in, all four would have been declined free. How to avoid it: revoke the opt-in and keep the $540.90 alert.
Why It Matters
The repeal of the federal cap does not mean overdraft fees are back to where they were a decade ago. Separately from that rule, overdraft and NSF revenue at banks with over $1 billion in assets had already fallen by more than half between 2019 and 2023 ($11.96 billion to $5.83 billion, CFPB), as competitive pressure pushed many banks to voluntarily eliminate NSF fees entirely, add small buffer amounts before a fee triggers, or offer short grace periods to cover…
Recap
An overdraft is a payment the bank covers anyway for a fee; an NSF fee is charged when it declines the payment instead. The CFPB’s December 2024 rule capping large banks’ overdraft fees at $5 was repealed in May 2025 before it took effect, so as of 2026 there is no federal cap and a fee of around $35 remains legal, although many banks have cut or dropped these fees…
What the full article covers
The full article includes worked examples, a look under the hood at the mechanics, a clear decision rule, the one mistake that costs people the most, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume V: Personal Finance
Read the full article on FinoLib
The complete article, How to Avoid Bank Fees: Credit Unions vs Online Banks, with every worked example, diagram, quiz and source, is free to read in Volume V, Personal Finance on finolib.com.
Explore the Finance Education Series: Vol. II — Capital Markets · Vol. I — Global Economy · Vol. III — Finance Encyclopedia · Vol. IV — Finance Careers · Vol. V — Personal Finance