Frequent Overdrafters Live on the Financial Edge

Number of the Day: The most relevant or interesting figure in personal finance

$225

That’s how little credit is available to people who frequently overdraw their bank accounts—a stark reminder of the slim financial margins that often lead to the overdraft fees a prominent online bank has now permanently removed.

People who very frequently overdraw often don’t even have credit cards, but if they do, the available credit on them is just a tiny fraction of the $14,100 available to those who never overdraft, according to a 2017 study by the Consumer Financial Protection Bureau. These very frequent overdrafters—defined as those who incur more than 20 bank penalties a year for attempting transactions without enough money to cover them—also tend to have lower credit scores and lower bank balances. They make up just 5% of bank customers but pay 63% of all overdraft and insufficient fund penalties, the study showed.

Advocates for people living paycheck to paycheck scored a win Wednesday when Ally Bank said it would eliminate its fee of $25 per overdraft. 

"Nationwide, more than 80% of overdraft fees are paid by consumers living paycheck to paycheck or with consistently low balances—precisely the people who need help stabilizing their finances,” Ally Financial CEO Jeffrey Brown said in a statement. “Eliminating these fees helps keep people from falling further behind and feeling penalized as they catch up."