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3 frustrating bank account 'gotchas'

Oh, the price you'll pay to access your own cash -- or for services like 'maintenance' and 'overdraft protection.' Here's how to keep more of your money for yourself.

By Credit.com Nov 20, 2013 4:22PM

This post comes from Bob Sullivan at partner site Credit.com.


Credit.com on MSN MoneyIt can feel like the ultimate gotcha. You give a bank your money for safekeeping, and seemingly just because it's sitting there, your bank helps itself to a handful of your cash. Your balance dips below $5,000 for one day? That'll cost $25. You buy a hamburger at the wrong time with your debit card? That'll be $35! You grab cash instead at a nearby ATM: Better leave a $4 tip for the two banks involved.


Bank Vault © Radius Images, JupiterimagesThe fees add up fast.  The Consumer Financial Protection Bureau found this year that a consumer who overdraws an account pays an average of $225 in fees annually.  That'll eat up any measly interest you might earn on a checking account, and eat substantially into your deposits, too.

 

Some consumers who don't want to play financial games opt out of credit cards so they don't have to worry about interest charges and late fees. It's nearly impossible to do the same with checking accounts -- it's very hard to participate in our economy without access to tools like direct deposit, ATMs and online bill-pay. So to be a sophisticated consumer in the 21st century, you have to know how to play checking account roulette.


There are three parts to this game: the fees you'll face; the hurdles of switching; and the success of complaining.


The gotcha fees

No one opens a checking account and plans to overdraft, or to fall below the minimum balance required to avoid fees. So that means very few consumers compare fees when picking banks. Most are tempted by spiffy advertisements, or proximity of ATMs, ease of online bill-pay, or a snazzy-looking interest rate. That's a huge mistake. One in five Americans overdraft every year, according to the Pew charitable trusts. Everyone makes mistakes. Plan for that. A single overdraft fee event once every three or four years can wipe out any perceived benefit of this bank over that, so plan wisely.


As we discuss fees, we'll move from low to high.


1. ATM fees

Paying money to get your money always ranks highest among consumer frustrations, and it should. ATM fees creep up every year, and can now hit $6 or more when both the "foreign bank" and your bank grab their money as you withdraw. The average fee is a little more than $4. Do that twice a month and you'll fork over almost $100 every year to the banking industry.

 

That's a silly mistake, however. Plenty of banks -- particularly small banks and credit unions -- offer free ATM withdrawals and refunds of "foreign" bank fees. Even if you don't want to give up your mega-bank account, it may be worth opening a second account at a small bank nearby just for ATM withdrawals. I do this and place a monthly allowance into bank No. 2. This has the added benefit of helping me track my spending.


Checking accounts that have constant small withdrawals, large check payments, direct deposits and other kinds of transactions are called "high velocity" accounts in the industry. They are ripe for small errors that cost a lot. Separate out all those $50 and $100 withdrawals into a different account, and your banking life will be a lot simpler. And, you'll save about $100 a year.


2. Maintenance

The least talked about but most frustrating fee in banking today, maintenance fees are monthly fees that banks charge if you fall below a minimum balance or otherwise fail to meet some specified criteria, such as a direct deposit. These fees can be substantial. For example, Bank of America charges $25 for its interest checking account, and $12 or $14 for its standard checking accounts.


And they can be a surprise. I know a teacher who was paid on a 10-month schedule and was surprised to find a maintenance fee was assessed to her account during the summer months, when her paycheck wasn't being direct-deposited to her account.


Maintenance fees have soared, and the number of people who successfully manage to avoid them and enjoy free checking has sunk by about half, since passage of the Dodd-Frank financial reform legislation.


These fees are tricky because the rules can change. The minimum balance can be raised from $1,500 to $2,000, for example, with little notice. This is why I reluctantly give this advice to account holders: Always leave a buffer of at least $500 in your checking account, and preferably, $1,000. With savings rates so low, the cash won't do you any good in savings anyway, so just put $2,500 in that $1,500 minimum balance account and pretend it's not there.

You are buying insurance against the occasional fee (and against overdrafts). If it saves you one fee, you will have "earned" more than anything else you could have done with that money. Smaller banks sometimes have less strict requirements than large banks, so it's worth investigating their minimum requirements.


(Oh, and if you are lucky enough to have more than $1,000 as a buffer, it may be tempting to put it into an interest-bearing checking account with a high minimum balance. Instead, consider putting the cash into a high-yielding Internet savings account. Rates are still low, around 1%, but far superior to any checking account rate you’ll find. And hey, 1% is something.)


Consumers who struggle to keep $1,500 or $2,000 balances, who don’t have direct deposit paychecks, or otherwise can’t meet minimum requirements may want to shop around for smaller banks with lower barriers. No one ever expects to get laid off, but one of the surprise punishments of that ordeal is the lack of a paycheck often means fees kick in to their checking accounts. Planning ahead for such an event -- knowing how you can meet your bank’s minimum requirement if you aren’t getting a direct deposit -- is always smart.


Finally, prepaid cards designed for consumers who don’t have a lot of cash have become competitive enough that fees are more reasonable, and many work like checking accounts. They offer online bill-pay, for example. Consumers who find their checking accounts are too expensive might want to consider a prepaid card instead. Just be aware that prepaid cards typically don't have some of the protections that a checking account offers, like FDIC insurance or fraud protection. Read the fine print before you move your money.


3. Overdrafts

Financial reform was supposed to take the biggest bite out of banks’ controversial overdraft policies, which grabbed a stunning $37 billion from consumers in 2009, some $30 or $35 at a time. When Dodd-Frank was passed, banks said the sky would fall on their business, and free checking accounts would be a thing of the past. Neither has proven true. Banks still collected $32 billion last year in overdraft fees last year, slightly more than the previous year. And fees continue to climb, even among credit unions and small banks, which now charge an average of $28 according to Moebs Services.


Overdraft fees that result from debit purchases -- the well-told story of the $5 burger than cost $40 -- were the most controversial type of overdraft, and financial reform has curbed this practice. Consumers now must opt in for this kind of coverage, and many banks have dropped fees to low-dollar overdrafts. Still, the CFPB says a remarkable 40% of consumers have opted in to this very expensive checking account add-on at some banks, where it costs them hundreds of dollars annually.


In a bit of a surprise, there are growing regional differences in overdraft fees. In places like Kansas and California, average fees are lower, while the highest in the country are in banking-friendly Delaware, according to Moebs.


Consumers can protect themselves by enrolling in what some banks call "overdraft protection." In case of an overdraft, money is automatically transferred from a savings account or a credit card to cover the cost. If that sounds a lot like an overdraft fee, distinction between the two products is confusing. To keep it simple: It's a lot cheaper to borrow your own money than the bank's money if you overdraw. The key is to tell the bank to "link" your accounts before an overdraft event. There's still a fee -- often around $10 -- but it's much better than the $30 an overdraft can cost. You can link your accounts, or just allow the transaction to be denied.


Switching banks

To borrow a weather-beaten phrase, it seems like everyone complains about banks but no one does anything about them. Consumers who feel like their bank is helping itself to too much of their money do have a lot of choice in the marketplace. So why isn't there more switching going on?


The answer was offered in a well-researched paper published by the Federal Reserve back in 2008, and is well-known to economists. Switching costs.


You can't press a button and suddenly be working with a new bank. Moving money takes time, as does moving direct deposits and payments. Economists call these hassles "switching costs." As banking instruments become more complex, switching costs continue to rise. Online banking has only made things much worse. What if you miss a mortgage payment, or overdraw an account while the money is in limbo between banks? The costs can be quite real. Last year, Consumers Union released research saying one in five consumers wanted to switch banks, but 63% said they didn't because of the hassle involved.


Switching costs are the enemy of true competition.


Financial reform in Britain has recognized this problem and new rules have led to creation of a banking industry alliance that recently released a "7-Day Switch" program. It puts the onus on financial institutions to make sure consumers don't pay extra fees when switching, and promises swift transfers. American banking regulators should pay close attention.

 

Switching in the U.S. is still a pain, but it's far from impossible. One way to rationally switch banks is to open the new account well in advance of closing the old one, and move critical transactions over slowly -- even one month at a time. The last time I switched banks, I took essentially an entire year to do so.


Switching banks became a little easier in 2011, when the Occupy Wall Street movement was linked to "Bank Transfer Day" -- Nov. 5, 2011.  Javelin Research says that, in response to that day, 600,000 people moved their money in the last quarter of 2011 from large to small banks, aided by various social switching tools, such as this site that makes it easier to find a credit union.


Getting a refund

Before choosing divorce for you and your bank, however, it's certainly possible that there's just been a misunderstanding. It's worth giving your bank a chance to make it up to you by employing the simplest, most effective tool consumers have.


Ask for a refund.


Credit.com ran a survey this summer and found that roughly one in two consumers who asked their bank to reverse a fee succeeded. Those are pretty good odds. Better than one-third of consumers said they'd managed to get an overdraft fee overturned.


How can you increase your odds of success? All the obvious advice applies. Don't ask often, because you'll wear out the bank's largesse. Be polite, but firm. But here’s some unusual advice: To whatever degree possible, don't be a stranger. Make it personal. Some banks charge a fee to talk to a teller, and in that case, this advice doesn't apply. But if you work with a smaller bank, or there is a branch of your bank nearby, drop in every once in a while when making a deposit or a withdrawal. Smile at the bank manager and tellers. You'll be much more likely to catch a break if you can make your appeal in person, and someone at the bank recognizes your face.


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62Comments
Nov 20, 2013 5:23PM
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Open an account at your local credit union. Drop the big corporate banks. They'll eventually get the hint.

Nov 30, 2013 11:15AM
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Ok people, for the ONE MILLIONTH time.... Credit Union
Nov 30, 2013 9:58AM
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Credit unions are federally insured by NCUA. Been using one for years and have only paid for checks. Only stupid people end up paying fees.
Nov 30, 2013 6:28PM
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I've never had a problem with a bank account that wasn't of my own doing.  I have no pity for anyone with an overdraft fee on a $5.00 burger.  If you cannot manage your money, no one else will.
Nov 30, 2013 3:39PM
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The answer to all of these problems is personal accountability.  You are personally responsible for your money management.  Not the bank or anybody else.  The consequences of foreign ATM withdraws, overdraft fees, and maintenance fees are no secret.  They are printed in black and white for every customer to read prior to entering into a relationship with the bank.  If you don't want to pay an ATM fee, don't use ATM machines not supported by your bank.  If you don't want maintenance fees, don't fall below the minimum balance or move your money into a lower interest bearing account with no maintenance fee.  If you don't want overdraft fees, be responsible enough to know how much money you have in the bank and don't spend what you don't have.  I am not saying that banks are pure moral compasses, but the bank cannot screw you unless you screw yourself first.
Nov 30, 2013 1:11PM
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Piss, moan and groan about how freakin' bad the big banks are. Some of us read the brochures before we commit to a bank. some of us sit with a banker at the bank to understand options and consequences of accounts we choose. Nothing is wrong with any BIG bank however a big bank is not for those who put a small amount of money in the bank, drain the account to $5.00 by end of month and get furious when they use their debit card, don't keep track of purchases and pay those damn fees the BANK screws us for. Sound familiar? Go into any branch of a major bank and ask any bank officer how much of their time is spent with people who overdraft, miss payments, don't balance their accounts, blame the bank, accuse the bank of stealing etc etc. You know what, it's the greater percentage of their day. How in hell would I know? I was a bank officer at a big bank before retiring.
Nov 30, 2013 5:51PM
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As a retired banker, I was in the industry for over 27 years, I have seen it change in many ways, when I started in banking, ATM's had just come on line....so here is some information that you left out of your article, before deregulation everyone was charged a fee for their account unless you had over 5000. on deposit. There was no thing as a free checking for the average consumer.  OD fees, ok let's take a look at this from both sides, yes people make mistakes and the bank will usually waive a fee or two, but for people who are constantly overdrawn that is another story, basically you are taking a loan rom the bank, PEOPLE take responsibility for your money, do not become overdrawn, you know how much you have, why are you spending more, no excuse for using your debit card, you can sign up so that it won't let you go over what you have, it is called "OPT IN/OPT OUT. Ask your banker about it. Yes you can always go to the credit unions, do it, but they also charge OD fees, they also have fees for your accounts. Now you must know, I was in the branches all but 4 of those years, so I have heard it all, but the other point is this, how are banks suppose to pay for their employee's??? If I go into your business are you going to give me free product just because I don't want to pay for it, banking is not a non profit business, they have bills to pay just like any other business, they do not get their power for free, or their insurance, employees, garbage, security, etc....so look at both sides rationally, since when did banking become a free business ???? If any of you people out their with a business want to give me free product then let me know, ok??? Oh and just so you know, that teller that you yell at is only making just above 12.00 an hour and is only employed part time so that the bank does not have to charge you more....just an FYI, and that teller does not make the Federal Laws that banks are governed by..... 
Nov 21, 2013 9:06AM
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If you don't want to pay for stupidity, don't be stupid. The fees are high to try and educate people and get them to be more responsible.
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Just another example of GREED and CORRUPTION in Corporate America.
Nov 30, 2013 6:56PM
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The firs two you can avoid by paying attention. The third you can avoid by living within your means,
Nov 30, 2013 4:24PM
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This is where the middle class and poor can't catch  a break-we get a fee for this, a fee for that. My son, who is only 18 gets charged fees because he doesn't have direct deposit. He doesn't have a job so how can he have direct deposit? And at the same time, they offer him a credit card. Why? He doesn't have a job. That is why he is switching to a credit union. The government generously bailed out these scum bags but we sure didn't get any help
Nov 30, 2013 10:49AM
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Some banks and most credit unions also have a dormant account fee. If you want to have a savings account for emergencies but don’t make any deposits or withdrawals for 6 months they levy a dormant account fee that’s $8.00 or $10.00 a month.

 

Credit unions are generally still much better than the big banks, but they to have their fees like the dormant account fee. In my experience the small local/regional banks are about the same as credit unions these days.

Nov 30, 2013 9:38AM
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BOA fees and rates are also governed by the state you opened the account. I opened mine in New York and since moving to North Carolina they try to play their stupid games and I have to remind them I didn't open my accounts in NC .... I'd move all my money if it wasn't such a pain in the **** to do so!
Nov 30, 2013 12:46PM
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I have found Credit Unions to be better, if only the fact you can talk to someone who is empowered. Yet, many Credit Unions are behaving like banks, lots of fees (I had a second account with $10 in it, and, was being charged $3 per month to maintain it by a Credit Union.
Parking one's money is big business. And we're getting gouged. 
Nov 30, 2013 6:20PM
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Maybe this can be addressed through the TAX CODE...  We have to report gambling winnings but we also get to deduct losses.  We have to report interest income, so why can't we deduct bank fees?
Nov 30, 2013 6:51PM
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in the 1980's when BofA put a choice on the ATM english or spanish I took my money out and put it in the credit union and have not dealt with a bank since
Nov 30, 2013 8:44PM
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If your banking with B of A, you need help!
Nov 30, 2013 7:45PM
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Banks are feeding off the public, and we are allowing it.  That's beyond ignorance; it's stupid. We allow them to put their hands in our pockets and take what they want anytime they choose.  When are we going to band together and put an end to their disregard for our financial well being?  Are we going to continue to allow them to stick it to us until they have stolen everything we could possible own?  I say we should band together and bring more class action suits again them so that they know that we are not going to just sit still for them taking advantage of us.  Agree, or disagree?
Nov 30, 2013 9:54PM
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Love those banks. No wonder there`s one on every corner. They are really good at stealing money.
Nov 30, 2013 3:52PM
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y did the football coach go 2 the bank? 2 get his quarter back.
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