overdraft fees
Are your small purchases amounting to huge costs? CNN Money reports on a report recently launched by the Customer Financial Security Bureau (CFPB) that reveals that overdraft charges are huge company for banks – and can equate into a rate of interest of as much as 17,000 percent.

Small purchases = big fees

One of the reasons that the rate of interest is so high when translated into an APR is due to the truth that many of the purchases setting off overdraft charges are small. When your morning coffee purchase activates an overdraft charge of $34 (the reported average), it’s very little of a stretch to obtain what translates into a substantial charge.

According to the CFPB, another part of the problem is the truth that many customers actually pay back the overdraft charge within a few days. Incorporate this fast repayment with the fact that, sometimes, the overdraft cost is many times the purchase cost, and you wind up with an excessively high rate of interest.

The truths of the scenario are not the only things that trip up consumers. According to the CNN Money post, there are banks that deliberately order deals in order to run up as lots of overdraft fees as possible. Instead of purchasing transactions the way they’re available in, banks might take out the bigger purchases initially, exhausting the bank balance quicker. Then, the smaller sized purchases that can be found in are the ones that cause the overdraft – and there are typically more of them, so banks can charge more fees.

It’s not surprising that banks are loathe to alter their practices, however. Reports show that overdrafts amount to more than half of the fee income banks receive from examining accounts.