How To

How to Avoid Rising Bank Fees

In the wake of  lost revenue amid record foreclosures, banking institutions have found a way to mitigate some of their losses – they are raising basic fees and pulling more money from their customers and account holders than ever before. In other words, the online bill pay service that used to cost $10 is now $12, and the service fee for your account recently went up $1 a month.

Maybe an extra dollar or two doesn’t sound like much at first, but increasing an ATM charge from $1 to $2.50 brings in a sizable amount of money when you’re talking about millions of transactions a year. And before you realize it, you – the “consumer” – have paid hundreds of dollars over the course of a year just to access and use your own hard-earned cash.

Some banks, according to NPR earn as much as half their revenue from fees charged to customers. All told, banks made $38.6 billion from service charges in 2007, and even more in 2008. If the trend continues, fees will rise again in 2009.

Hold on to your money. Goodness knows you worked hard enough and paid enough taxes on each dollar you bring home – don’t let them disappear one at a time into the black hole of banking. There are  many ways banks get a dollar here, a dollar there. Be aware of these typical fees and learn how to avoid them – even if it means switching banks.

Overdraft fees are, not surprisingly, a big portion of the service fees charged to consumers by their banks. The typical overdraft costs the consumer nearly $30 according to Bankrate.com just in fees from their own bank. The payee for the check that bounced will often garnish another $10-$20, making this slip rather costly. And no matter if the bad check was just for $5 – the fees are the same.

In fact, the average household with checking accounts spent $368 on non-sufficient funds (NSF) fees in  2008. Those in the higher end – over 20 million households with more than the usual NSF activity – each typically spent an astonishing $1,472 in overdraft fees according to Bretton Woods.

New tiered NSF fee structures will take even more money from consumers in 2009, as banks charge one fee for the first item and a larger amount for the subsequent ones. Thus if a US Bank customer, for example,  bounces three checks in one day, the first will cost $19 and the other two will be charged $35 each.

Regina F., a recently-graduated accounting professional in Virginia, put several hundred dollars in a savings account linked to her checking account to avoid these overdraft fees. But little did she realize, until it had happened several times, that every time the bank pulled money from her savings to make up for a too-large debit against the checking account, the institution charged her $10. Once, the overdraft amount pulled in was only $3, but she still paid the same $10 fee for the occurrence.

Mint Tip: Keep a cushion of $100 that you never touch in your checking account to avoid overdraft fees, or look for a bank that will make those savings-to-checking transfers for free – USAA Federal Savings Bank is one, and others exist.

ATM fees, that $2 or so you pay to get a few $20 bills from an ATM not belonging to your bank, can also add up over the course of a year. Consider too that some banks charge you for taking money out of another bank’s ATM – meaning you effectively pay two ATM fees on one cash-out transaction!

Amy Fontinelle, an Investopedia contributor, has choice words to say about banks charging account holders for what amounts to a loan to the bank, which the bank can than make money from by lending your money to others at higher interest rates.  “In theory, you shouldn’t have to pay your bank money for the privilege of having an account with them,” she writes.

Fontinelle advises avoiding ATM fees by planning ahead. “Get more cash than you need when you visit your own bank’s ATM, or stop by that ATM whenever you’re nearby, even if you don’t need any cash at that moment. Another option is to get an internet checking account that reimburses all ATM fees because internet banks don’t have ATMs, and customers have to get cash somehow. … Using your own bank’s ATM should never cost money, but if they have a monthly limit of transactions, make sure you don’t surpass that number to avoid incurring unnecessary charges.”

Personally, I withdraw enough cash each pay period to last the duration, and occasionally take out extra when doing a debit transaction at grocery store or post office that allows cash back as an option – another way to get cash for free. My bank, which is Internet-based, also reimburses any ATM fees its users incur. I just don’t like to pay those fees on principle.

Never pay monthly maintenance or service fees for your bank account – there are enough free checking and savings options out there that spending an extra $5 or even $20 a month to keep your money in an account shouldn’t even be considered. From local credit unions to Internet banks, options abound. Kick the high-fee account to the curb. The momentary aggravation of changing direct deposits and bill payment information will be well worth the long-term savings.

Make sure your bank doesn’t require a minimum balance, or charge a fee if your savings goes below a certain threshold, when choosing an account. If you pay most of your bills through online bill paying, make sure that service is fee-free at your bank. If there is a limit each month, consider opening a second checking account linked to the first and make some of your bill payments out of the second one.

Bottom line: structure your habits to avoid high banking fees. If your bank doesn’t make the grade, shop around for a bank with lower fees and more services.

What was your worst bank-fee experience? How do you avoid bank fees? Share your thoughts in the comments section, below.