A new study by personal finance website GoBankingRates.com shows that many consumers treat their checking accounts like payday loans. This is due to frequent overdrafts and the resulting high interest rates. The study mentions a 2014 report by the Consumer Financial Protection Bureau, which finds that just 8% of bank customers are responsible for roughly 75% of all overdraft fees.
Some customers overdraft occasionally when they lose track of their balance, however there is another group that continues to overdraft, treating their line of credit as a quick fix when they get into a financial bind.
GoBankingRates delved further into this topic, and conducted a survey to find out why consumers go into overdraft. Among the 1,000 people surveyed, 14% say they simply don’t keep track of their account balance. About 6% say they really needed to make the purchase. Another 4% used the excuse that their bank’s overdraft policy is confusing. Roughly 3% say they go into overdraft because the penalty fee is low. And about 70% make the claim that they never go into overdraft.
The poll results demonstrated a connection between age and overdraft habits. Those age 18 to 24 were most likely to not know their account balances, most likely to overdraft, and most likely to be confused by their bank’s overdraft policies.
The CFPB says many consumers constantly dip into their overdraft line of credit, resulting in about $30 billion in fees paid out to various banking institutions.
For more on this topic, see Help! I Can’t Open a Checking Account!