9 Ways Consumers Can Avoid or Minimize Bank Fees
If you think bank fees are getting higher and more numerous, you're right. A new study by WalletHub of 35 large banks found that the average consumer checking account has 25 different fees, and the average customer pays about $470 in fees every year.
"Bank fees are getting more expensive, and they're getting harder to avoid," says Richard Barrington, senior financial editor for MoneyRates.com, which found in a 2015 survey that monthly maintenance fees for checking accounts have risen 8.36 percent in the past three years, twice the rate of inflation, and that only 25 percent of checking accounts did not charge a monthly fee. "Checking is getting more expensive, and it's getting harder to avoid the monthly maintenance fee," he says.
Bank fees can include monthly maintenance fees, overdraft fees, online bill pay fees and returned check fees. You probably also will pay to send or receive wire transfers, get cashier's checks or money orders, and you may have to pay for mailed delivery of statements, online access to old statements, downloading financial data into a program such as Quicken, copies of canceled checks and going into a bank and talking to a human. Accounts you rarely use can accrue dormant account fees or bad address fees.
While the number of fees is increasing, and the fees themselves are rising, it's not always easy to know before you open an account exactly what fees will be included. "They're not all disclosed, and they're not all disclosed upfront," says Jill Gonzalez, an analyst for WalletHub, which recently analyzed checking account offers from the 30 largest banks and five largest credit unions that offer online applications.
The large brick-and-mortar banks offered clearer disclosures than the online-only banks or credit unions, the study found, but it was impossible to do complete comparison shopping with the information disclosed online.
"If you really want the ins and outs of these checking accounts, you're going to have to get to a phone and hopefully talk to a human," Gonzalez says.
Consumer advocates are pushing the Consumer Financial Protection Bureau to require for checking accounts the equivalent of a "Schumer box," the standard disclosure that is required for credit card fees and named for Sen. Charles Schumer (D-N.Y.). So far, about 30 banks, including the 12 largest ones, have voluntarily adopted such a disclosure, says Susan Weinstock, director of the Pew Charitable Trust's consumer banking project, which has advocated for better disclosures and more reasonable fees on consumer checking accounts.
"One of the things we would like to see is fees that are more upfront," Weinstock says. "What we want to see is a competitive marketplace where the consumer could fully shop around."
By far, the most lucrative channel for banks is the overdraft fee. Overdraft fees average $35 per occurrence. Each swipe of a debit card, for example, is an occurrence, meaning that if a check you deposit bounces and you spend $5 on coffee, $6 on a sandwich and $12 on a movie, you could be hit with more than $100 in overdraft fees.
Banks often reorder the transactions, putting through the highest one first so you go in the red faster, creating more overdrafts and therefore more fees. Several consumer advocacy groups are pushing to put an end to this practice. Pew found that 58 percent of large banks also charge what's called an extended overdraft fee if you don't pay the money back within a few days.
Here are nine ways consumers can avoid or minimize bank fees:
Choose no-fee checking and savings accounts. If you shop around, you can still find a free checking account, though you may be required to maintain a minimum balance, have other accounts at the same bank, agree to electronic statements or have your paycheck direct-deposited. Make sure you do what is required.
Opt out of overdraft protection. One way to avoid overdraft fees is to opt out of what the banks call overdraft protection. If you opt out, and you don't have the money in your account, your transaction will be declined, so you won't incur an overdraft fee. In 2010, the law changed to make opting out the default, but banks will push you to opt in by framing overdraft protection as a consumer service. "It's just too expensive," Barrington says. "It's protection in the same way some underworld enforcer will offer you protection."
Sign up for alerts. Most banks let you get alerts via text or email if your balance goes below a threshold you choose.
Avoid ATMs that are not part of your network. If you use an out-of-network ATM, you may be charged by both the ATM network and your bank. Take your ATM habits into account when you choose your bank or credit union, especially if you need to withdraw money in multiple cities. Know what ATMs are part of your network. Apps can help you track down in-network ATMs. Remember that you can often get cash back with no fee at grocery stores or other retailers.
Ask for accounts for older people or students. Many banks offer free or low-cost checking accounts to people over 50 or students. Some of these accounts may offer free checking with a lower minimum balance than what's required in a regular account.
Keep more money in checking. While conventional wisdom says you should keep the bulk of your excess funds in a savings account, it might be more economical to keep additional money in checking to avoid a monthly fee. "Interest rates are so low right now that if you do the math … you're probably better off taking some money out of savings," Barrington says.
Shop around for accounts that fit your lifestyle. Some customers visit ATMs often, and others never use them. The same goes for debit cards, paper checks and online banking. Look for the banks that offer the services you need at the lowest cost. Check out large banks, online-only banks and credit unions to find the best fit. Remember that you won't be able to do all this research online since the information needed to comparison shop isn't available.
Negotiate. Branch managers sometimes have the discretion to waive fees, especially for good customers with high balances and multiple accounts. "You push back a little bit and threaten to pull your money, and sometimes you'll get results," Barrington says. This kind of negotiation is usually best done in-person, although telephone customer service can sometimes help you find better deals that aren't advertised.
Keep an eye on your accounts online. This tips you off immediately to fraudulent transactions, returned checks, errors and low balances. A good rule of thumb is frequent debit card users should check their transactions every day.