The Ins And Outs Of Bank Fees
Banks love to provide services that make our lives easier. Perhaps, the only thing they love more is charging us all sorts of fees for these services. Want to put money into your account from an ATM? The bank will charge you. Take it out? The bank will charge you. Send money to a relative's account? Oh, you better believe the bank will charge you.
Banks do provide an important service, but it's crucial to remember they don't do it for free. Many of us don't notice what our banks charge for their services, but if we're not careful these fees can add up. To that end, below is a list detailing some of the more common fees levied by domestic banks.
Overdraft Protection Fees
Many people assume that when they hand a bank teller a check along with a deposit slip, the money they are depositing will be available immediately. Often they are wrong. It's common for out-of-state or out-of-country checks to take seven days or more to "clear". That is, for the money to officially be placed in the account, and therefore ready for your use.
This leads to a huge problem when you then try to write a check from this account while under the false impression that the money you deposited earlier has cleared. The new check you write will bounce if your previous deposit doesn't clear in time.
To eliminate these rubber checks, some individuals obtain overdraft protection. This means that the bank will simply advance the money that your account is short and allow the check to be cashed. Of course, the bank doesn't do this for free (usually). Depending upon the lending institution, and the terms of the agreement signed when the account was opened, a fee is charged for this overdraft protection. Overdraft fees typically range between $20 and $35 per overdraft. In addition, interest may be charged on any outstanding balance (that is the money the bank had to advance) until those funds are repaid. Naturally, overdraft charges can be very expensive, particularly if you aren't aware of your account balance at all times, or are careless with the checks you issue.
Wire Transfer Fees
Suppose you owe someone money, money that must be paid by tomorrow, yet the person you have to pay lives 2,000 miles away on the other side of the country. There's no way to put a check in the mail and have it arrive in time; however there is another option - a wire transfer.
A wire transfer is a way to instantaneously send money electronically from one account to another.
Not surprisingly, there is a fee for this service. While costs will vary depending upon the financial institution, it is not uncommon to pay $10 or more to send or receive funds from a domestic bank. It can be $15 or more to send or receive money from an international institution. Be wary, while this service can be a tremendous convenience, the costs can add up fast.
Fortunately, with the advent of internet banking, you may be able to transfer money for free between members of the same bank. Make sure you ask your bank about any of these transfer features to save you from spending excess money on transfer fees.
Monthly Account Fees/Minimum Balance Fees
Many banks charge a monthly fee simply for maintaining an account at the branch. This fee can be as low as $3 to $5 per month, or be as much as $15 per month. The fees vary widely, so it's good to shop around.
Now, while a couple of bucks per month might not seem like much, the fees can have a material impact on accounts with small balances. With that in mind, banks will encourage you to deposit larger sums of money by waiving the monthly fees if you maintain a minimum daily account balance - usually around $1,000 to $5,000.
While this might sound good, keep in mind that if the balance dips below that threshold, even by a penny, the bank will levy a fee.
There is another downside as well. By leaving that much money on deposit, you are essentially giving the bank an interest-free loan. You can't touch the money or you'll risk incurring the fee. At the same time, the bank is making money off of it by lending a certain percentage of it out to other customers in the form of loans or mortgages - loans and mortgages that the bank earns interest payments on. You're loaning your money to the bank and saying, "Here, borrow my money - interest free - and use it to make yourself rich."
Debit Card Transaction Fees
Don't like the idea of lugging around your checkbook or paying cash for groceries? No big deal, simply hand the cashier your debit card and the funds will automatically be deducted from your checking account.
It sounds easy and it is. However, banks usually charge the customer between 10 cents and $1.50 (or more) to conduct the transaction. And just like monthly account fees, these fees can add up quite quickly, particularly if the consumer uses his or her debit card for multiple transactions throughout the month.
The good old automated teller machine (ATM) - if you've ever been short on cash on a Saturday night with your friends, there's nothing like the convenience of an ATM. The trouble is these machines often cost you a lot of money.
Many banks don't charge a fee if you use the machine in the bank's lobby, but walk a couple blocks to the corner ATM and you'll find it's a different story. Sometimes these fees run as little as a quarter. But pick a location where you could suddenly need cash very badly - a casino for example - and it's possible to see fees of $2, $3 and even $4.
Some banks will give their customers a free book of checks upon opening an account. It's nice to get a "gift", but once you run through your initial stash, additional checks are going to cost you. A couple hundred checks can cost as much as $15. Heaven forbid you want the fancy checks with the colorful background and the fun artwork. You'll end up paying through the nose. Just remember, other people don't care about how pretty your check is; as long as it has all the blanks filled in with the proper amounts, they'll be happy.
Banks are becoming more creative every day, cooking up new ways to bill their customers. Some charge fees for depositing large amounts of cash; they levy online-banking fees, annual account-maintenance fees (on top of a monthly fee), excessive-transaction fees or even charge fees for using a teller.
How To Limit The Fees You Pay
The best thing you can do to limit the fees you pay is shop around. Look at several banks in your area, get a schedule of the fees they charge and spend a few minutes figuring out which one offers the best deal. In addition, keep good records and analyze your monthly account statement to see what you are being charged. That way, if an unexpected fee shows up, you'll be aware of it, and you won't get hit with it the following month.
Finally, consider using credit cards with no annual fee. That way, you won't have to pay the per-transaction charges, and you'll only write one check per month for all the charges on the card. Just make sure you pay it off on time or you're charged interest - a lot of it.
"No Monthly Fee" Checking Accounts
These accounts can be a great deal. However, often when banks offer "no monthly fee" accounts (or something else for "nothing"), they make up for it by charging extra for checks, or ATM withdrawals. Make sure you read the fine print.
Banks provide a tremendous service, and our economy probably couldn't function without them. However, these services aren't free. The best protection is to be aware of the fees you are paying and not blindly accept them. Remember your bank is a business; if you don't like the fees you are paying, you can always take your money to the competition.
by Glenn Curtis
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
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