We have all read about and surely experienced the ever increasing fees and charges that banks and other financial institutions charge us. Bank fees add up to billions of dollars in revenue for banks every year, and late fees, over-the-limit charges and overdraft fees make up a large share of that total.
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 $15 per month. 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.
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 an 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.
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 (sometimes more, plus a fee from the other bank on top). Again, this is an easy fee to avoid with some forward planning to use your own bank’s or partner ATMs. You can also select an account that allows some non-bank ATM usage or rebates you for any ATM fees incurred.
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 a foreign bank’s ATM), you may be charged a flat fee plus a percentage for withdrawals.
Avoiding foreign currency related fees is near impossible, and from my experience traveling overseas and using foreign savings accounts, the cheapest way to get money is to use an ATM withdrawal. You get a solid 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 online or via the app. 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 $35 in overdraft fees by your bank (many major banks have lowered or capped these fees in recent years, so it’s worth checking your bank’s current policy). I have been hit by this one – so make sure you keep a buffer in your transaction account so that you have sufficient funds to cover these situations.
Another way to avoid overdrafts and late fees is to sign up for free low balance alerts. Thanks to online and mobile banking you can sign up for alerts when your bank balance falls below a certain threshold. 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. Federal rules put limits on how and when credit card issuers can charge these fees, but it’s still one to watch. At worst case increase your credit limit or get multiple credit cards so that your total available credit is higher – but higher credit has its own inherent dangers.
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.
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.
For more on this, see my guide on Best High-Yield Savings Account Rates and finding cheaper auto insurance — another recurring bill worth auditing the same way you audit bank fees.
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