We’ve always known that banks make major money off fees. Just how much has often been tricky to say, but for the first time last year, the nation’s largest banks were required to start reporting profits from fees in greater detail. Unsurprisingly, the results weren’t pretty.
In 2015, 628 banks subject to the new reporting rules revealed that they made more than $11 billion in overdraft and nonsufficient funds fees, accounting for 8% of their total net income. The nation’s three largest retail banks — Wells Fargo, Chase, and Bank of America — made a whopping $6 billion in overdraft and ATM fees in 2015.
The Consumer Financial Protection Bureau continues to look specifically at overdraft fees, which disproportionately affect younger, poorer, minority consumers, according to Pew Charitable Trusts, to assess whether new regulations are needed. In the meantime, it’s up to you to know which bank fees can leave the biggest hole in your wallet, and how best to avoid them.
1. Overdraft fees
When you initiate a transaction that requires more money than what’s in your account, your bank will may float you a loan to cover it. But you’ll pay dearly for this convenience. The granddaddy of bank fees, overdraft fees cost a median $35 a pop, according to Pew.
One of the most insidious things about overdraft fees is that you may not realize you’re in the red, meaning you could get hit repeatedly. A simple day out shopping — a shirt here, shoes here, a coffee at Starbucks — could set you back more than $100 in fees when you may not have even spent that much on your transactions.
Fortunately, there are several ways to avoid or reduce overdraft fees:
- Opt out. You’re not required to participate in any sort of overdraft program. This way, you’ll simply be denied when you try to initiate a point-of-sale or ATM transaction that overdraws your account. Beware that you still may have to pay a nonsufficient funds fee on check transactions or certain recurring transactions such as automatic bill pay. These fees are usually around the same amount as overdraft fees.
- Choose overdraft transfers. Overdraft transfers let you link a second account, such as savings or a line of credit, to your checking account. Then, the next time you overdraw your account, the bank covers your request with funds from the other account. Generally, the line of credit will be the cheapest option; you’ll typically just pay a one-time annual fee plus interest on the charge. A transfer from a second account may cost roughly $5 to $10 at some banks, but others, such as Ally, offer the service for free.
- Police your spending more carefully. Ideally, you’ll keep enough of a cushion in your checking account to avoid worrying about overdraft fees, but this might not be realistic for everyone. In that case, make sure you take advantage of customizable account alerts. Practically every major bank will let you receive an alert when your account balance dips below a designated amount. Getting tipped off can save you from a potentially pricey overdraft.
2. Account maintenance fees
This vague monthly fee exists to cover administrative costs on your account. Maintenance fees average $13 a month — not quite as insidious as overdraft fees, but they certainly still add up over the course of a year.
Fortunately, it’s easy to avoid monthly maintenance fees if you do your homework:
- Find a free checking account. Yes, Virginia, free checking accounts do still exist. Nearly one in four checking accounts are still maintenance-fee free. For instance, Ally’s Interest Checking account has no monthly fees — and it even offers a free overdraft transfer service, too. For more options, check out our guide to the Best Free Checking Accounts.
- See whether you can get the fee waived. Many banks offer several ways for customers to avoid the monthly maintenance fee. For instance, Chase waives the $12 monthly fee on its basic Total Checking account for customers who (1) make direct deposits of $500 or more, (2) keep a minimum daily balance of $1,500 or more, or (3) average a balance of $5,000 or more across certain Chase accounts.
3. ATM fees
Since they’re low-dollar, ATM fees may seem innocent enough. But if you find yourself using non-network ATMs often, a few dollars here and there can add up quickly.
You’ll shell out an average of $4.52 — a 21% rise in the past five years — every time you need cash out of network. That’s the combined total of the fee your own bank charges for going out of network, plus the one charged by the bank that owns the ATM you’re using.
If you don’t feel like shelling out almost $5 next time you need a quick $50 or $60, here are some common-sense strategies that will help you avoid ATM fees:
- Go with a bank that reimburses ATM fees. Some banks (many of them online) do this as a matter of practice in order to attract business. Ally, Bank of Internet USA, and Charles Schwab are among them. USAA Secure Checking reimburses up to $15 in ATM fees each month. Other banks may offer this perk on higher-level checking accounts that require you to carry a heftier balance to avoid the fees. For instance, Chase Premier Plus Checking reimburses Chase fees at non-network ATMs four times a month, but you need a whopping $15,000 balance to avoid a monthly $25 maintenance fee.
- Use your bank’s branch/ATM locator. Every major bank has one of these on their homepage and mobile app. Use it. There’s no sense in paying out-of-network fees when your bank has an ATM you didn’t know about just around the corner.
- Cut down on ATM use. Duh, right? But if you find yourself hitting an out-of-network ATM a couple times a week for small amounts, withdraw a larger amount once a week instead. Better yet, get cash back at a store register when you’re making a purchase. Just make sure the store doesn’t charge any fees for the service first.
Keep an eye out for other sneaky fees
We focus on overdraft fees, monthly maintenance fees, and ATM fees because they’re among the most common (and lucrative for banks). But you’ll want to keep tabs on other ways your bank may force you to pay up: Wire transfer fees, paper statement fees, check-cashing fees, returned deposit fees, excess transaction fees, minimum balance fees, and foreign transaction fees are among the most common on a lengthy list of ways your bank can profit off of you.
Remember: If you’re charged a fee that you feel is unfair, you have nothing to lose by heading to the bank and chatting with a manager to see whether you can get it refunded. This is an especially good tactic if you have multiple accounts with your bank — they may prefer to keep you happy in the long run instead of forcing you to pay a few bucks for a one-time slip-up.
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