Most American individuals pay little to no fees to their bank, according to the American Bankers Association. However, banks continue to make a sizable profit, and fees remain a significant source of income. This implies that individuals who do pay bank fees—paying sometimes tens, hundreds, or even more annually—make up for those who don’t. It’s critical to understand your bank’s fees, how much they’re costing you, and how to prevent them if you pay them.
You run the risk of incurring overdraft fees if your account balance falls below a certain level and the bank makes a payment on your behalf. These penalties may be just as expensive as monthly maintenance fees over the course of a year.
The average amount charged by the bank for a declined transaction is $35. If your account has $1 and you use your debit card to make a $4 purchase (and you’ve enrolled in your bank’s overdraft protection program), you’ll pay $35 only to borrow $3. If you use the ATM again after that, you risk incurring another $35 fee.
Fortunately, overdraft fees are often negotiable since overdraft protection is a voluntary service. If you don’t opt in, your card will often be denied for debit and ATM transactions, and you won’t be assessed an overdraft fee (you can probably pay with cash or another card).
It is good to look into your alternatives if you are considering overdraft protection. Some banks provide overdraft lines of credit, while others let you move money from your savings account to your checking account (which impose a fee when you tap the line of credit and charge interest on the amount you borrow).
Opting Out Is Insufficient
If you never choose to use overdraft protection, you could believe you are safe. However, in rare circumstances, if your account balance falls to zero and then charges are applied, you may still be charged overdraft fees.
For instance, you could have authorized your biller to remove money each month by setting up automatic mortgage or insurance payments from your bank account. In contrast to debit and ATM transactions, recurring electronic payments and checks are often paid for by banks who subsequently charge you an overdraft fee even if you didn’t agree to the service.
Steps You Can Take
Keeping track of the amount in your account and the amount you will have next week can help you avoid these bank fees. You can identify which transactions have already cleared and which ones you are still awaiting if you routinely balance your account. Even while your bank may indicate that you have a particular amount of cash on hand, you are aware that not all of your bills have yet posted to your account.
You could wish to get an overdraft line of credit as a backup plan. Though it’s hoped that you won’t use it often, it’s a less costly option to deal with erroneous situations.
Regular Maintenance Charges
Some banks charge a monthly fee solely to maintain an account. These bank costs, sometimes referred to as monthly maintenance fees or monthly service fees, may vary from $5 to $20 monthly, depending on where you bank and the services you choose.
Any money you earn on an interest-bearing account over the year can be eaten up by such fees, and you might even struggle to maintain your account balance above zero as a consequence.
There are typically two methods to avoid monthly maintenance expenses. Use a maintenance-free account that is free to use. There is still free banking available. Big banks increased maintenance costs as a consequence of a Dodd-Frank Act modification that was introduced during the financial crisis and abolished free checking accounts. However, many banks continue to provide them. Due to the lack of minimum criteria or monthly service costs, online banks provide a fast and simple way to get free banking services. If you desire the advantages of a physical bank (bank branches are still helpful), seek for smaller regional banks or other local organizations. Free checking is also available in credit unions, which are owned by their members.
Apply for a fee waiver to avoid paying costs. Fee waivers are simple to understand: the bank won’t charge you a monthly service fee if you satisfy certain requirements. typical standards that let you save expenses include:
- Getting your paycheck deposited directly into your bank account (sometimes a minimum amount per month is required)
- Keeping your account balance over a certain amount, like $1,000
- Enrolling in paperless statement delivery
- Using several services provided by the same bank (getting a mortgage from The same bank where you hold a checking account, for example)
The majority of people don’t bat an eye when they pay a $10 monthly maintenance charge, but they detest the thought of having to pay to withdraw cash from an ATM. That makes sense since, if you often use an ATM, your bank may charge you $2 to $3 for each transaction you make at a machine owned by a different bank.
You must find a solution to avoid these bank fees if you often use ATMs. Use only ATMs that are owned by or connected to your bank to achieve this goal. You may avoid paying the “foreign” ATM charge from your bank and the ATM operator by doing this. To locate free ATMs, use the mobile app for your bank.
The number of free ATMs available to you if you use a credit union, even a tiny one, may be more than you realize. Shared branching, which many credit unions engage in, enables you to access ATMs and branch services at other credit unions in addition to your own. Find out whether your credit union is a participant and identify the closest ATMs.
Fees for Insufficient Funds
If you don’t have enough money in your account to cover a check you write or an electronic withdrawal you make, a bank could return it to you as unpaid in specific circumstances. The bank may impose a non-sufficient funds (NSF) fee for the unsuccessful transaction even if it won’t pay the cost. These bank costs normally run around $35 per unsuccessful transaction, much as overdraft fees.
Keep enough money in your account to pay your expenses in order to prevent NSF fines. Set up notifications in your bank account if you find it tough to do that due to a lack of funds or unexpected money withdrawals from bills. So that you are aware if you need to postpone or cancel payments or transfer money from a savings account, your bank might email or text you when the balance on your account drops.
Fees for Early Account Closure
When you terminate an account soon after creating it, many banks may charge you a fee of between $25 and $50.
Wait as least three to six months before closing your account to avoid early closure costs, even if you’ve changed your mind about a bank.
Fees for Wire Transfers
With wire transfers, you may send money without physically exchanging currency by using a bank or non-bank wire transfer service. They are expensive yet excellent for transferring money fast. Domestic outbound wire transfers typically cost $28. while domestic incoming wire transfers typically cost approximately $16.
Select a less costly method of sending money electronically if you don’t really need to conduct a wire transfer. For instance, a lot of banks provide free bank-to-bank transfers.
Penalties for Early Withdrawals
Savings accounts often provide lower interest rates than certificates of deposit (CDs). The downside is that you must keep your money in the account for a considerable amount of time. The penalty for withdrawing early is often equal to the interest that would have accumulated on the original amount withheld over a certain number of months (three months’ interest, for example).
Set up a CD ladder to ensure you always have access to funds, or select a no-penalty CD that permits fee-free early withdrawals, to preserve that money.
Significant Withdrawal Fees
Some accounts have monthly transaction limitations, particularly for transfers out of the account. Savings accounts have a monthly withdrawal limit of six for certain kinds of withdrawals under Federal Reserve Board Regulation D.
Plan ahead and transfer the funds to your checking account in bigger amounts if you want to make purchases from those accounts. You may prevent paying excessive withdrawal fees—which can vary from $3 to $20 or more every transaction—in this method.