Bank Fees Definition and Different Types

What Are Bank Fees?

The term bank fees refers to any charges imposed by financial institutions on their personal and business customers for account set-up, maintenance, and minor transactional services. These fees may be charged on a one-time or ongoing basis. Examples of bank fees range from account maintenance charges, withdrawal and transfer fees, automated teller machine (ATM) fees, non-sufficient fund (NSF) fees, late payment charges, and others.

Understanding Bank Fees

Banks charge fees for the services they provide their personal and commercial clients—and they seemingly lurk everywhere. For instance, banks charge customers fees just to have certain deposit accounts open. In other cases, they may charge service fees to conduct transactions or as penalties for things like bouncing checks. Certain fees apply to all customers across the board, while others may be waived under certain conditions. Customers who have long-standing relationships and multiple assets and liabilities with a bank may qualify for a fee waiver.

All financial institutions must be transparent about their bank fees. There is a comprehensive disclosure of the fee schedule on bank websites and in the fine print of pamphlets. Customers must carefully read and review the disclosures to avoid surprises. While competition is a natural regulator of where a bank may apply fees and how much it thinks it can get away with, government authorities such as the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) stand by to field complaints and concerns from the public about fee-charging practices by banks.

Fees are listed on a customer's paper bank statements, passbooks, and/or through the institution's online banking portal. In most cases, banks will post fees at the time the transaction takes place. For other cases—such as bank account maintenance fees—the bank generally add them on at the end of the month.

While the majority of a financial institution's total revenue comes from net interest income, a big portion comes from bank fees. Individual fees may be small but when combined, they can add up quite nicely. When the net interest margin for a bank is squeezed in a low-interest-rate environment, bank fees provide a measure of stability to bank earnings.

Special Considerations

It's important for customers to keep an eye out on how much they spend on bank fees and, is possible, how to avoid them because they can add up. The national average for monthly checking account maintenance fees in the United States amounted to $14.13 or $169.56 for a year, according to Money Rates. That's the highest amount surveyed by the site in seven years. Keep in mind, this figure doesn't include things like overdraft fees, transfer and withdrawal fees, charges to use the ATM and others. To minimize the amount paid in fees, it's important to maintain monthly minimum balances, limit the number of withdrawals, avoid bouncing checks, and making credit card payments on time.

Types of Bank Fees

Here are some of the most common types of bank fees customers pay:

• Minimum account balance fees: Some bank accounts require customers to keep a minimum balance every month. If the balance dips below this required amount—even for a day—a customer will be hit with a fee at the end of the monthly cycle.
• Withdrawal and transfer fees: Many accounts allow customers to do a certain number of transactions each month. For instance, a checking account may allow the account holder to make up to ten withdrawals or transfers each month. The bank may charge a service fee for any additional withdrawals after that. For savings accounts, customers can make up to six free withdrawals per month, after which they incur a charge for each subsequent withdrawal. Other types of fees in this category include wire transfer fees.
• ATM fees: These fees may be charged if customers make excessive withdrawals from ATMs and if they use machines out of their bank's network. These fees are generally taken out when the transaction is executed rather than at the end of the month.
• NSF fees: When a customer doesn't have enough money to cover the full amount of a transaction, the bank will reverse it. As a consequence, the customer gets hit with an NSF charge.
• Overdraft fees: Whenever a customer's account balance dips below zero, the account incurs an overdraft fee. In some cases, the bank may also charge interest on the average overdraft balance, as it's often considered a short-term loan.
• Late payment fees: Banks and credit card companies charge cardholders late payment fees if they miss the due date listed on their statements.