Avoid Bank Fees — By Choosing the Right Bank

I recently noticed that I was paying a monthly maintenance fee for one of my bank accounts. A monthly maintenance fee? What happened to the days when banks threw free checking accounts at everyone?

So of course, I marched to Bank of America. As soon as I walked in, the very friendly manager, greeter, whatever he was, asked me how he could help me.

“I’d like to talk about my checking account,” I said.

He led me to an office. Inside, a very polite woman also asked how she could help. She had a huge smile on her face. Perhaps she thought I was going to ask for a mortgage? Or that I wanted to put my money in a CD? When I asked why I was paying a monthly fee, her demeanor changed. She no longer seemed happy to see me.

Welcome to the world of bank fees. For years, consumers have been lulled into thinking that free checking accounts are an automatic right. But recent legislation and new Federal Reserve regulations that protect consumers from some of the most egregious bank practices have led many of those same banks to search for new sources of revenue. Charging fees—and not just maintenance fees, but ATM fees, foreign transaction fees and even underuse fees—are easy sources of revenue.

The loss of overdraft fee income was perhaps the biggest blow to banks. How those fees worked: If you didn’t have enough money in your bank account to cover a debit card purchase or ATM withdrawal, the bank would let the transaction go through anyway. You’d avoid the embarrassment of having your card declined, but you would also have to pay a hefty fee, sometimes as much as $45, even if you overdrew your account by just a couple of dollars.

Banks are no longer allowed to allow such overdrafts unless the consumer takes steps to opt in: a requirement that will deprive banks of millions of dollars of revenue they had grown to cherish.

“The availability of free checking at big banks may diminish with new overdraft rules going into effect,” says Greg McBride, senior financial analyst for Bankrate.com.

But have no fear: There are still ways to avoid bank fees. Here’s how:

Shop around.

You don’t always have to go with a large bank. Consider credit unions and community banks, many of which don’t charge as many fees.

“Things like monthly service charges and balance requirements continue to rise particularly for interest bearing checking accounts, but many smaller community banks and credit unions have long offered a free checking account as part of their lineups,” McBride said.

Choose the right bank for you.

There are so many banking options out there, from traditional banks to credit unions, to online banks. Other than fees, what else do you need to consider before you choose?

Over the years, the lines have blurred among the different types of financial institutions, but some differences remain. Banks typically provided the widest variety of services, while thrifts specialize in real estate lending. One big difference with credit unions is that there is a cap on credit card interest rates that banks do not have to abide by with the cards they issue.

“When selecting a bank, consider your needs,” says Christine Parker, the President and Chief Compliance Officer at La Plata, Md.-based Parker Financial, who is also my financial planner. Do you need a checking or savings account? Do you prefer online banking, having access to ATMs and branches throughout the country? “Compare products and service fees and benefits, evaluate customer service and, if important to you, are they active in community service?”

Your financial lifestyle also plays a big role, says McBride. “If you’re someone who is comfortable doing your banking from a laptop, you’re a free agent. You can go to a credit union, internet bank, local banks or banks in another state,” he says. “If you’re paid in cash or require local branch access, that’s going to limit your field at least for some of your account relationships, such as checking.”

But you don’t have to keep all your money in one institution. ”It’s not an all or nothing proposition. You can have your checking account with a local bank and have your savings accounts and CD’s with a higher-yielding online bank,” McBride says. “In fact, you can link your checking account at the local bank with your savings account at an online bank and seamlessly move money between the two.”

Now, more on avoiding those pesky fees.

* Be vigilant. Understand the terms and conditions of you contract with that financial institution. Make sure you don’t go below the minimum balance if there is one required to avoid maintenance fees.

* Try to withdraw money only from ATM’s affiliated with your bank, otherwise you will be hit with a fee as high as $3.

* When you travel, beware of foreign transaction fees, in addition to currency conversion fees. Make sure you know what you will be charged.

* If there’s a fee you don’t agree with, talk to your bank. If you’ve been banking with them for a while, they’ll be more willing to hear you out.

The conclusion to my story is this: I had opened my account with Bank of America when I had a mortgage. There was no maintenance fee because of that mortgage. But now that I no longer had that mortgage, I had to maintain $5,000 at all times to avoid that fee. I have my money spread out over two accounts with two different banks. So there were times when my Bank of America account dipped below $5,000.

I asked for a different type of checking account that would not incur a fee. The woman obliged.

The bottom line is, if there’s ever a fee you don’t think you should pay, argue against it. You have nothing to lose. Hopefully, in this day and age, you should be able to bargain with anyone — even your bank.

Nancy Trejos is the personal finance columnist at the Washington Post and the author of Hot (broke) Messes, a personal-finance book for young adults. This week, Mint.com is giving away another five copies of Hot (broke) Messes. For participation instructions, click here.