The cost to do your day-to-day banking has steadily increased over the last decade. To supress the rising costs, congress implemented new federal regulations designed to protect the consumer and limit how much banks can charge. Caps were placed on certain types of fees and how banks could apply them. Banks had warned regulators that they would need to replace that income through other means. Since the rules were finalized, banks have been increasing non-regulated fees and finding other ways to pull money from their customers. Here are the top five ways that you will feel the pinch this year: (Find out how to get the bank to pay you for using their services, not the other way around. Check out Cut Your Bank Fees.)
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1. Checking Account Fees
Free checking accounts have been a huge draw for banks over the past decade. It brought customers in the door, where they could be sold other, more lucrative banking products. The days of free checking are coming to an end. Many of the big banks recently implemented mandatory maintenance fees on all of their checking accounts across the board. Review your bank's fee policy because there still may be ways you can avoid these fees, such as carrying a minimum balance or performing a minimum number of transactions each month.
2. Debit Card Rewards
Many banks offered loyalty reward points on their debit cards to encourage their customers to transact more often. These points could be accumulated and used to purchase gift cards or other items. According to the banks, these rewards were funded with the debit card fees the retailers were charged. When the 2010 legislation limited the amount of fees banks could charge for each debit transaction, debit card reward programs began to disappear. Expect that change to be implemented at more banks this year.
3. Overdraft Fees
The new legislation also put rules in place about overdraft protection. Customers now have to opt in to the coverage on debit card and ATM transactions. These fees are a major source of income for banks so these changes made some banks get creative. Many banks have raised their overdraft charges and some are hovering around the $40 mark. Banks are also allowed to keep control over how they charge the fees. Several banks order transactions by largest to smallest. For example, if you have your mortgage payment, a car payment and several smaller transactions going through and there are not enough funds to cover all of the transactions, the smaller amounts will attract the overdraft fees. This maximizes the bank's overall income. (Find out which type of account suits your specific needs. See Demystification Of Bank Accounts.)
4. Mortgage Insurance
The purpose of mortgage insurance is to pay off the balance of your mortgage if you are unable to meet the required obligations. It has always been a money-maker for banks that own the insurance company providing the insurance. It is required on almost all mortgage deals where there is less than 20% equity. It has never been a good deal for consumers. You pay the same premiums for the life of the contract but you receive a diminishing payout as you pay down your mortgage. For example, if your mortgage is $250,000 when you first buy your house, the policy would pay your beneficiaries that amount of money to pay off the mortgage. Fifteen years from now, however, your mortgage balance might only be $40,000 and that would be all the policy would pay out, even though you have paid the same premiums throughout. What banks don't tell you is that you can request in writing to end the mortgage insurance once the balance has dropped enough that there is 20% equity. Term life insurance is a better option for covering the balance of your debts.
5. ATM Fees
This is another lucrative income stream for banks and is getting more so. Several banks have announced that they are testing out higher fees for non-customers who use their machines and for their customers who use other banks' ATM machines. In some areas of the country, non-customer fees are $5 per transaction. When using another bank's ATM, a consumer pays twice: A fee from the other bank and a fee from their own. To avoid these fees, plan your cash needs more carefully and use only your own bank's ATM to withdraw money.
The Bottom Line
As banking fees increase, you will have to be a smarter consumer to navigate the potholes and keep your money in your pocket. Take time to understand your bank's fee structure and shop around to see what else is out there. (Whether you're moving or have just found a better no-fee plan, find out how to switch banks with ease. Read How To Break Up With Your Bank.)