According to the American Bankers Association, the majority of American adults pay little to no fees to their bank. But banks still earn plenty of money, and fees are an important source of revenue. This means that people who do pay bank fees make up for those who don't—sometimes paying tens or hundreds of dollars or more each year. If you’re paying fees to your bank, it's important to find out what they are, what they’re costing you, and how to avoid them.
Monthly Maintenance Fees
Some banks charge a fee just to hold an account with them. Known as monthly maintenance fees or monthly service fees, these bank fees range from $5 to $20 per month depending on where you bank and the services you sign up for. Such fees might eat up any interest you earn throughout the year on an interest-bearing account, and you might even have a hard time keeping your account balance above zero as a result.
You can generally avoid monthly maintenance fees in one of two ways.
Use a free account that does not come with maintenance fees. Free banking is still a reality. As a result of an amendment to the Dodd-Frank Act that passed after the financial crisis, big banks eliminated free checking accounts, increasing maintenance fees. However, plenty of banks still offer them. Online banks are a quick and easy source of free banking, as they rarely have minimum requirements or monthly service fees. If you want the benefits of a brick-and-mortar bank (bank branches are still useful), look for smaller local institutions, such as regional banks. Credit unions, which are owned by their customers, are also a great option for free checking.
Qualify for a fee waiver so that the fees don’t apply. Fee waivers are fairly straightforward: If you meet certain criteria, the bank won’t charge a monthly service fee. Common criteria that allow you to dodge fees include:
- Setting up direct deposit of your paycheck into your bank account (sometimes a minimum amount per month is required)
- Keeping your account balance above a certain level ($1,000, for example)
- Signing up for paperless statements
- Using multiple services from the same bank (getting a mortgage from the same bank where you hold a checking account, for example)
Whenever your account balance runs low and the bank pays for a transaction on your behalf, you’re in danger of paying overdraft fees, which can cost as much or more than monthly maintenance fees over the course of a year.
These bank 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 often optional because you need to opt in for overdraft protection service. In the case of most debit and ATM transactions, if you don't opt in, your card will be declined and you won't be charged an overdraft fee (you can probably pay with cash or another card).
If you are interested in overdraft protection, it’s worth researching the options. Some banks can transfer money from your savings account to your checking account, and others offer overdraft lines of credit (which impose a fee when you tap the line of credit and charge interest on the amount you borrow).
Opting Out Isn't Enough
You might think you’re in the clear if you never opted-in to overdraft protection. But in some cases, you’ll still pay overdraft fees if you run your account balance down to zero and then charges hit your account.
For example, you might have set up automatic mortgage or insurance payments from your checking account, allowing your biller to withdraw the funds each month. Recurring electronic payments and checks are handled differently from debit and ATM transactions, in that banks will often pay for them and then charge you an overdraft fee even if you didn't opt in to the service.
What You Can Do
One way to avoid these bank fees is to keep track of how much you have in your account and 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.
As a safety net, you might 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.
Non-Sufficient Funds Fees
In some cases, a bank may return a check you write or an electronic withdrawal you make as unpaid if you don't have the funds in your account to cover it. Even though the bank won't cover the expense, it may charge what is known as a non-sufficient funds (NSF) fee for the failed transaction. Like overdraft fees, these bank fees also typically cost around $35 per failed transaction.
To avoid NSF fees, keep enough money in your account to cover your spending. If it's difficult to pull that off because money is tight or billers withdraw money when you least expect it, set up alerts in your bank account. This way, your bank can email or text you when your account balance runs low so that you know that you need to reschedule or cancel payments or transfer funds from a savings account.
Most people don’t blink when they pay $10 per month as a monthly maintenance fee, but they hate the idea of paying to get their own money from an ATM. That makes sense: Your bank may charge you $2 to $3 for each transaction you make at another bank's ATM, which can easily amount to over $100 in fees every year with regular ATM use.
If you use ATMs frequently, you need a way to avoid these bank fees. The best way to do so is to use only ATMs that are owned or affiliated by your bank. This way, 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 one—you might have more access to free ATMs than you think. Many credit unions participate in shared branching, which 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.
Wire Transfer Fees
Wire transfers allow you to send money through a bank or a non-bank wire transfer provider without physically exchanging cash. They're great for sending money quickly, but they’re not cheap. The average fee for a domestic incoming wire transfer is around $16, while a domestic outgoing wire transfer costs around $28.
If you don’t really need to send a wire, choose a less expensive way to send funds electronically. Many banks offer free bank-to-bank transfers, for example.
Early Account Closure Fees
Many banks ding you with a fee of around $25 to $50 when you close an account shortly after opening it. Even if you’ve changed your mind about a bank, wait at least three to six months before closing your account to avoid early closure fees.
Excessive Withdrawal Fees
Some accounts limit the number of transactions (especially transfers out of the account) you can make each month. Per Federal Reserve Board Regulation D, savings accounts limit certain types of withdrawals to six per month.
If you intend to spend money from those accounts, plan ahead and move the money to your checking account in larger chunks. This way, you can avoid getting hit with an excessive withdrawal fee, which can range from $3 to $20 or more per transaction.
Early Withdrawal Penalties
Certificates of deposit (CDs) often pay higher interest rates than savings accounts. But the tradeoff is that you need to leave your money in the account for a long time. If you pull out early, you’ll generally pay a penalty that generally amounts to the amount of interest you would have accrued on the principal amount withdrawn over a certain number of months (three months' interest, for example).
To save that money, set up a CD ladder so that you’ve always got some cash coming or use a no-penalty CD that allows for fee-free early withdrawals.