Topic:
CONSUMER CREDIT; BANKS AND BANKING;
Location:
BANKS;

OLR Research Report


February 17, 2000

 

2000-R-0167

BOUNCED CHECK AND RETURN ITEM FEES

 

By: Helga Niesz, Principal Analyst

You asked us to survey at least 20 banks in Connecticut and find out what they charge for bounced checks – both to the check writer and the person who accepts and deposits it. You also want to know what the average fees are for the banks we survey.

SUMMARY

Average fees at the 26 banks we surveyed were $22.19 for the check writer (called an overdraft or insufficient funds (NSF) fee) and $8.35 for the person who deposits the bounced check in his account (called a deposit return item fee). Nationally, depending on the type of bank, these overdraft/NSF fees averaged $16 to $18 and the deposit return item fees averaged $5 to $8 in 1998, the latest year available in a Federal Reserve study.

BOUNCED CHECK AND DEPOSIT RETURN ITEM FEES

A check “bounces” when there are not enough funds in the check writer's account to pay it. In these situations, a bank will often impose an insufficient funds fee (NSF fee) and not pay the check. Or it can alternatively pay the check and impose an “overdraft” fee (because the account is overdrawn). These two fees are usually the same or similar. The bank can also charge fees if people write checks against funds that are in the account but not yet available because of check hold periods (sometimes this is called a non-available or uncollected funds fee). It is usually the same as or similar to the overdraft/NSF fee.

In addition, a bank can impose a deposit return item fee or “return item fee” on the person who accepts a check and deposits it into his account if that check later bounces.

People who are likely to write checks on insufficient funds in their own accounts can protect themselves against these charges by signing up for overdraft protection with their bank. This overdraft protection can take several forms. It can link the checking account to, for instance, a savings account and transfer money as needed from the savings account. Or it can link to a credit card and cover the overdraft amounts as loans on the card. On the other hand, consumers who receive someone else's check that later bounces have no way of protecting themselves from the return item fee.

Table 1 shows overdraft/NSF fees and deposit return item fees at 26 banks that we surveyed, the average fees, and whether they are state or federally chartered.

Table 1

FEES AT CONNECTICUT BANKS

Bank

Charter

Overdraft fee

Deposit Return Fee

American Bank of CT

state

20

15

American Savings Bank

state

20

15

Bank Boston

federal

22

5

Castle Bank

state

22

7

Fairfield County Savings Bank(a)

state

25

10

Farmington Savings Bank(b)

state

25

10

First City Bank

state

15

7

First Union

federal

25

10

Fleet National Bank(c)

federal

25

8

Glastonbury Bank and Trust

state

22

7

 

Table 1 (continued)

Bank

Charter

Overdraft fee

Deposit Return Fee

Liberty Bank

state

24

10

Mechanics Savings Bank

state

25

8

New Haven Savings Bank

state

20

10

Newtown Savings Bank(d)

state

22

8

People's Bank

state

25

7

Savings Bank of Manchester

state

25

10

Savings Bank of Rockville

state

20

5

Simsbury Bank

state

20

7

Southington Savings Bank

state

22

5

Summit Bank

state

20

10

Superior Savings of New England

state

25

10

Thomaston Savings Bank

state

20

5

Tolland Bank(e)

state

20

8

Union Savings Bank

state

20

5

Valley Bank

state

25

7

Webster Bank(f)

federal

23

8

       

Average Fees for All Banks

 

$22.19

$8.35

(a)Fairfield County charges an overdraft fee of $25 if it pays check, $20 if it does not

(b)Farmington Savings charges $25 if it pays check or $20 if it does not.

(c)Fleet $25 if paid, $22 if not paid

(d)Newtown charges only $16 if the funds are in the account but uncollected (because the check hold period has not expired)

(e)Tolland Bank charges $18 if the funds are in the account but not yet available because of check hold periods

(f)Webster Bank charges $23 if it pays the check, $22 if it does not. If an account is overdrawn for five days, starting on the sixth day it is assessed a $1 daily overdraft fee for each day the account remains overdrawn.

NATIONAL AVERAGES

The Federal Reserve Board's latest Annual Report to Congress on Retail Fees and Services of Depository Institutions showed that nationally in 1998 the average NSF fee for commercial banks was $16.96, up from $16.55 in 1997. The average overdraft fee was $16.65, up from $15.73 the prior year. The average fee on deposit items returned was $5.49, up from $5.15. While nearly all banks charged NSF and overdraft fees, only about 62% charged the deposit return item fees, up from about 56% the prior year. In each case, these 1998 average fees were slightly higher for savings and loan associations: $17.98 for NSF fees, $17.82 for overdraft fees, and $7.84 for deposit return items.

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