Recently on this site, I had written an article describing what an APR% is, and how to calculate one.  Of course, the thought of learning how to calculate an “Annual Percentage Rate” doesn’t really excite many people, so I applied APR’s to different common scenarios, provided examples and online APR calculators to help.  I hope the result was a “surprisingly simple” description of a financial term that can seem intimidating at time.

Some reader comments had inspired me to write about and discuss what APR%’s look like, when applied to common “overdraft/NSF” scenarios.  Unfortunately, this is a very common situation that most of us have had the bad luck to encounter at one time or another.  Sometimes, it seems that no matter how hard you try, banks seem to find a way to “arrange” your payments in such a way that results in a series of costly overdrafts.  A reader comment on describes the following “scenario”…

“Imagine you have $1100 in your account and do 6 separate debit charges at $20 a piece, a total of $120. Later in the day you write a $1050 check to pay for rent, unfortunately you have just overdrawn your account. There are some banks that will not simply charge you one time for overdrawing your account, they will push the rent check through and then the 6 debit charges after, resulting in 4 separate overdraft fees.”

Of course your bank will deny doing this on purpose, and simply state that these charges are “pending” and they just “happened” to post in that order.  Funny luck, eh?

Last year banks made approximately 38 billion dollars on Overdraft Fees!!

Since it’s not a “loan” banks are not required to disclose APR’s for these charges, and my bank refused to tell me what APR% my last NSF was.  That’s ok, it’s not difficult to figure out.  Banks generally fight against the Payday Loan industry because we offer an alternative to multiple NSF fees when you’re short on cash, and we are a threat to that 38 billion a year market.  They claim our APR%’s are too high, and we should be banned.  Funny, I calculate the average Overdraft situation to be much higher (APR).

If you overdraft your account by $10 and are charged a fee of $30…

(($30/$10) * (365 days/14 days))*100 = APR% of  7821%!!!!!!!!

Wow!  That’s much higher than a payday loan!  What about when you get hit with multiple charges?

Lets imagine getting hit with 3 NSF’s ($30 apiece) and say you only overdrafted by $20 total….

(($90/$20) * (365 days/14 days))*100 = APR of 1,1732%!!!!!!!!

No wonder my bank refused to tell me what APR% my last overdraft was.  I don’t know about you, but I’ll think twice the next time big banks are claiming that Payday Lender’s APR’s are “too high”!