Saving Money: How to Avoid Sneaky Bank Fees
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.