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Call it the bank-fee blues -- that testy tune you sing when you discover that your "free" bank account comes with a lot of hidden charges: $2 for using another bank's ATM, $7 for online banking, $15 for accepting a wire transfer. "When you add up all the legal ATM, debit, and penalty overdraft fees, free checking is not really free," says Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.
Indeed, banking has changed a lot since the days when tellers gave away toasters for opening an account. To a bank, a fee is not merely something to be imposed as a punishment for, say, overdrawing your account, it's a way to fatten its bottom line. Banks took in $36 billion in such charges in 2006 alone. "Given the fact that banks are hemorrhaging money right now, it's not likely that these fees are going to go away anytime soon," says John Ulzheimer, president of consumer education for Credit.com.
But if you know your bank's rules and can manage your money, it's relatively easy to steer clear of these charges. To start, assess your financial habits. Are you a frequent debit-card user, or a cash-and-carry shopper who relies on ATMs? Is your preferred method of payment your credit card? Perhaps you're a combination of the above. Once you've determined your banking personality, you can keep bank fees from burning a hole in your pocket.Debit Diva
There's a lot to be said for debit cards. In a store it's easier to swipe one than to write out a check. And unlike credit cards, there's no large bill every month: Instead you pay as you go.
But those advantages can also be your downfall, especially if you don't monitor your balance and end up spending more money than you have. One reason? Most banks have what's called overdraft protection, which allows transactions to be debited from your account even if there's not enough money. But for the courtesy, they charge a fee, an average of $27, although many large banks charge $35 for each overdraft. Either way, it's a substantial penalty considering the typical transaction prompting an overdraft fee is $20.
Making matters worse, many banks process daily transactions in large batches, recording the largest dollar amount first even if you made smaller transactions earlier in the day. Banks say this process ensures that the larger (and presumably more important) payments such as a mortgage are made. But that practice triggers more overdraft fees: If you had $600 in your account, processing a payment for $590 before three transactions of $25 each results in three overdraft fees. Processing the smaller sums first prompts just one.
The Fix: If you're prone to overdrafts, sign up for e-mail or cell-phone alerts to notify you when your account balance is getting low. Also, opt out of your bank's overdraft protection program; this may mean some debit transactions are rejected but at least you won't incur fees. If you have the extra money, set up another account that can back up your main account in case of an overdraft. There may still be fees for transferring funds from one to the other, but at about $5 per transaction they're cheaper than overdraft charges.
While it's easy today to get cards with no annual up-front costs, they often have back-end penalty fees. Late fees and over-limit fees average $35 each, more than triple eight years ago. And credit-card companies are increasingly aggressive in imposing them. In the 1980s, cardholders could often pay up to 15 days after their due date without risking a late fee. Now fees are assessed if payment fails to arrive by mid-afternoon on the due date. And whereas many cardholders were once able to go over their credit-line limit by 5 to 20 percent without penalty, today over-limit fees are imposed anytime a balance exceeds a credit line.
Sometimes your credit-card company will decline a transaction if it will exceed your limit; other times a merchant may not be electronically linked to the credit card's network at the time the charge is put through. Yet even if the transaction is blocked, you could be charged a fee for trying to exceed your limit -- or interest charges and other fees for a late payment could push you above your limit.
If you try to transfer the balance from one credit card to another for a lower interest rate, you could also get hit with a heavy fee. When credit was more easily available a few years ago, balance-transfer offers were usually free; now there's a 3 to 5 percent charge on the transferred amount. Today transferring a $5,000 balance with a 4 percent fee could cost you $200.
The Fix: Always be sure to read the fine print of any credit-card offer. Also, sign up for e-mail or text message alerts to notify you when you're close to your credit limit or billing due date. You can also have your credit-card company automatically debit your bank account when your bill is due --but make sure there's enough money in that account or you'll risk the overdraft fee.
The convenience of using automated teller machines comes with a price, especially if you use a machine unaffiliated with your bank. Banks charge non-customers an average of $2 for using their ATMs, and your own bank may impose an additional $2 fee for using another bank's ATM. If you only withdraw $40, you've just paid a 10 percent fee for the transaction.
The Fix: Of course you know you can avoid fees by using ATMs in your own bank's networks. But there's another way around fees in case your bank's ATM is not nearby: Use your debit card at a store to buy a small item (such as gum) and ask for additional cash back in the transaction.
Better still, switch to a bank that waives ATM fees. The nation's fifth largest bank, PNC, for example, reimburses ATM fees charged by another bank if you maintain a monthly $2,000 balance. And if you have a USAA bank account you can get up to a $15 monthly refund for ATM fees.
At some banks it's no longer free to deal directly with a teller. Depending on the kind of account you have, you may be allowed two or three free teller transactions a month before you're charged $2 for each subsequent one. And there's a similar customer-service fee if you could have completed a transaction via an automated system.
The Fix: If you want personal service, make sure you have an account that doesn't charge for it. Many banks don't disclose such details until you open an account, so ask at the outset.
Originally published in Ladies' Home Journal, May 2009.