By Peter Miller
The world of consumer banking used to be based on the pillars of free checking and equally free toasters, but those days are long gone. Today’s bank statements are likely to be filled with an array of charges and costs, fees that may seem small and unimportant but which together actually bring billions of dollars into the banking system.
While depositors may have had an inkling that banking has seemed increasingly expensive of late, it’s possible to avoid a host of these charges — and probably all of them.
FDIC Call Reports
The FDIC collects quarterly “call” reports from the nation’s banks, but starting this year banks with assets of $1 billion or more are required to provide new information. Now, for the first time, we can see the full extent of those little fees that keep cropping up — and it turns out that taken in aggregate, they’re not so little. In fact, according to the FDIC, they amounted to $7.4 billion in just the first quarter.
According to FDIC spokesman David Barr, “The new data include consumer overdraft-related service charges, consumer periodic account maintenance charges, consumer ATM charges, and all other service charges on deposit accounts. This last category includes all service charges on deposit account products that are intended for use by a broad range of depositors (which may include individuals), as well as ‘per check’ fees and other event-based charges, such as stop payment fees and wire transfer fees on consumer deposit accounts.”
Of the $7.4 billion in service charge income on deposit accounts reported by the 626 institutions, Barr says:
- Overdraft charges on consumer accounts totaled $2.5 billion, or 34.1%.
- Periodic account maintenance charges on consumer deposit accounts totaled $975 million, or 13.2%.
- ATM charges on the banks’ consumer accounts totaled $439 million, or 5.9%.
The charges on consumer accounts (overdraft charges, periodic account maintenance, and ATM charges) represented more than half (53.3%) of the service charge income reported on deposit accounts.
How to Protect Your Wallet
Given the numbers from the first quarter, it looks like the nation’s big banks will collect nearly $30 billion in fees during the coming year. That’s a lot of money, but the odds are that you can avoid such costs by asking five magic questions.
1. What are your minimum balance requirements for checking and savings accounts?
Banks, with some reason, don’t want very small accounts because of the costs they represent. So they have a variety of maintenance fees they assess for low balances, often in an effort to effectively close out such accounts. Find out what the monthly minimums are and be aware that if an account balance falls below the benchmark for even a day you can be assessed the whole change.
2. Can I get overdraft protection?
“It’s always good to have overdraft protection, a service which is often available without cost,” said Rick Sharga, executive vice president at Auction.com. “With such programs the system steps in and pays the bill up to a given amount if the account is overdrawn.”
Generally, overdraft protection means you have an optional system in place in case your account is overdrawn. For instance, you might have a savings or retirement account tied to your checking account. If you write a check that drops the account below the amount of available funds, money is automatically transferred from the other account to cover the debt, so the check doesn’t bounce and create its own headaches.
With overdraft coverage the bank — at its discretion — pays such things as automatic bill payments, recurring bills, and debit card transactions. Some overdraft coverage programs are automatic, others require enrollment.
Whatever system you choose, always ask about minimums, fees, and charges.
3. Can I get a line of credit?
An alternative overdraft approach is to get a line of credit attached to a checking account. This is different than a checking account related to savings or retirement funds because the money is an outright loan from the bank and not your cash.
There is often an annual fee for this service, perhaps $25, but it automatically advances money to cover overdrafts or if you simply need a loan. A line-of-credit requires a basic credit check and loan application, but once in place can last the life of the account. Depending on your income and credit, the size of your line-of-credit can be substantial, well into five figures.
4. Do I have to pay ATM fees?
Cash is readily available from ATMs everywhere, but there’s a catch: If you use another bank’s ATM, you may owe a fee. The fee may seem small — say $3 — but that’s a big percentage for a small advance.
Be sure to ask about ATM fees. Is there a fee to use the bank’s ATMs? How much? Is there a fee to use an ATM network that includes your bank? How much? If there is a fee to use a non-bank ATM, will the bank reimburse you? Is there a limit to fee-free ATM transactions, such as a certain number per month or the amount withdrawn?
5. Do you have a minute?
It costs big money to attract new customers, and banks very much want to keep your business. For that reason, if you get hit with an overcharge, one of the best strategies is to simply visit a branch and chat with a bank officer.
Explain your concern — nicely — and ask if the charge can be removed. Even before you get to the “ask” part, the bank officer may well say, “Gosh, you’ve been with us for so many years (or you have x amount deposited with us, or both), so let’s see if we can waive the fee.”
The bank officer knows that waiving the fee means fewer dollars in the short term, but keeping the account can mean a very-much larger stream of income for years to come. Weighing the pros and cons, there’s a very good chance the fee will be waived.
If the fee is not waived — and if you’re a good customer with solid credit and a healthy balance — you can always take your business elsewhere, especially if you find a bank that has good answers for the questions above.