In theory, you shouldn't have to pay your bank money for the privilege of having an account with them. Banks already make money from their customers by earning interest on the money they lend out, and guess who supplies that money? That's right, you do. The bank keeps only a small percentage of its total customer deposits on hand at any given time. The rest it lends out, which is why a run on deposits can cause a bank to fail. However, in reality, a great deal of banks are charging their customers hundreds of dollars in fees every year. If you're spending too much money on ATM fees, monthly maintenance fees and the like, this article can show you how to get closer to banking for free.
Bank Fees Charged to Consumers
In addition to lending money, banks profit from the fees they charge to customers. These fees can be small or outrageous, and they include:
- ATM fees: If you use an automated teller machine (ATM) that doesn't belong to the bank where you have a checking account, you typically pay a fee to both your bank and the bank that owns the ATM. A common rate is $1.50-2.00 per bank, which results in you paying up to $4 simply to withdraw a $20 bill.
- Overdraft fees: If you write a check or schedule an online payment and there isn't enough money in your account when the payee goes to claim its money, the bank imposes an overdraft fee that can be as high as $30. On top of that, the payee might charge you a returned check fee that's just as high.
- Monthly maintenance fees: Some banks charge a monthly fee, usually about $5, but possibly as high as $20 depending on the account.
- Low balance fees: If your balance dips below a minimum amount (say, $500), the bank charges you for it.
- Wire transfer fee: Banks commonly charge customers to send and receive wire transfers. The fee for this service might range from $10 to $25.
- Online bill payment monthly service fees: The bank might charge a monthly fee for you to pay bills online from your checking account. Further, if you exceed a certain number of online bill payments in a month, such as 25 payments, the bank could charge you a separate fee for each additional online payment.
- Paper statement fees: As banks integrate more online features into their operations and seek additional ways to save and make money, some are charging customers to receive a paper statement by mail rather than an electronic statement online.
- Teller visit fees: To encourage customers to bank online, by phone, or by ATM, some banks charge if you visit a teller more than a specified number of times, such as two times per month.
- Check fees: Some banks charge for the initial box of checks you can receive when you open an account. Those checks can last a very long time if you do most of your banking online or pay most of your bills by debit or credit card. However, if you want to order more checks, those can also cost you. Further, some banks charge customers for writing more than a specified number of checks per month.
Reducing or Eliminating Bank Fees
Despite the wide range of fees banks have invented, it is possible to avoid them all. Let's take another look at that list of fees and see how you can avoid paying those items altogether.
- ATM fees: Plan ahead to avoid paying ATM fees. Get more cash than you need when you visit your own bank's ATM, or stop by that ATM whenever you're nearby, even if you don't need any cash at that moment. Another option is to get an internet checking account that reimburses all ATM fees because internet banks don't have ATMs, and customers have to get cash somehow. Some banks waive ATM fees for a small number of transactions per month, such as two. Using your own bank's ATM should never cost money, but if they have a monthly limit of transactions, make sure you don't surpass that number to avoid incurring unnecessary charges.
- Overdraft fees: Staying on top of your balance by reconciling your account each month and frequently checking your balance online can help you avoid overdraft fees. Another good idea is to keep a cushion of several hundred or a few thousand dollars in your account and that you never intentionally spend, but keep around in case you forget about an uncleared payment.
- Monthly maintenance fees: The monthly maintenance fee can be avoided by the following ways:
- Get an account at a bank that doesn't charge a monthly maintenance fee; or keep a high minimum balance in your account (often at least $1,000) if your bank presents this as an option for avoiding the fee.
- Some banks also waive this fee if your paycheck or Social Security check is directly deposited to your account or if you sign up for automatic monthly transfers from checking to savings.
- Low balance fees: The ways to avoid this fee are similar to the ways to avoid monthly maintenance fees: select a bank wisely or keep a cash cushion in your account at all times.
- Wire transfer fees: Unless you have an urgent need to send or receive money, you shouldn't use wire transfers, which can cost between $10 and $40 depending on your bank whether you are the sender or the recipient. As an alternative, you can send and receive money by using an automated clearing house (ACH) transfer, which takes longer (up to five days) but it is free. In some situations, such as funding the down payment or closing costs for your mortgage, your only alternative to a wire transfer might be a certified check. This also carries a fee, but it's often lower than the wire transfer fee. However, it does require that you take the time to visit the bank in person, whereas a wire transfer doesn't.
- Online bill payment monthly service fees: If you have a credit card, why not make your payments with it instead of with your checking account's bill-pay feature? The end result is the same as long as you pay your credit card bill in full and on time. If you don't have a credit card or can't manage one responsibly and want to use this feature, look for a bank that doesn't charge a fee for this service. There are many banks that will waive the fees on their online service to unload the costs associated with having customers come to their brick-and-mortar locations.
- Paper statement fees: Banks often allow customers to access both current statements and several years' worth of previous statements online for free. Save yourself the clutter of having that extra paperwork around (and eventually having to shred it) and make the leap into the twenty-first century. If you must have a paper statement, opt to receive your statements electronically then (if you need them) print them yourself - it will cost you pennies instead of several dollars per statement.
- Teller visit fees: If being able to bank in person is important to you, look for an account that doesn't charge a fee for multiple teller visits. Within the same bank, some checking accounts might offer only two free visits per month and others might offer unlimited visits per month. However, be prepared to give the bank something it wants in exchange, such as keeping a minimum amount of money in your account at all times. If your bank allows only two teller visits per month, plan your visits carefully and keep track of when you make them so you won't get charged.
- Check fees: To avoid check fees, choose a bank that provides free checks or make as many of your payments electronically as possible. These days, almost anything that once required a check can be paid online through that provider's website. Even donations can be made online. Notable exceptions can include rent and utility payments. (Keep reading about donations in Deducting Your Donations and It Is Better To Give AND Receive.)
Hang On To Your Cash
Some banks charge more fees or higher fees than others, so choosing your bank carefully or switching from your existing bank can lower your monthly expenses even if your habits don't change. However, some fees, such as overdraft fees, exist wherever you go. Picking the right bank for your needs and modifying your habits can result in a checking account experience that is completely free of fees.