She Earns $38,000 As A Barista, And Paid $102 In Overdraft Fees Last Month. Her Roommate Says, “Your Bank Is Making Money Off You Being Broke”
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Imagine a 27-year-old barista in Portland, Oregon, earning about $38,000 a year and living close to the edge between paychecks. Last month, a $6 coffee, a $14 grocery run and a $9 streaming renewal each pushed her checking account below zero. Because she had opted into her bank’s overdraft coverage, the bank paid the transactions and charged her $34 for each one.
When her roommate saw the $102 in fees, she didn’t hold back. “Your bank is making money off you being broke,” she said.
Her roommate has a point. Overdraft fees on small debit purchases can cost far more than the purchases themselves, making an already difficult financial situation even harder. Switching to an account with no overdraft fees or minimum balance requirements, and gradually building even a small cash cushion, could help keep more of her money in her pocket.
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Why Small Purchases Turn Into Big Fees
In this example, $29 worth of purchases cost $131 after the fees were added. That’s more than four times the original spending.
She is far from alone in having little room for unexpected expenses. The Federal Reserve found that 63% of adults would cover a hypothetical $400 emergency expense using only cash or its equivalent. The remaining 37% would need to borrow, sell something, or find another way to pay, and some said they couldn’t cover the expense at all.
Overdraft fees aren’t inevitable, however. Under federal rules, banks generally must obtain a customer’s affirmative consent before charging overdraft fees on one-time debit card purchases and ATM withdrawals. Customers who haven’t opted in generally cannot be charged those fees for covered transactions, although other types of payments, including checks and recurring electronic payments, can still result in overdraft fees.
How Much Does Her Bank Account Really Cost?
Beyond overdrafts, some traditional checking accounts charge monthly maintenance fees unless customers meet certain requirements, such as maintaining a minimum balance or receiving qualifying direct deposits.
For someone who rarely has extra money sitting in an account, those requirements can be difficult to meet.
Adding up a full year of bank statements is one way to understand the real cost. At her current pace, overdraft fees alone would total $1,224 over a year. That’s money that could otherwise go toward groceries, bills or an emergency savings fund.
