Avoid Bank Fees

By Philip Brewer on 28 August 2009 (Updated 14 November 2012) 37 comments

I don't pay any bank fees, except rental on my safe deposit box. That leaves me of two minds about the fees. On the one hand, I feel bad because the fees tend to fall hardest on the people who can afford them the least — the poor, the ignorant, the stupid, the careless, the lazy, and the unlucky. On the other hand, the fees other people pay help cover the costs of the many free services that I get from the bank. (See also: 7 Banks Still Offering Free Checking and Great Interest Rates)

Economic research firm Moebs Services just announced results from a survey that indicated that fees are now providing the bulk of bank profits. In fact, at almost half of all banks, overdraft fees alone exceed total bank profits.

Banks use a lot of tricks to maximize the fee income. In particular, they process the largest checks first. If one big check overdraws your account, the bank can then charge an overdraft fee on every check that clears. If they processed the checks in the opposite order, they might only be able to charge the overdraft fee on the last one. (Another trick is to add new fees with little fanfare, so that you don't know you're paying them until you check your bank statement.)

Most people are like me, paying little or nothing in the way of bank fees. For example, according to an FDIC report last year, less than 14% of all bank customers pay over 93% of the overdraft fees.

Although the poor tend to get hit most with fees, it isn't primarily the poverty that does it. The key to avoiding bank fees is keeping your finances under control. The only way that just being poor exposes you to fees is that the narrower the gap between your income and your expenses, the harder it is to keep your finances under control. You have less room for error and are more vulnerable to simple bad luck. But being poor tends to be associated with other things that make it tougher to avoid bank fees.

If you're poor, you can't afford to keep a large minimum balance. If your parents were poor, they may never have learned that it's not necessary to pay ATM fees and bank transfer fees and fees to check your balance and fees to talk to a teller. And whole categories of poor people are not only poor — they're poor and they don't speak English, or they're poor and they come from a cultural background that doesn't trust banks. These people easily fall victim to predatory firms that charge huge fees for services like check cashing and small loans.

So, poor or not, how do you avoid bank fees? After the obvious things — don't overdraw your account and don't go over the limit on your credit card — the most important step for avoiding bank fees is to read the stuff from your bank and understand what services are free and what services aren't. Every bank makes many services available free to certain customers — you just need to make sure that you're one of those customers.

Common Special Deals

Bank fee structures are, of course, ridiculously complicated. Most banks have multiple fee structures, depending on things like what kinds of accounts you have, which services you use, minimum balance, and even age (seniors often get good specials; students often get crappy ones). There are a few practices that show up pretty often, even if they're not universal, so it's worth being aware of them.

High minimum balance

Lots of banks offer no-fee deals for people who keep a certain minimum balance. (At some banks there are several tiers of these.) With interest rates as low as they are now, it costs very little to leave some cash lying around in your checking account. It'd take a couple years for the lost interest from having $1000 sitting idle in your checking account instead of in an internet savings account to add up to as much as just one bounced check fee.

Packages of accounts

Lots of banks offer package deals, where certain fees are waived if you get a certain group of accounts (savings, checking, line of credit, etc.). The idea is that if they can pull in a certain critical mass of your financial activity, it'll increase the chance that you'll use them for other, high-profit services like your mortgage and your IRA.

Packages of services

Many banks have long waived some fees if you have your paycheck directly deposited into the bank. More recently, some banks have started offering higher rates to people who agree to some minimum number of debit card transactions. Others offer deals to people who use the bank's bill paying service.

Any of these can be a excellent deal if the packages or minimums happen to match how you were going to arrange your finances anyway. The banks are all a little different, so look around and see if you can find one that's a good match.

This is another place where the poor tend to get nailed: If they live in a poor neighborhood, they probably don't have a dozen different local banks to choose from, reducing the chance that they can find one that offers a deal that matches their circumstances.

Other Financial Fees

Because there's so much money in fees for financial services, everybody is trying to get in on it — including states. Many states have started making cash assistance (unemployment, food stamps, etc.) available via a debit card — but a debit card that comes loaded up with fees: fees for using an ATM, fees for checking your balance, fees for trying to charge more than is left on your card. There are even fees for not using your card! (That probably doesn't deserve an exclamation point — lots of kinds of accounts have inactivity fees these days — but I still find it shocking.)

Like with other bank fees, most of these are avoidable if you understand the rules, and not too onerous as long as the cash assistance isn't your only source of income.

The easiest thing to do for things like unemployment insurance where you're allowed to get the money as cash, is to do just that. You typically get one free cash withdrawal per month at an in-network ATM. Use it to get all the money out and put it into your regular bank account. If you're not allowed to get the money as cash (as with debit cards for food stamp benefits), you can minimize fees by treating it like an ordinary debit card — track each transaction and keep a running balance so you don't have to pay a fee to check the balance. Then, use the card to pay for whatever's allowed until the money runs out.

Avoiding fees is pretty straightforward for people whose finances are under control. They know what services they need, so they can shop around and find out which banks offer those as free services (with which kinds of accounts). They pay attention to things like which ATMs they can use for free. They keep track of their balance and don't overdraw their account. If they need a service that isn't free, they shop around to find where they can get it cheapest.

It's not that much work to nail down all these details, and over time it can save a fortune in fees.

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Guest's picture
Georgia S

After I got dinged for going under my minimum account balance, I set up an automatic alert for my account. Whenever my account goes under a certain amount (an amount I determined that gives me a decent buffer before I'm under the minimum), I receive an e-mail from the bank. Each time I receive one, I know to check my balance, so I don't overdraw. No more fees for me!

P.S. Where you've written that banks "wave" the fees, it should read "waive."

Philip Brewer's picture

@ Georgia S:

Yep, auto alerts can be very useful.  And thanks for the misspelling alert--fixed!

Guest's picture
valletta

I have had my two current checking accounts for over 5 years. One with Washington Mutual, which was acquired by Chase in last year's meltdown.
And BofA. I had a $1000 overdraft limit built into both accounts, with no charges ever.
Just over the last three months or so they both have instituted a HUGE overdraft charge of $35.00 without ANY notification.
I'm cancelling both and going to ING.
Enough of the gouging banks.

rstlne's picture
rstlne

I've avoided large national banks because those are where most of the fees lie. The medium-sized regional bank I bank with covers most of my area of travel and offers free checking with a low minimum balance.

Guest's picture

I don't think being poor is much of an excuse, on it's own, for paying unnecessary bank fees, unless you're poor because you're uneducated. They give everyone, even poor people, the litte pamphlets telling them what they need for a minimum balance. They can then choose not to bank there if it is too steep.

Philip Brewer's picture

@Emily:

Right, just being poor wouldn't do it all by itself.

But being poor tends to go along with some of the other things (living in a poor neighborhood with few choices for banks, having parents who didn't learn about these things growing up themselves and don't know to teach them to their kids).  And, of course, if you're really poor, some of the other stuff is harder (like accumulating a high enough minimum balance to avoid fees).

Guest's picture
Courtney Ostaff

West Virginia started making unemployment ONLY available via a Visa debit card that doesn't work at common stores like gas stations. But, there are "fees for using an ATM, fees for checking your balance, fees for trying to charge more than is left on your card." So, we can't, say, pay for groceries with what is left on the card, and then pay the rest in cash. We can't buy gasoline for the car. There are NO free cash withdrawals at an ATM, and there are only TWO ATMs and ONE BRANCH in the entire state!!

Guest's picture
Lisa B.

How about the self-employed, who sometimes go through periods of low cash flow? Banks are there to pick up the ball and run with your money. I don't see a need for them to charge so much; it is gouging the poor when their charges are four times what someone on minimum wage makes in an hour, i.e. half a day's pay.

Guest's picture
Craig M. Rosenblum

Are they a better approach to having control of how a bank charges you, and your ability to vote on things like that?

Philip Brewer's picture

@ Craig:

In the US, credit unions are the common sort of co-op bank equivalent.  A credit union is often an excellent choice, although too many credit unions are run by the same sort of people who become bankers--and they tend to charge fees.  Still--often a good choice.

Guest's picture
Guest

Those fees are in fact almost criminal. In fact, some people report they have asked their bank to remove the overdraft, so they could have all their money in the savings account, but were rejected. Even a $0,01 overdraft gives you a $35 fee. I wouldn't call a 35,000% profit margin a service.

Guest's picture
Guest

The fact is with these fees you're not in control, the banks are.

If by any chance your identity is compromised and your bank account access stolen, you will be totally dependent whether the bank will reimburse the $100-$1000 in overdraft fees that will most definately occur. There is no protection, unless consumers stand up to these almost criminal actions by banks.

Too bad most people are too dumb too understand that the banks are not trying to help you, they don't care about you, they are a business trying to make more money from the overdraft fees.

Saying it's the persons own fault is like saying some girl got raped because she worse skinny clothes. Guess what, most rapes happens when you're fully clothed.

Philip Brewer's picture

@Guest:

If you check your statements, and report any unauthorized transactions to the bank promptly, they have to reverse the transactions, including the overdraft fees.

Where people get screwed is when they don't check their statements and don't find out things have gone awry promptly enough.

Really not much like rape at all.

Still, it's true that the banks aren't trying to help you.  They're just trying to make money.

Philip Brewer's picture

It's worth seeing it from the bank's perspective, as that makes it easy to predict how the banks are going to act.

Most people go years without bouncing a check, so they scarcely know or care what the overdraft fee at their bank is.  So, the banks can hike up those fees and lose very few customers.  The only customers they might lose are the ones who keep bouncing checks, and (although they'll hate to lose those customers, as their overdraft fees are providing the lion's share of bank profits) they won't lose many of those customers (because those customer's finances are already out of control and they simply aren't in a position to manage something as complex as switching banks).

So, there's no real pressure on banks to charge reasonable fees, except from the occasional customer like valletta (comment #2 above) who actually pay attention and use that information to choose their bank.

Guest's picture

I do not see any reason people would have to pay fees, except for ignorance of the possibilities out there. Many banks have no minimum balance online savings accounts, and most will have no fee, no minimum balance checking accounts. Debit cards are free, and many places have overdraft linkage to no fee credit cards.

My thought is that the people who pay fees out there just don't know what they need to be doing, or are too lazy to set this all up. Maybe they should be looking at PF blogs!

Guest's picture
Chris

Doesn't this just prove Pareto's premise that 80's of your profits come from 20% of your customers? At least in fee income. I am curious as to outside the US where fees are more common then they are here in America.

Guest's picture
NoMoreFees

Thanks for posting this. Banks fees and overcharging is a growing problem and more needs to be written about it.

The fact is that the rules are made by the banks and they are purposely complex. The more confusing they are will drive up the probability of you making a mistake and drive up their profits.

I was with region and after getting dinged for 100's of dollars in overdrafts in one transaction I found that this is very common at Regions (and AmSouth before they bought them). One of the sources of information was a website set up to call Regions out on their practices

see it at www.badregions.com

Here you'll find some interesting background on the why's and how's of whats going on. In the forums section you'll see that the mosr popular area is about OVERDRAFT FEES. There are some incredible stores here.

Congress cleaned up the predatory practises of the credit card companies, from the report in the original post is looks like the banks are next.

Guest's picture
Deborah

This is why I have been banking with Wachovia for over two years and will continue to bank with them until I decide to move. They don't charge me any fees and they don't require me to have a minimum balance. I also get a way 2 save attached to my account. Way 2 save is where every time you use your debit card $1 goes into your savings plus that money can be used for overdraft protection. Automatic savings is well, a saver! Plus I have another savings account with ING that I transfer to manually so I am quite content with my banking experience. Being self-employed, you really have to look around more than most to find things that are suitable and flexible. Basic things like housing, financial assistance, etc are difficult to obtain. Thank God my bank is one less place I have to worry about more stress and hassles.

Guest's picture

I also avoid bank fees whenever i withdrawal money.I prefer using western union pay instead of paid by check since there some service charge from banks.

Guest's picture

I think these bank fees are as unethical as the operations of credit card companies. Luckily, I have the education and financial skills to avoid ever having had a fee for either.

But I live in an area with a lot of poverty. Most poor people--and this would include the working poor--seem not to have bank accounts at all. A checking account would be a luxury for many.

Guest's picture
Lisa

Hi! There is another way banks get money & that is by people using there debit /checkcard & the company places a hold on the money & you don't know it. It could be Taco Bell ,ustAN EXAMPLE I DON"T KNOW IF THERE BANKING COMPANY DOES THIS OR NOT)
you order 3 taco belle grande & use your debit card, well, the company could put a hold of 50-$175 , which would make your account bounce , if you only have a small amount in it. This happens bunches. i know people who have had thishappen from gas stations, restaurants & grocery stores. Once the bounce happens they run your card through again sometimes 2-3 times ion one day & you are getting recharged bounced fees & maybe fees of like $8 per day till you can pay it. It isn't always the bank customers fault! Another thing they are doing is layering the pending charges that come through & floatig them for a week & then ordering them smallest to biggest , so you get more bounced check charges. I know Ohio has the unemployment card too . It's a pain. My Dad wold go to the bank it was issued on & withdraw the whole amount at once, that way no charges at all. Lisa~~Sorry about the grammar mistakes I tried to retype something & it keeps erasing the words

Philip Brewer's picture

@ Lisa:

Yes, holds on debit cards are another way that banks gin up fee income by creating artificial overdrafts.

Usually you only see those on transactions where the seller doesn't know exactly what the charge is going to be--restauarants (where they don't know how much you'll tip), hotels (where they can't be sure when you'll check out or what drinks and meals you'll charge to your room), etc.  When they authorize the transaction, they estimate how much the charge might come to and put a hold on that much money.

That was bad enough, but the really sleezy part was that the banks wouldn't always release the hold when the actual charge came through.  I don't know if the details have changed since, but when I last looked into it, the banks would only release the hold if the amount charged were an exact match.  So, if you ate a $50 meal at a restaurant, the restaurant might put a hold on $60.  If you tipped only $7.50, the actual charge and the hold didn't match, so you'd end up with both an actual charge on your account of $57.50 and a hold for $60--reducing your available balance by $117.50.

That's pretty bad for a poor person who doesn't have $60 to spare for three days waiting for the hold to expire.  It can get much worse at hotels where they might put a hold on several hundred dollars in additional to actually charging several hundred dollars.

Guest's picture

I have an online no-fee savings account. However, my business accounts, that I have with Wells Fargo, charge a monthly fee. Any advice for banks that offer no-fee business accounts?

-Little House

Philip Brewer's picture

@ Little House:

It's strictly a matter of negotiation.  I'd suggest starting with the small and medium-sized banks wherever you live.  Tell them what services you'll need and how much business you'll be doing, and ask them to cut you a deal.  If they won't give you what you want, try the even smaller banks in small towns around where you are.

If that doesn't work, try going at it from the other direction.  If you're stuck paying a fee, ask them what services they're willing to provide.  If there are bank services that your business requires, it may well be cheaper to pay the account fee and then get the services for free, than it would be to pay for the services.

Guest's picture
vicki

I have been a victim of astronomical bank fees. First, I had several unauthorized charges to my account. The process I had to go through to get these charges reversed involved the bank issuing temporary credit to my account while they investigated. Unfortunately, they ended up charging part of the fees back because they determined the charges were mine. I had been on vacation and didn't get the slip of paper I needed to sign returned in seven days. They refused to do anything aftwards.

I've also been a victim of the holds. The cruise line we used for our vacation put a large hold on the account. The bank held it for several days after it should have been released. Then the cruise line issued the actual payment.

My mortgage company made a draft on the wrong date, resulting in a large overdraft fee. The bank refused to do anything, even though the mistake was not mine. My mortgage company is supposed to be reimbursing me the fees.

Even being careful, there are a number of reasons people receive bank fees. Sometimes it's not the customer's fault. Most banks do nothing to help the customer out. I'm closing my account at BofA and switching to a credit union where some of this nonsense won't occur.

Guest's picture
AJ

This is very true. I am glad I got my bank fees under control. I pay nothing now because I figured out the way BofA charges for their fees.

Guest's picture
Guest

Thanks for sharing such great post, according to me this post will surely help to under control our bank fees.

Guest's picture
Guest

Chase can be one of the worst banks for fees, but one thing they do is Chase Mobile. If you use your cell phone, it can be a big help. I text them and they will send me my balance. It's fast--I often do it while I'm standing in line. All the transactions clear instantly at major stores, so if I'm making several stops (Target, Dominick's and CVS or whatever) I can check it between stores and know if I'm within my budget. It's free and really easy; I can also check my last 5 transactions and they told me that soon I'll be able to transfer money from one account to the other that way too.

Guest's picture
Guest

Agree Chase Sucks

Guest's picture
Guest

Overdraft fees are just a way for the bank to scam you for money. The money one keeps in the bank is already enough for them to earn huge profits. Many foreign banks do not charge overdraft fees. I overdrew my foreign account with 2000 dollars once on a trip, paid it back a week later and did not have to pay a penny. I do not have to pay any fees except for my atm card and I also get some money from them for the interest I have accumulated during the year. Here in the U.S. the banks do what they want because none seem to know that it could be different. They treat you as the customer when really YOU ARE THE ONE LENDING YOUR MONEY TO THEM! I know go to my local bank and when they ask me which account to deposit it into I say no thank you Ill take cash.

Guest's picture
Mia

It is important to know what you are paying fees for at your bank, and whether you can reduce these fees or not. I don't pay many fees, but I don't have a credit card (I am 22) and I don't need to use an overdraft.

Guest's picture
WAJ

As with everything from bailouts to overdraft fees, I'm very surprised violent crimes are not overwhelming fraudulent rich persons. I'm not rich, in fact I had 27 overdraft fees this past year which were all posted to my account when I ended the day positive. The fees were allowed to post because of pending transactions. If this is allowed to continue, I may start a overdraft and recovery shoot your ass collection LLC.

Guest's picture
LadyE

CITIZENS BANK is the WORST for charging overdraft fees!!!!

Guest's picture
Meria

Unfortunately for me i have a bank that likes to gouge me for activity fees and maintenance to the tune of about $40 bucks or so a year! :-) Of course the next time i get $30 bucks in my pocket i'm transferring banks.

Guest's picture
Theresi

I made a deposit to BofA this past Saturday because I needed the funds in my account for shipping. Then I went to the Post Office to send off packages. I now have 3 $35 overdrafts now. They posted the Post Office debit first because it was biggest, followed by two other transactions (which, by the way) were already financially covered and then the deposit LAST! So all three deposits that easily should have cleared are now overdrafts... I'm VERY poor, so go ahead, tell me like you do the others that I am irresponsible, spending what I don't have or am being careless and that I deserve this... Oh and they have changed the ATM to accept cash w/o an envelope. I tried to deposit cash and many of my bills got rejected. I tried again... rejected again. I went to the next ATM, again bills rejected twice, I went around the building to a 3rd ATM, it rejected the bills once and then told me it would not accept any deposits. I had bills to pay, but I could not get the money into the bank.. (the bank was closed). My account is linked w/my best friend so we can transfer money back and forth as we need to, but we went to the ATM to put money from his account to mine, and when we selected to transfer money to other accounts that we have added, they did not appear. So he couldn't transfer money to my account until we got home and onto a computer.

Philip Brewer's picture

I'm not sure if you aimed that at me or not, but I'm solidly on the side of the depositors, not the banks.

The banks play a cruel, twisted game—but it's a game with rules. If you learn the rules, it's a game you can win.

That's not a just result—there'll be other poor folks out there getting screwed—but at least you won't be getting screwed yourself.

Guest's picture
donna

Question: I just noticed my bank charged me 2 days of intersest because my payments due date happened to be on a SAt???I had the moneyin there to pay for my Home equity on Fri.....Just because bank is closed over weekend as far as I know it would get taken out MOn morning with no extra interest taken out for the weekend.I only had 3 payments taken so far and just noticed in Sept. the 7th(which is my due date)happened to fall on a Sat.......Can they do this?????