16 Common Bank Fees and Ways to Avoid Them
One of the primary ways that banks make money is through fees. The income earned through bank fees is used to pay the bank’s operating expenses and to make their profits. Every product and service a bank offers has a cost attached, even the fee-free accounts. These expenses can be triggered once, repeated at regular intervals, or happen as a result of a banking penalty. As savvy consumers, you should be aware of all the fees your bank can charge. Once you know them, you can structure your financial life so that you may minimize, or even eliminate, them.
1. Minimum Balance Fees (also known as Monthly Maintenance Fees)
Whether you call it one or the other, this is the bank fee charged simply for owning an account. Some banks waive this fee if you carry a minimum monthly balance of $500, $1000, or more. They may also do the same if you send part of your paycheck to the account using direct deposit.
Minimum Balance Fees can range from $5 to $20 and are assessed each month. Multiply this by twelve months, and these costs can add up over the year. The most recent Checking Account Fee Survey from MoneyRates.com revealed that the average monthly maintenance fee paid is $13.58. Per year, that equals $162.96 in fees. As more banks recognize how much money this fee can generate, monthly maintenance fees are growing in popularity and cost.
How to avoid this fee:
- Sign up with a bank that doesn’t assess monthly maintenance fees. Many online banks offer free accounts. If you prefer a physical brick-and-mortar financial institution, consider using a regional bank or credit union.
- Ask for a fee waiver. Banks may consider waiving fees if you can meet specific terms. These may include carrying a large balance or receiving a minimum deposit, for example. You may also be eligible if you receive paper statements or use more than one service from the bank. If you’re a student and can provide proof of enrollment, you may be able to avoid fees until you graduate. Check with your bank for full terms and conditions.
2. Overdraft Fees
They come in four types:
- Overdraft Fees are assessed when your bank allows a transaction worth more than your available balance. They are typically not applied if your overdraft is less than $5. Most overdraft fees are about $35; the average is $32.53 according to MoneyRates.com.
- Non-Sufficient Funds (NSF)/Insufficient Funds Fees happen when a bank rejects a transaction that will overdraw your account. NSF fees are usually the same amount as overdraft fees. Both are represented the same in your bank’s fee schedule. As a result, a bank must decide if it will approve or decline an overdraft; it cannot do both. Therefore, you can be charged only one of these two fees.
- Overdraft Protection Fees (also known as Overdraft Transfer Fees) are tied to a program that links your checking account to a second account. The second account can be a line of credit, a credit card, a savings account, or another checking account. When an overdraft occurs, money from the second account is used to cover the overdraft in the primary checking. A bank cannot legally add overdraft protection to your account automatically, so you must opt-in to the program to be covered. Online banks usually provide this service for free, but banks with a physical location may charge $10-$12.50 per occurrence. Overdraft protection is cheaper than NSF or overdraft fees. If you choose to use this program, you should set up mandatory notifications with each transfer. Not doing so can result in you overdrawing your secondary account.
- Extended Overdraft Fees (also known as Sustained Overdraft or Extended Overdrawn Fees) arise when your account is overdrawn too long. Most banks give you five business days (or seven calendar days) to correct your overdraft. How much you owe will depend on your bank. Depending on your bank, you could be charged each day or every five business days until the overdraft is resolved.
How to avoid these fees:
- Learn the overdraft policies of your financial institution. Don’t assume they’re the same for every bank.
- Keep a close eye on your balance. Automate this by setting up low-balance alerts. With these, your bank sends an alert by text or email when your account falls below a specific value.
- Use overdraft protection carefully or opt-out of it entirely. Applying overdraft protection will reduce penalties (for example, you’ll pay $12.50 vs $35, respectively). It will not eliminate the penalties, but it will ensure that your transaction is processed instead of being rejected. However, using overdraft protection frequently can become expensive, and it decreases your total wealth. Each time you incur an overdraft, it removes money from your secondary account or works to increase your credit debt. If you choose to opt-out, you’re automatically declining debit card transactions that exceed your bank balance. When this occurs, the bank may assess a nonsufficient fund fee.
- Move your money to an account without overdraft fees. Not all banks charge overdraft fees; Simple, Chime, and Discover Bank are a few. Before you make the switch, read up on the fine print of your new account. You’ll want to know what fees the bank account will charge.
3. Returned Deposited Item Fee/Deposited Item Returned Fee
You’ll earn this fee when you deposit a bounced check into your account. A check bounces when its written value exceeds the amount of funds actually in the account. Bounced checks are returned to the depositor, who is then financially responsible for the missing money. The check writer is not penalized with a returned deposited item fee for bad checks written. (They may be assessed a different fee.) There are various reasons for a check to be returned, including a closed account, a stop payment, or insufficient funds. The average returned deposit fee is $35.20.
How to avoid this fee:
- If possible, don’t accept personal checks. Cash, cashier’s checks, and money orders are more secure.
- Should you choose to accept a check, verify that the check writer has the funds available in the account. This should occur before attempting to cash the check, especially if you are worried that it’s not going to clear.
- If you get a deposited item return fee, contact your bank and see if you can get them to waive it. If your accounts are in good standing, your bank may reverse the charge.
4. Returned Item Fee
If a check written by you bounces, you can be liable for this expense. The fee is applicable as long as you have insufficient funds in your account.
How to avoid this fee: Pay careful attention to your checking account balance so that you will avoid overdrafts. Setting up automated low-balance alerts on your account may help as well.
5. ATM Fees
Your bank can charge you a fee to access your money using another financial institution’s ATM. Fees range from $2.50 to $5.00 or higher if the ATM is not in-network or out of the country. ATM fees may be charged by your bank and the other bank. There are three main types of ATM fees:
- The ATM Operator’s Fee. This fee is charged when using a non-network ATM. The customer is informed that the ATM’s owner will charge a small fee and must agree to it to proceed. If the ATM’s owner is a bank, they usually charge $1.50-$3.50. Non-bank owners can charge up to $10 for the transaction.
- Your Bank’s Non-Network Fee. For using an ATM outside of the bank’s network, your bank may charge you between $2.00 and $3.50. Your costs will depend on your account and the services in which you are enrolled. You will not be notified during the transaction, but the fees may be reflected on your monthly bank statement.
- International Transaction Fee is levied against transactions made outside your country of residence. As a result, you may end up paying a higher fee than if it was a domestic transaction. International transaction fees consist of a flat charge ($2.00-$7.00) plus a conversion rate. The conversion rate is a calculated percentage of the withdrawal amount and is usually 3% of the total transaction’s value.
How to avoid these fees:
- Use your plastic or digital wallets.
- Choose to withdraw money from your bank’s ATMs when available rather than from a non-network ATM.
- Choose a bank account with free (non-network) ATM access. This may be in the form of a monthly rebate of all ATM fees to your account.
- Use a store checkout’s cash back option. Many chain stores and large retailers offer fee-free cash back with purchase when using debit cards (including pre-paid debit). When cashing out, select the debit option and enter your PIN when prompted. This option is not usually available with credit cards.
- Upgrade your account to a High-Yield Checking Account, which can come with benefits, like waiving or reimbursing ATM fees. Review the account information carefully, since these can have monthly service fees. One common way to avoid service charges is to have a high minimum balance in your account.
- Use a brokerage account. Several brokerage services now issue bank cards to get cash from ATMs. Firms like E*Trade, Fidelity, and Charles Schwab will refund any ATM fees incurred for cash withdrawals.
- If you must withdraw cash, do it less often, but for more significant amounts that cover multiple needs at once.
6. Paper Statement Fees
Many bank customers elect to receive their statements electronically. Banks have started charging between $1 and $5 to print and mail paper versions.
How to avoid this fee: Opt-in to get your bank statements online. Your bank may offer access to the last twelve months of statements. If you require a hard copy, it is easy to print it from your computer. Selecting e-statements may also lower the chance of thieves committing fraud with your banking information by stealing your mail.
7. Debit Card Transaction Fees
Some banks may charge a small fee ($1-$2) to make a transaction using your debit or bank card. (Interestingly, some merchants offer cash back, discounts or other rewards for making debit card purchases. This is because the costs they incur are lower for a debit card than a credit card.) It’s unlikely that you’ll have a debit card transaction fee when using your card at an ATM unless it’s out-of-network.
How to avoid this fee:
- Locate and use merchants who offer cash back, discounts, or other rewards for debit card purchases.
- Identify and bank with institutions that do not apply debit card transaction fees.
- Conduct banking business with in-network ATMs.
8. Additional Checks Fees
When opening a checking account, a bank will often supply you with a limited number of free checks. Once those are used up or expired, you will have to pay for additional checks ordered. A new checkbook from your bank costs about $35. A third-party retailer, like Walmart, may charge you less.
How to avoid this fee:
- Don’t waste your free checks.
- Consider using your bank’s online bill pay when possible. Many banks offer this service for free. The bank may issue an electronic funds transfer to pay known vendors, like utilities. Other vendors may be paid through a check issued by the bank but drawn on your account.
9. Cashier’s Check Fees
A cashier’s check differs from a personal check because the bank guarantees the money will be paid. The check is drawn on the bank’s account, with the teller acts as a signatory on behalf of the bank. Cashier’s checks are used when a payee may want assurance that the check is good. Giving them this level of assurance isn’t cheap: it costs about $9, according to MyBankTracker.com.
How to avoid this fee: Don’t make using cashier’s checks a habit. Use them only when necessary.
10. Lost Card Fees
Should your card go missing or get stolen, you will need to cancel and replace it. On top of the hassle of replacing your debit card, your bank may charge you for the new one. You could be out $5 for a regular speed replacement that can take a week or more to arrive. If you need it faster, like shipped overnight, it can cost you as much as $30.
How to avoid this fee: You may not be able to avoid this bank fee if your card is lost or stolen. Having a second, backup card available may allow you to save money by selecting the lowest cost replacement option.
11. Foreign Transaction Fees
These bank fees are applied when you use your card to make transactions in a different currency (other than U.S. dollars). You can also be charged these fees if your transaction is routed through a bank outside the U.S. The most common fee costs 3% of the total value of the transaction.
How to avoid this fee: Use banks that do not charge a foreign transaction fee.
12. Wire Transfer Fees
A wire transfer is an electronic way to send someone money, almost instantaneously. Wire transfers usually incur charges to send and receive the funds. These costs may be about $30 and $15, respectively.
How to avoid this fee: Determine if you need a wire transfer. If you don’t, consider a less expensive way to send the funds (electronically).
13. Savings Withdrawal Fees
Per Regulation D of the Federal Deposit Insurance Corporation, there’s a limited number of withdrawals you can make each month. You may only have six withdrawals from each savings account per month. Exceed this, and you will have to pay a fee of about $15. Breaking the six-withdrawal rule for multiple months can result in your bank taking action. This may include closing your account or migrating your savings to a checking account. (Checking accounts have no limit on the number of withdrawals you can make in a month.) Just be aware that any overdraft transfers from your savings to checking account are factored into your six-withdrawal monthly limit.
How to avoid this fee: Make your withdrawal strategically. Move your money in vast amounts six times or less per month.
14. Inactivity Fees
You may think that not using your account will save you on fees. Some banks may place an inactivity fee of about $10 on accounts dormant for six months or more.
How to avoid this fee: Keeping your account active can be as simple as logging in regularly. You can also set up a small recurring charge or deposit into the account on a monthly basis. Do not ignore correspondence from your bank because it may be written notice that your account is inactive.
15. Account Closing Fees
If you attempt to close an account less than six months old, the bank can assess a charge against you. This fee can vary between banks and can be as high as $25 for each account.
How to avoid this fee: Don’t close your bank account before the 6-month mark.
16. Early Withdrawal Penalties
Certain accounts, like a certificate of deposit (CD), offer higher interest rates than a regular checking or savings account. In return, you must leave the money in the account for several years. Breaking this period and withdrawing the principal will result in a financial penalty.
How to avoid this fee: Set up a CD ladder. This is a strategy where you divide your investment money uniformly into equally valued CDs that mature on different dates. This allows you to have cash available throughout the total investment periods of your CDs. You may also use a liquid CD. This type of CD allows for early withdrawals without penalty in exchange for a lower yield.
Banks are a critical institution of society because of their fiscal benefits. They allow us to obtain cash, save and invest money, and apply for financial instruments to give us more capital. Unfortunately, these services cost money, and banks charge fees to cover their expenses. The best way to avoid bank fees is to read the documents given to you by your bank. They list all the fees (and their costs) that are applicable to your account. Once you know what charges can be assessed, you can make sound financial decisions to avoid things that trigger them. Having this information on bank accounts, fees, credit, and savings is vital to avoid expensive mistakes.