Some banks charge a fee just to have an account. These monthly maintenance fees are an automatic feature, and they run between $5 and $20 per month, depending on where you bank and what services you sign up for. For most, that kind of fee will more than eat up any interest you earn throughout the year, and you might even have a hard time keeping your account balance above zero.
Maintenance fees are relatively easy to avoid. You can either:
- Use a bank that does not charge maintenance fees, or
- Qualify for a fee waiver so that the fees don’t get charged
Free banking is still a reality. After the financial crisis, big banks made big news by cutting free checking accounts (and increasing maintenance fees). However, plenty of banks still offer free checking. Online banks are a quick and easy source for free banking, as they rarely have minimum requirements or monthly fees. If you want the benefits of a brick-and-mortar bank (bank branches are still useful), look for smaller local institutions like regional banks. Credit unions, which are owned by their customers, are also a great option for free checking.
Fee waivers are fairly straightforward: if you meet certain criteria, the bank won’t charge maintenance fees. Common criteria that allow you to dodge fees include:
- Setting up direct deposit of your pay into your bank account (sometimes a minimum of $500 per month is required)
- Keeping your account balance above a certain level ($1,000, for example)
- Signing up for paperless statements
- Using different services from the same bank (getting a mortgage from the same bank where you keep your checking account, for example)
02Overdraft and Insufficient Funds
Overdraft charges and fees for insufficient funds (or NSF) can cost as much or more than maintenance charges over the course of a year. Whenever your account balance runs low, you’re in danger of paying these fees.
Overdraft fees are often around $35 per failed transaction. For example, if your account has $1, but you spend $4 with your debit card (and you have signed up for your bank’s overdraft protection program), you’ll pay $35 just to borrow $3. Withdraw money from the ATM after that, and you could face another $35 charge.
Fortunately, overdraft fees are optional. Banks used to sign you up for overdraft protection automatically, but now you need to opt-in for the service. In most cases, you’d rather just have your card declined (you can probably pay with cash or another card, saving yourself the $35). If you are interested in overdraft protection, it’s worth researching the options. Some banks will transfer money from your savings account to your checking account for $10 or so, and others offer overdraft lines of credit (which charge interest on the amount you “borrow” instead of a high flat-rate fee per transaction).
Opting Out Isn’t Enough
You might think you’re in the clear if you never opted-in to overdraft protection. But you’ll still pay fees if your account balance runs to zero and charges hit your account. For example, you might have set up automatic mortgage or insurance payments from your checking account (so your biller pulls the funds out each month). Those payments are handled differently – opting out of overdraft protection only prevents you from overspending with your debit card.
If transactions draw your account balance below zero, your bank will charge a fee for insufficient funds. Those fees are also typically around $35 per failed transaction.
What you can Do
How can you avoid overdraft and NSF fees? The easy answer is to keep enough money in your account. But it’s hard to pull that off when money is tight and electronic transactions pull money out without you knowing about it.
Keep track of how much you have in your account, and even how much you will have in your account next week. If you balance your account regularly, you’ll know which transactions have already gone through and which ones you’re still waiting on. Your bank might show that you have a certain amount of money available – but you’ll know that not all of your bills have hit your account yet. For more details, including forms and spreadsheet templates, see How to Balance Your Account.
It’s also helpful to set up alerts. Have your bank text you when your account balance runs low. You’ll know that you need to change or cancel payments, or transfer funds over from a savings account.
As a safety net, you might also want to set up an overdraft line of credit. Hopefully, you won’t make a habit of using it, but it’s a less expensive way to handle occasional mistakes.
ATM fees are among the most annoying bank fees. Most people don’t blink when they pay $10 per month as a maintenance fee, but they hate the idea of paying to get their own money from an ATM. That makes sense: those fees can easily add up to 5% or 10% of your total withdrawal (or more).
If you use ATMs frequently, you need a way to avoid those fees. The best approach is to use ATMs that are owned or affiliated by your bank. You won’t pay your bank’s “foreign” ATM fee, nor will you pay an additional fee to the ATM operator. Use your bank’s mobile app to find free ATMs.
If you use a credit union – even a small credit union – you might have more access to free ATMs than you think. Many credit unions participate in shared branching. This allows you to use branch services (and ATMs) at different credit unions – not just your own credit union. Find out if your credit union participates, and figure out where the most convenient ATMs are.
04The List Goes On
We’ve covered the biggies in depth, but there are plenty of other ways to pay for banking services. Keep an eye out for these fees.
Account closing fee: banks ding you when you close an account shortly after opening it. If you’ve changed your mind about a bank, wait at least three to six months before closing your account to avoid fees.
Excess transfers: some accounts limit the number of transactions (especially transfers out of the account) allowed per month. Money market accounts, which offer some of the benefits of both checking and savings accounts, might limit you to three withdrawals per month. Savings accounts, due to Regulation D, limit certain types of withdrawals to six per month. If you’re going to spend money from those accounts, plan ahead and move the money to your checking account in larger chunks.
Early withdrawal penalties: certificates of deposit (CDs) often pay higher interest rates than savings accounts. The tradeoff? You need to commit to leaving your money in the account for a long time. If you pull out early, you’ll pay a penalty. To save that money, set up a CD ladder so that you’ve always got some cash coming free or use a liquid CD that allows for early withdrawals.
Bank Fees You Need to Stop Paying
According to the American Bankers Association (ABA), the majority of American consumers don’t pay any fees to their bank. Are you part of that group?
Banks still earn plenty of money, and fees are an important source of profits. That means that people who do pay fees make up for everybody else – sometimes paying hundreds of dollars or more each year. If you’re paying fees to your bank, find out what they are, what they’re costing you, and how you can put an end to those costs.