Sometimes you can gain as much by cutting insignificant costs that add up over time as you can by earning additional income. Banking fees are a good example. Banks charge so many different types of fees, that you may not realize what your real costs are.
With minimum balance requirements, ATM fees, and overdraft charges, even your basic checking and savings accounts might be costing you more than they should. In addition, if your money could be earning more interest somewhere else, you’ve lost an opportunity.
For example, keeping low-interest savings account in a traditional bank rather than moving it to a higher interest online savings account costs you the extra interest you would have earned.
Most banks charge a long menu of fees for consumer checking accounts, and those fees can add up very quickly. What’s worse, when you aren’t expecting them, bank fees can even end up triggering more bank fees. You can eliminate a lot of these budget-busting fees by taking simple actions.
Here are the most common banking fees and how you can avoid them to save hundreds of dollars over the years.
8 Common Banking Fees
1. Monthly maintenance/service fee
Many banks charge maintenance fees of $10 to $12 per month if your balance dips below a preset minimum. You can avoid those fees by making sure you keep that minimum cushion in your account at all times, having the bank waive the fee by setting up direct deposits for your paychecks or switching to a no-monthly-fee checking account.
The money that you save on paying no monthly fees can instead be invested in a high-interest savings account with no fees.
2. Overdraft fees
When your checking account goes into a negative balance, you’ll be charged overdraft fees, and these can run more than $30 each. Make sure you account for everything that drains your account, including automatic payments,
You can sign up for a direct deposit, which will automatically and consistently deposit money into your account. Maintaining a minimum balance will prevent overdrafts and help you avoid overdraft fees.
Many banks also offer overdraft protection or coverage for a fee, of around $35 per overdraft. Your bank covers you by taking money from your linked savings account, second checking account, or line of credit when you don’t have enough money in your bank account.
Some banks allow you to cover overdrafts automatically from your savings account or with a bank credit card. The most common method of covering overdrafts involves establishing a line of credit, which typically has an interest rate that can be as much as two times higher than the going rates on credit cards or loans.
The cost to you could be substantial if you don’t repay it right away. If your overdraft protection is linked to your credit card, the bank issues a cash advance to cover your overdraft and charges it to your credit card.
You pay a cash advance fee of 2 to 3 percent plus the fee your bank charges for the transaction, plus whatever interest you incur before you pay the cash advance back. Your best bet is to be your own overdraft protection.
Pay close attention to the balance in your checking account, especially if you regularly use your debit card or payment apps like Zelle or Venmo that is linked to your checking account. Set up account balance alerts that let you know when you’re running low on funds.
If you know you’re having trouble covering all of your expenses, revisit your budget and make some changes; that will help keep you from drowning in bank fees that you really can’t afford.
3. Out-of-network ATM fee
When you use an ATM that is not owned by your bank or in its network, your bank will charge you an out-of-network fee. On top of that, you may incur a surcharge from the foreign ATM provider, which gets charged in addition to fees charged by your own bank.
Here’s an example of how it works: You withdraw $20 from an ATM that doesn’t belong to your bank, and that ATM charges a $1.50 fee. Your bank then adds an out-of-network surcharge of $3.00. You’ve just paid $4.50 in service fees, 22.5 percent of your withdrawal amount, to access $20 of your own money. You can minimize ATM fees by:
- Establishing an account at a bank with a large ATM network so you don’t get stuck using out-of-network ATMs.
- Planning cash withdrawals when you can access your own bank’s ATMs, or look for ATMs that don’t impose a surcharge (which will be indicated on the ATM).
- Withdrawing large amounts of cashless often rather than smaller amounts more often.
- Using mobile banking apps to pay for purchases or to transfer money to other people.
- Avoid higher-cost ATMs found in convenience stores, hotels, casinos, restaurants, and airports.
4. Excess transaction fees
Savings account holders who withdraw more than the federal limit, six withdrawals, and transfers a month, incur an excess transaction fee. During an outbreak of Coronavirus, however, this limit is waived under Regulation D.
If you use your checking account for routine withdrawals, like paying bills, you can easily avoid paying excessive transaction fees, which can range from $3 to $25 per transaction.
5. Returned-item fees
If you deposit a check that bounces (meaning the person who paid you didn’t have enough money in his or her account to cover the payment), your bank will probably charge you a fee, sometimes as much as $15. Not only will that deposit not be in your account; but you’ll also be out the amount of the fee.
6. Paper statement fees
Some banks now charge fees—up to $2 a month!—for mailing out paper statements. Switching to online statements will kill that fee and save some trees.
7. Wire transfer fee
While wire transfers are a convenient way to transfer money without using physical cash, they come at a price. In most cases, banks charge between $16 and $35 for this service. Wire transfers should only be used for official transactions requiring a large amount of money. You can also transfer funds online or through the mobile app of your bank.
8. Early account closing fee
There are repercussions to closing your account too early. The length of time you need to keep an account open before it can be closed without a fee varies between banks (usually 90 to 180 days). Before you cancel your account, you should check what your bank’s policies are.
Banks charge fees for pretty much everything. Go to your bank’s website and take a look at the schedule of fees so you know exactly what the institution is charging you.