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Banks aren’t created to provide you with free financial services. They’re here to make money just like any other business. In fact, the U.S. banking industry netted $160.5 billion last year and $24.1 billion at the end of Q2 2017, a bit behind compared to last year’s half way mark of $40.3 billion.
When you think about it, using bank services is the same as paying to use your own money. Sounds crazy to me, but it’s simply the way the world works these days. Almost every aspect of our financial transactions is electronic and nearly cashless, but it doesn’t mean they should cost you an arm and a leg.
Doing your homework before joining a bank is a must. There shouldn’t be a reason for you to pay ridiculous fees every time you need to cash a check or use an ATM. All banks charge either ATM, overdraft, or maintenance fees (about $16.8 billion each year) making it difficult to completely escape them, but there are several things you can do to possibly avoid or at least minimize them.
1. Find a financial institution that allows courtesy pay. This practice is not very common but some credit unions and perhaps community banks may still offer it. This is when your balance can go into a negative in your checking account up to a certain amount with a condition that you will pay it back within the next 30 days. This kind of service can give you an opportunity to avoid any overdraft fees. But if you happen to incur one, be sure to pay it sooner rather than later.
Most importantly, don’t walk away from it because when you need to open another checking account, you will get called out right away. ChexSystems is the banking industry’s way of screening your checking account habits. It’s almost like an internal bank credit score that can tell any outstanding fees with other banks. To avoid or reduce overdraft fees, look for institutions with special overdraft programs or find the ones that charge the least.
2. Plan-ahead to avoid charges at other bank ATMs. As I mentioned in one of my prior articles, ATM fees are a deep money pit that cost bank customers nearly $2 billion in 2016 and $476 million in the first quarter 2017. This fee can be easily avoided. You simply need to plan ahead and take out some extra cash before you go out. The chances are, ATMs at the late night hot spots or any sporting events will charge you a couple of bucks for a withdrawal. So, do your best to avoid using them in such places and save yourself some cash.
3. Dodge account maintenance fees by setting up direct deposit. Most banks charge a checking account fee, unless you meet certain criteria. Some of the conditions may require you to maintain a set balance in your account at all times, which can be difficult to do for most of us. But having direct deposit come into your checking account is the easiest way to avoid the monthly fee. Most employers prefer to pay their employees via direct deposit so setting it up with your bank is easy and will save you a few bucks each month.
4. Use credit card instead of debit. Using your credit card could save you a lot of headache. Any fraudulent charges on a credit card can be resolved quickly with minimum liability to you, whereas debit card frauds can take a bit longer to resolve, leaving you with the possibility of being responsible for charges you didn’t make. The main difference is that when fraud occurs on your credit card, you don’t lose any money. With a debit card, your account balance gets affected right away.
5. Shop for the right financial institution. One final, and probably the most important, step is to pick the right financial institution to do business with. Spend time researching banks and credit unions to see their overdraft and maintenance fee structure, and to explore requirements for a free checking account. In addition to picking the cheapest banking option, make sure to check out its safety rating with Weiss. A simple to understand rating will tell you what we think about its financial safety.
The bottom line is that you should spend as much time, if not more, looking for the right financial institution as you would when shopping for a new TV, computer, or a car. Just because everyone else is paying these fees it doesn’t mean you should too. Of course, you may not be able to escape them all but at least you can try.
Think Safety,
Remi Lukosiunas
Money and Banking Edition, By Remi Lukosiunas, Financial Analyst Remi Lukosiunas, a Financial Analyst, joined Weiss Ratings in 2014 with a financial services background in internal audit and the credit union industry. Remi conducts banking, credit union, insurance and investment research. He has also written extensively on stocks and investing using ratings as a guide. Remi is a graduate of Florida State University with a degree in multinational business. |
