An occasional review of technology, markets, and ideas.

Overdraft Fees

From the WSJ:

Customers who overdraw their accounts will no longer face a $\(25\) penalty, the bank said Wednesday. The change applies to the roughly 3.6 million checking, savings and money-market accounts at Ally’s online bank. Typically, Ally charged for each day that a customer tried to buy something when their account was more than $\(10\) in the red, except on debit-card transactions.

The best and most prosocial business models tend to be ones in which companies do well when their customers also do well. Think AWS where your compute cost grows as more people are using your service. Or Facebook/Google where your advertising cost is a function of impressions.

That's why it always struck me as odd that banks would issue penalties if you overdrew your account. A couple years ago, I'd changed banks and started direct depositing to a savings account. I had the electric company pull from my checking account, but unfortunately, I forgot to move money from my savings to checking and immediately incurred a $25 penalty. This despite the fact that it would take a minimal amount of code to just check and see if people had money in a different account.

def overdraft_protection(withdrawl):
	if checking_acct <= 0 && savings_acct > 0:
		savings_acct - withdrawl
		checking_acct - withdrawl

Because of this, it strikes me as good news that Ally Financial just decided to do away with overdraft fees. Let's hope the rest of the industry follows suit!

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Jamie Larson