We have all read about and surely experienced the ever increasing fees and charges that banks and other financial institutions charge us. In the US alone, $36 billion in bank fees were charged last year to consumers.
1. Monthly Account Keeping or Service Fee The most common fee you pay for an organization to manage your bank account. Generally runs anywhere from $3 to $7 per month ($36 – $84 annually). However, you can search around and find ways to avoid this fee by finding a zero fee account or meeting some no-fee requirements like having a certain account balance or home loan with the bank. For example, I have a number of high yield savings accounts that do not charge a monthly fee and offer high rates of interest.
Late fees, loan-origination fees, over-the-limit and overdraft charges helped generate over 50% of banking-industry income. At $19 billion, credit-card penalties for late payments and over-limit charges were up 80% in the last 5 years.
While bank fees are not going to go away or lessen anytime soon, savvy consumers can avoid a number of these fees by being informed and shopping around for the best deals. Here are some of the more common bank fees/charges and tips to avoid them.
2. Internet Banking fee : A fee you may be charged for transacting over the internet (0.50c to $1 per transaction). If you are paying this, then choose another account or bank. Most banks do not charge a internet fee for transaction accounts, especially if you are already paying a monthly service fee. In fact banks are encouraging consumers to use the internet as it is the cheapest and highest returning channel for them. You may also enjoy additional rebates if you choose to receive your statements and manage all your transactions money online (I know Vanguard and other brokers do this).
3. ATM transaction fee : When using your ATM card, you may be charged a fee if you exceed the number of transactions nominated for a particular time frame (e.g. per month) or use an ATM from a different bank.The fee for this can range from $2 to $5. Again, this is an easy fee to avoid with some forward planning to use your own banks or partner ATM’s. You can also select an account that allows some non-bank ATM usage or rebates you for any ATM fees incurred. There are plenty of options out there.
4. Currency Exchange Fee: One place banks rake in the money is in fees and charges related to currency related exchanges and transactions. Whether it charges for incoming or outgoing wires, travelers checks or ATM transactions, you will get charged a fee. Wire transfers range from $30 to 1% of the entire transaction, while so called “free” travelers checks fees are made up in the poor exchange rates you get. If you use an overseas ATM (or local ATM for non-US bank accounts), you may be charged $3.00 to $7.00 for withdrawals.
Avoiding foreign currency related fees is near impossible and from my experience in traveling overseas and using foreign savings accounts, the cheapest way to get money is to use an ATM withdrawal. You get the best exchange rate and even with the ATM fee, this is cheaper than any other currency exchange method out there.
5. Branch withdrawal fee : Dealing with a person face-to-face can sometimes cost you money ($5 – $10). This one is for those folks who like personalized service and are willing to pay for it. For most of us, we can avoid this by doing most of our banking on-line or via the telephone. If you do want the face-to-face interaction choose a bank account that provides a certain number of these interactions for free. I found credit unions and community banks to be the best in this department because of their lower overheads and more customer focused business model.
6. Overdraft or Insufficient funds fee: The fee you pay when the balance in your everyday transaction account goes below $0. Example: Your phone provider debits $150 for your monthly bill but you only have $100 in your bank account at the time. You may be charged anywhere from $30 to $50 in overdraft fees by your bank. I have been hit by this one – so make sure you keep a buffer (e.g. $500) in your transaction account so that you have sufficient funds to cover these situations. If you are expecting a big debit, make sure you transfer money into your account well ahead of when its due (you can schedule these online).
Another way to avoid overdrafts and late fees is to sign up for free low balance alerts. Thanks to online and telephone banking you can sign up for alerts when your bank balance falls below a certain threshold. A great feature that has saved me money on a number of occasions. Finally, if you call the bank, they may sometimes waive overdraft fees if you have a good record with them or this was your first infraction. This method however is only likely to work once.
7. Exceeding your credit limit fee : A fee may be debited from your credit card account every time you exceed your credit limit during a statement cycle e.g. $35 per statement cycle. Another bad fee which you can avoid by watching what you spend. At worst case increase your credit limit or get multiple credit cards so that your credit limit is higher – but higher credit has its own inherent dangers.
Credit card and bank practices reform legislation that has gone into effect will put caps on some credit-card late and over-limit fees and on how they’re charged against old and new balances, but until then beware the fees that financial institutions place credit cards they issue.
I am sure there are many other fees out there, but these are the most common ones consumers face. It would be interesting to hear of any adverse fee experiences you have had and/or lessons learnt by leaving a comment on this post. My worst one was paying a $30 overdraft fee when I forgot to move enough money from my savings account to my transaction/checking account before a big bill came through. That was $30 wasted, which with a bit of forward planning I could have avoided.
Financial institutions must provide information to their customers on these fees and charges. Under the Truth in Savings Act, banks are required to notify customers of any change in terms within 30 days. If you are getting charged for something you did not know about, make sure you raise this with your bank and ask for a rebate on any unexpected fees. So if you are getting charged for something you did not know about, make sure you raise this with your bank.