The role of the bank is to provide a safe place to keep your money, and sometimes the opportunity to earn interest on your deposits. Services like checking and savings accounts provide convenient ways for you to pay your bills without the hassle of using cash. Most banks also offer credit cards that allow you to borrow money and pay for purchases over time with interest. Even though your bank probably offers a variety of convenient services, chances are they're not free.
Your bank will likely charge interest on money you borrow, and fees for some account services. However, the law requires your bank disclose all of its rules and fees when you sign up for any account or service. And once you've entered into that account agreement, the bank must notify you of any changes to those fees [source: FDIC].
Even though the charges are clearly stated upfront, that doesn't mean they feel fair when your monthly statement arrives. Some seem so petty, you can't help but wonder if the bank is using them just to make some extra cash. If this sounds like your bank, read on to learn about all kinds of bank charges and ways to avoid paying them.
Monthly and Annual Service Fees
Monthly and annual fees are standard with certain types of bank accounts. However, your bank may waive the fees if you comply with certain stipulations -- think maintaining a minimum balance or making a certain number of debit card purchases. But fall below that balance or miss those required debit transactions and count on the bank hitting you with penalties.
You may also be able to save money in monthly or annual fees by banking exclusively online, which generally requires you open and use your account from the bank's Web site and receive statements electronically. In January 2011, Bank of America waived the $8.95 monthly fee for its eBanking account for customers who bank exclusively online or at ATMs [sources: Waters and Bank of America]. At the same time, Wachovia offered its Free Checking account with no paper statements and access to its online and mobile banking [source: Wachovia].
By law, your bank is responsible for letting you know when your account rules or rates change, and this includes scheduled fees [source: FDIC]. Stay aware of these changes and budget for them by reading the notices your bank sends.
The next fee could buy you lower costs for other services.
If you want lower banking costs, consider joining a not-for-profit, members-only credit union instead of a bank. You'll pay a small membership fee upfront, but that goes toward covering the credit union's costs, and in exchange, you can enjoy lower costs for their services.
And in some cases, membership fees might be accepted as a refundable deposit instead of a charge. For example, a credit union might require you to deposit and maintain a certain dollar amount in a savings account when you join, though some credit unions may penalize you if you fall below that amount [source: SECU and Coastal].
Debit cards let you use your checking account as conveniently as a credit card, but with the cash from your checking account. And before new banking regulations were enacted in 2010, your bank might have allowed charges to clear your account even if it was overdrawn. The bank considered this a courtesy to spare you from the inconvenience of a declined card at the checkout. Unfortunately, it also meant you had no choice in whether you would have preferred the bank decline your card instead so you could avoid the overdraft fee.
The new regulations now require banks offer customers the ability to opt in or opt out of overdraft protection for transactions made with their debit or ATM cards [source: Federal Reserve]. If you opt in, the bank will cover any overdrafts to your account and charge you a fee, but if you opt out, your bank must decline any debit card purchases that exceed your account's available balance [source: Federal Reserve].
You can also link another account, like your savings account, to your checking account to cover transactions when you become overdrawn. There's typically a fee for the service as well, but it's generally much less than an overdraft charge [source: Federal Reserve].
Even if the bank declines your debit card, the next fee may still apply for checks.
Nonsufficient Funds Fee
If you have written a check that hasn't cleared your checking account, the cash is still available for other transactions, such as ATM withdrawals or debit card purchases. So if you're not careful and don't leave enough money in your account to cover the check, and you don't have an overdraft account, your check will bounce. And if a check bounces, you'll be charged an nonsufficient funds (NSF) fee.
NSF fees are especially tricky because the order in which the bank processes each check determines the amount you're charged. Let's assume you have $80 in your checking account and you write three checks for $20 each, followed by one check for $70. If the bank processes the three $20 checks first, and the $70 check last, you will bounce only one check and therefore be charged just one NSF fee. However, if the bank processes the $70 check first and then each $20 check, all three $20 checks will bounce, leaving you with three NSF fees, one for each of the $20 checks.
If you're hit unexpectedly by nonsufficient funds fees, call your bank and request a refund. If you have a good account history, the bank may forgive some of the charges.
Minimum Balance Fee
When a bank waives your monthly fees, it's not just being nice. The requirements you must follow help the bank keep its costs low or raise its revenue. One way a bank raises revenue is by loaning money, which requires cash. And in order to have cash, the bank can require its customers maintain minimum balances in their accounts.
A minimum balance is an average taken over a certain time, typically a month or a statement period. If you have an account that requires a minimum balance, the agreement with the bank explains how the balance is calculated and what fees you'll be charged pay if you fall below it [source: FDIC]. That might not seem fair, especially when you're not used to paying any fees for your account, or if the bank didn't notify you to resolve the situation first. However, the bank is simply charging a fee you agreed to pay, and it has made you the party responsible for keeping track of your balance.
Returned Deposit Fee
Once in a while, someone will write you a bad check. Unfortunately, you may not know this for days or even weeks after you make the deposit. When the bad check returns to your bank, the bank will deduct the amount it previously credited to your account.
And besides taking back the cash credited to your account, the bank might charge you a returned deposit fee. When you're already frustrated about losing the funds, the returned deposit fee can seem like an attempt by your bank to punish you for someone else's mistake. However, your account agreement probably includes returned deposit fees you could be charged [source: FDIC]. Literally, this is the cost of trusting someone to pay you by check.
The only way to avoid a returned deposit fee is to accept only cash, money orders or cashier's checks from a trusted bank. If you do accept a check, be sure you keep enough money in your account to cover the check in case it bounces.
Every transaction -- deposits, withdrawals, transfers between accounts -- costs your bank for providing the service. Most banks have, at minimum, computers that record and process every transaction, and other transactions require one or more employees, such as bank tellers or merchants. Chances are the bank will allow you an unlimited number of free transactions with your checking account. For savings and money market accounts, though, the bank might charge you a fee.
Even if all of your transactions are free, though, federal regulations require that banks limit you to only six transfers per statement period from your savings or money market accounts [source: e-CFR]. If you've already made six withdrawals from your savings account in a one-month period, the bank is obligated to stop you from taking out any more. This can affect your overdraft protection service and, possibly, cost you more in fees. Be sure you know how your bank handles overdrafts if it can't transfer money from your savings account.
Foreign Transaction Fees
If you purchase something in another country using a credit card from the United States, the bank may charge you a fee for converting the currency to U.S. dollars. For example, Bank of America charges a 3 percent fee on any purchases used with its credit cards [source: Bank of America]. So on an $80 purchase, the total currency conversion fee would be $2.40, and a $400 purchase would cost an extra $12 in fees.
Even though currency conversion costs are outlined in your account agreements, the fact that they are based on a percentage of your purchase means there's no limit on how high they can go. Fortunately, you can avoid this expense altogether by paying in cash. Order travelers checks or cash before you leave the country, or use an ATM while you're abroad.
Just be aware that obtaining cash in a foreign currency might also cost you. You just need to determine whether a one-time currency conversion fee is a better deal than the percentage rate that you'd be charged using your credit card the entire time you're abroad.
Account Closing Fee
For a bank, closing an account means more than completing a couple of forms and transferring your money elsewhere. To ensure they can provide your account information for audits and IRS summons, banks will keep records for a few years after your account is closed [source: IRS]. Plus, the bank must handle any deposits, charges or outstanding checks it receives for that account.
In what may be an effort to cover the cost of these activities, a bank can charge an account-closing fee, but it probably won't charge this fee for every closing. For example, checking account rules for Chase as of January 2011 indicate there is a $25 account closing fee, but only if the account is closed within 90 days of opening [source: JPMorgan Chase].
Even if you've avoided most of the fees listed so far, you might still find it hard to steer clear of the next one when you're in a crunch.
ATMs allow you to make deposits or withdraw cash 24 hours a day, seven days a week. Despite their convenience, however, ATMs cost the banks money to maintain, and those costs are passed on to you. The ATM fees you pay are usually a combination of charges for the services between the ATM and your bank account. If you're using your bank's ATM with a direct link to your account, the transaction may be inexpensive or free. But if you use another bank's ATM, you'll probably pay a fee to access your account over a commercial ATM network, such as Visa/Plus. ATM networks charge banks for their services, and the banks on both ends of the chain can charge you to cover their costs.
The sneakiest part of ATM fees is how they can add up for a single transaction. For example, if you're out of town and use a large commercial bank ATM that's on the Visa/Plus network, you agree to pay a $3 ATM fee in addition to your $60 cash withdrawal. Later, your bank charges an additional $3 ATM fee for completing its end of the transaction. That means your one transaction cost you a total of $6, which is 10 percent of your original withdrawal.
For more information on banking and fees, keep reading.
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More Great Links
- Bank of America. "Foreign Transaction Fees." (Jan. 17, 2011)http://factsaboutfees.bankofamerica.com/manage-credit-card-fees/foreign-transaction-fees/
- Bank of America. "Compare Checking Accounts." (Jan. 16, 2011)https://www.bankofamerica.com/deposits/index.action?body=check_compare
- Bank of America. "eBanking." (Jan. 16, 2011)http://www.bankofamerica.com/deposits/checksave/index.cfm?template=check_eBanking
- Block, Sandra. "Fed rules to cap late fees on credit cards, ban inactivity fees." June 18, 2010. (Jan. 16, 2011)http://www.usatoday.com/money/perfi/credit/2010-06-15-fed-credit-card-rules_N.htm
- CBS. "Simple Steps to Avoid New Banking Fees." December 11, 2010. (Jan. 16, 2011)http://www.cbsnews.com/stories/2011/01/11/earlyshow/living/money/main7234417.shtml
- Coastal Federal Credit Union. "Primary Savings Account." (Jan. 16, 2011)http://www.coastal24.com/personal/savings/primary-savings-account.html
- Electronic Code of Federal Regulations (e-CFR). “Title 12—Banks and Banking, Chapter II—Federal Reserve System, Subchapter A—Board of Governors of the Federal Reserve System, Part 204—Reserve Requirements of Depository Institutions (Regulation D)” Jan. 18, 2011. (Jan. 19, 2011)http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=635f26c4af3e2fe4327fd25ef4cb5638&tpl=/ecfrbrowse/Title12/12cfr204_main_02.tpl
- Ellis, Blake. "Bank fee Whac-A-Mole: New charges hit accounts." CNNMoney.com. CNN. September 25, 2010. (Jan. 16, 2011)http://money.cnn.com/2010/09/24/pf/new_bank_fees/index.htm
- Federal Deposit Insurance Corporation (FDIC). "FDIC Improvement Act of 1991." December 3, 2009. (Jan. 16, 2011)http://www.fdic.gov/regulations/laws/rules/6500-3400.html
- Federal Reserve, The. "What You Need to Know: New Overdraft Rules for Debit and ATM cards." June 22, 2010. (Jan. 16, 2011)http://www.federalreserve.gov/consumerinfo/wyntk_overdraft.htm
- Internal Revenue Service (IRS). "Internal Revenue Manual." Section 34.6.3. (Jan. 16, 2011)http://www.irs.gov/irm/part34/irm_34-006-003.html
- JPMorgan Chase Bank, N.A. "Chase Checking Accounts." (Jan. 16, 2011)https://www.chase.com/online/Checking/chase-checking-account.htm
- JPMorgan Chase Bank, N.A. "Deposit Disclosures and Interest Rates: Addendum and Additional Banking Services and Fees for Personal Accounts." Jan. 10, 2011. (Jan. 16, 2011)https://apply.chase.com/oao/ViewDisclosures.aspx?type=PER
- Palmer, Kimberly. "New Banking Fees? Here's How to Avoid Them." U.S. News & World Report LP. June 29, 2010. (Jan. 16, 2011)http://money.usnews.com/money/blogs/alpha-consumer/2010/6/29/new-banking-fees-heres-how-to-avoid-them-
- Pepitone, Julianne. "5 evil things credit card companies can (still) do." CNNMoney.com. Cable News Network. October 26, 2009. (Jan. 16, 2011)http://money.cnn.com/galleries/2009/news/0910/gallery.credit_card_evil_things/index.html
- State Employees' Credit Union. "Share." (Jan. 16, 2011)https://www.ncsecu.org/DepositAccounts/Share.html
- Wachovia. “Free Checking Account.” (Jan. 19, 2011)https://www.wachovia.com/checking/free-checking-account.html
- Waters, Jennifer. "Bank of America categorizes clients, adds fees." MarketWatch. Jan. 6, 2011. (Jan. 16, 2011)http://www.marketwatch.com/story/bank-of-america-ups-fees-categorizes-clients-2011-01-06