On the heels of a new FDIC study showing that banks are charging Americans billions of dollars in overdraft fees, The Center for Economic and Entrepreneurial Literacy is educating consumers about the importance of avoiding these fees. Most people do not realize that a bank overdraft fee comes at a higher interest rate and greater cost than any other imaginable loan.

A customer who makes an on-premise purchase with a debit card and overdraws their account by $20, paying it back two weeks later, will suffer an average overdraft fee equal to 3,520 annual percentage rate (APR) in interest. And it could be even worse! If the customer overdraws by just $1 and pays it back in two weeks, some of the higher bank fees - $37 or more - are the equivalent of 96,200 percent APR. Those interest rates dwarf by wide margins what a borrower would pay for a wire transfer loan from a friend or family member, a credit card cash advance, or a short-term payday loan.

The small sample of banks surveyed by the FDIC earned $1.97 billion in overdraft-related fees in 2006, representing 74% of their overall $2.66 billion in service charges on deposit accounts. Outside groups estimate that banks in total cleared $17.5 billion in 2007 in overdraft fees alone.

Large banks often reorder transactions from largest to smallest in order to maximize the number of charges and fees they can collect for overdrafts or bounced checks. It is estimated that that nearly half of consumers pay overdraft fees every year! And the FDIC survey found that the most vulnerable Americans - youth and those with lower incomes - were more likely to be hit with these fees.

"Borrower beware: The myth of the responsible neighborhood bank is long gone, as the most vulnerable Americans are being hit with hidden fees and service charges," said James Bowers, managing director of the Center for Economic and Entrepreneurial Literacy. "Somehow overdrafting checking accounts became a common practice, particularly among young Americans. The public needs to understand that the interest and fees on these overdrafts are far more expensive than any other conceivable form of short-term borrowing."