With all the mayhem on Wall Street these days, it’s easy to put the money housed in your checking account on the back burner. Most of us are spending enough time worrying about our investments, or how to prepare for this recession we keep hearing about. We’re happy that the cash we stash in our plain-vanilla bank account each pay period is safe from the roller coaster of the market.
But often, those accounts come with different kinds of risk: overdraft penalties, maintenance, minimum balance fees and ATM charges. In 2006 alone, consumers paid more than $36 billion in various fees at banks, thrifts and credit unions, according to the Federal Deposit Insurance Corporation. That’s up from $34.5 billion in 2005 and $24.4 billion in 2000.
Clearly, extras like these can quickly eat away at your balance if you let them, but many are easily avoidable. The first step is to shop around.
Think about it: How many different banks do you pass on your way to work in the morning? I know my commute takes me by at least six or seven, possibly a few more. As of the end of last year, the FDIC counted 8,533 insured institutions. All of them are competing for your money.
The trick to limiting unnecessary charges is to find the bank, and the account, for you. Just don’t forget to read the fine print before making your first deposit.
Consider your situation
The array of different banking products on the market today can be pretty overwhelming. There are accounts specific to college students, baby boomers, teachers — you name it. Accounts for younger consumers will generally waive a minimum balance requirement, those for baby boomers sometimes include a free safe-deposit box, and so on.
When you’re evaluating accounts, think about how much money you’ll be able to keep in there on a regular basis, if you plan to pay your bills online, and perhaps most importantly, whether the bank’s network of branches and ATMs is conveniently located. ATM fees are still the biggest gotcha here — they are up significantly this year, and on average, your bank charges you 25 percent more for using another bank’s ATM than it did six years ago. Add that to the fee assessed by the other bank — using a Bank of America ATM if you’re not a customer, for example, will cost you $3 — and you’re digging yourself quite a hole.
Ask for information up front
A recent study by the Government Accountability Office found that when secret shoppers made requests for checking and savings account fee information, a fifth of financial institutions didn’t provide a comprehensive list, and 33 percent failed to disclose terms and conditions of the accounts. If you’re relying on a Web site, you’re in even bigger trouble — 66 percent didn’t have the information available online. You should be able to get a disclosure of fees upfront, says Carol Kaplan, director of public relations for the American Bankers Association.
“I can’t speak for each and every bank, but I would advise customers to go in and request to have all fees disclosed to them, then take the time to think about it before signing up.” And don’t forget that you can always back out if you later decide that an account isn’t for you.
So what should you look for? Things like stop-payment fees, which have jumped into the $25 range, and returned-deposit fees of $5 to $10 (not to mention the overdraft fees you may be liable for if you were counting on that money). Cashier’s-check and money-order costs are also on the rise, typically running $10 or more.
ConsolidateBanks tend to offer up the freebies on checking accounts because they know that locking in those customers can lead to other, even more lucrative, business arrangements with credit cards, home equity loans and mortgages. But the deal works both ways: The more business you give to a single institution, the more negotiating power you have with them when you want them to waive a fee or lower an interest rate. If you’re surprised by something you see on a statement, pick up the phone and give customer service a call. In many cases banks are willing to work with you.
Keeping all of your accounts under one roof also tends to be more convenient. Not only can you log on to one Web site and view balances on your checking, savings, credit cards and loans, but you can easily transfer funds back and forth to pay bills.
One of the heftiest fees of all is assessed when you overdraw your account, but it’s also an avoidable one if you keep an eye on your balance. Still, many people assume that their debit card will simply be declined if the funds aren’t available, and that’s not the case, says Leslie Parrish, senior researcher at the Center for Responsible Lending. “You’re automatically given a form of overdraft protection where you’re charged a set fee every time your account goes in the red,” she explains. The fee is generally between $25-$35, and opting out of the protection typically isn’t an option. Instead, apply for overdraft protection in the form of a line of credit or linked credit card, and then pay it off immediately to avoid finance charges if you slip up.
With reporting by Arielle McGowen.
Jean Chatzky is an editor-at-large at Money Magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today Show” and is also a columnist for Life Magazine. She is the author of four books, including 2004’s “Pay it Down! From Debt to Wealth on $10 a Day” (Portfolio). To find out more, visit her Web site, www.jeanchatzky.com.