Bank on it: Higher Fees are Here to Stay

The WSJ personal finance section had a timely piece on how banks are passing on or increasing transaction fees for its customers to offset mounting losses from other parts of their business ravaged by the credit crisis. According to a Bankrate study, the average costs of checking-account fees, ATM surcharges, bounced-check fees and monthly service fees have all hit record highs. Along with the tough economy and higher credit costs, another factor prompting banks to raise fees and loan rates is a Federal Deposit Insurance Corp. (FDIC) proposal to increase the rates banks pay for deposit insurance starting next year in order to help replenish its reserves. If that rule change is approved, experts say, banks will probably pass on more of those higher costs to consumers by raising fees and boosting the minimum balances required to avoid fees.

So while we were all cheering the FDIC and its increased protection levels for depositor’s, you now know who will be paying for those increases. You, me, and all banking customers. Here are some examples of the fees being raised by the big banks and their impacts:

Consumers are likely to see the most pain from bounced-check and overdraft fees. About 90% of banks’ consumer-fee income comes from overdraft and insufficient-funds charges, which are expected to increase to $42 billion this year from $20.7 billion in 1999. “By the end of 2009, you will start to see fairly substantial increases in overdraft fees” for the big banks, potentially to as high as $40 per occurrence from a current range of $32 to $35, says Mike Moebs. Citibank started charging some customers a new $10 overdraft protection transfer fee” to transfer money from a savings account or line of credit to cover a checking-account shortfall. Citibank had already raised foreign-exchange transaction fees on its debit cards and added minimum opening deposit requirements for its checking accounts. Over the past year, J.P. Morgan Chase & Co.’s Chase, Bank of America Corp., and Wells Fargo & Co. have boosted the fees they charge non-customers who use their automated teller machines to as much as $3 per transaction.

I have written previously in detail about effective ways to avoid bank fees, but here are some immediate and simple things consumers should do now to avoid or reduce the impact of higher fees:

1. Avoid accounts that require big balances in order to avoid monthly fees. Most banks offer fee free checking accounts if you make a monthly recurring deposirt (e.g your pay). The other option is community or credit union banks. They tend to have fee free accounts, better service and higher interest rates. The only drawback is that they are not as widespread as the bigger banks.

2. Bank online where possible. Choose to receive your statements and manage your money online. Generally online banking has zero or no fees. All banks, small and big, offer some form of fee free secure online banking now.

3. Know the fees you could be liable for (overdraft or bounced checks in particular). Financial institutions must provide customers information on possible fees and charges. Make sure review this when you open your account or for your current one. 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.

4. Sign up for low balance alerts. Thanks to online and telephone banking you can sign up for alerts when your bank balance falls below a certain threshold. Take advantage of this service so that you avoid overdraft or late payment fees. I use it for my bank, credit and saving accounts. A great feature that has saved me money on a number of occasions.

5. One-stop combo banking. Most banks offer to reduce fees or provide extra perks (like a no fee credit card) if you do all your banking at one place. So if you have a mortgage, credit cards or saving accounts across multiple financial institutions then consider combining them in one place. The easiest way to determine if this could save you money (via lower fees) is to go in to your primary bank and negotiate. In this environment with banks desperate to keep all depositors, you have the upper hand.

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