Last week, I wrote about how ING Direct and Everbank offered overdraft protection by way of a line of credit, rather than socking you with overdraft fees. I commented, off the cuff and without doing much research, about how online banks are better than traditional brick and mortar banks about overdraft fees because they aren’t as much a slave to meeting their revenue expectations. I figured it’d be a little unfair if I just left it at that, so I took a look at how online banks deal with overdrafts on their checking accounts.
In general, online banks are cheaper than traditional banks. Some use the same system of fees while some use overdraft protection, charging an interest rate. Some charge one fee regardless of the number of overdrafts in a single day while others hit you for each one. On the whole, online banks are cheaper probably because they can afford to be.
Let’s take a look at some popular online banks and their checking account fees:
At Ally Bank’s  interest checking account, they list the non-sufficient funds fee as $9. It’s a maximum daily fee, rather than a per item fee. When you overdraw, the first $100 in checks will clear. After $100 they may begin to be returned, which is up to Ally Bank. Whether the checks clear depend on the length of time the account has been open and the length of time the account has been overdrawn. You have to bring your balance above $0 within 7 days.
Example: Let’s say you have $50 in your checking account and you write a check for $100. The check would clear, leaving you with -$50. You would also be assessed the $9 fee. Subsequent checks that would bring your account balance under $100 will likely be returned but you wouldn’t be charged an additional $9 fee unless you wrote more checks.
Free Overdraft Protection: If you have both a savings and a checking account, you can call Ally to link the two together. When you do so and overdraw your checking, funds are transfered from your savings to your checking. This service is free.
ING Direct’s  overdraft protection on the Electric Orange account is a line of credit of up to $500. When you overdraw your account, your checks will still clear but you will be charged interest on your negative balance at ING Direct’s Prime Rate + 4%. There is no set fee per item or per day, just interest on the line of credit. I discussed how the Electric Orange overdraft system  worked in the past.
Example: Let’s say you have $50 in your checking account and you write a check for $100. The check would clear, leaving you with -$50. You would be charged interest at their Prime Rate + 4%, which is less than $1 per month.
Everbank  is another online bank that uses a line of credit as overdraft protection, with its rate pegged to the Prime Rate, which is lower than the rate ING Direct charges. You can always look at the Prime Rate at WSJ’s Market Data Center , scroll down and look for the “Consumer Money Rates” box (or search for “Prime rate”). It’s also available here  (if you don’t want all the noise).
PerkStreet  is one of the few online banks that, at least with respect to overdraft and non-sufficient funds fees, acts like a brick and mortar bank. If you opt into overdraft protection, you’ll be charged $25 per item. If you don’t and overdraw, the non-sufficient funds fee is $23 per item. You can take solace in the fact that the amounts they charge are much lower than brick and mortar banks.
If there are other online banks (they need to have checking accounts so you can actually overdraft) you want me to add to this list, let me know.
(Photo: crazyneighborlady )