How to Stop Giving Money Away to Your Bank

While people don't often like their banks, they regularly hand over money to their banks without needing to. See seven ways you may be giving money away to your bank needlessly.
By Richard Barrington

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Banks are not very popular with some Americans. So why do people keep giving away their money to banks?

According to a Gallup poll, less than half the people in the United States have confidence in their banks. Despite this, they allow banks to take their money in a variety of ways that are not necessary. In other words, people say they don’t trust their banks yet they exhibit a sort of blind faith in them.

If you’ve been giving away money to your bank, it’s time to stop.

7 ways you’re giving away money to your bank

You might think that the last thing you would do is give money away to a bank if you did not have to.

Here are seven ways you might be doing exactly that:

1. Checking account maintenance fees

The most recent MoneyRates Bank Fee Survey found that 75 percent of all checking accounts charge a monthly maintenance fee. These fees average $13.29. If thirteen dollars doesn’t sound like a big deal to you, think through the math a little further – $13.29 a month adds up to $159.48 per year.

Let’s say you keep an average of $4,000 in your checking account. That means you would be paying nearly 4 percent a year for having a savings account. What’s the alternative? How about paying nothing. Though they are in the minority, one in four checking accounts still charges no monthly fee. In particular, online checking accounts are more likely to have not monthly fees. Also, many banks will waive the fee if you maintain a reasonably high balance, and/or if you use direct deposit.

2. Savings account fees

Though they are avoidable, checking account fees are at least understandable – those accounts tend to have high activity levels and so they require a regular effort on the part of the bank. Maintenance fees on savings accounts are harder to justify, yet they are becoming more common. The thing is, savings accounts are designed to have less frequent transactions than checking accounts, so you are not really getting much service in exchange for a savings account fee.

What’s worse is that with interest rates barely above zero, chances are that a savings account fee would exceed the interest you earn on the account. This is totally avoidable as there are still plenty of savings accounts that don’t charge a monthly fee.

3. Overdraft fees

Banks will try to sell you on overdraft protection, but with fees of about $30 per occurrence, this service does more harm than good. By law, new accounts are supposed to be excluded from overdraft protection unless you opt in, so don’t let yourself get talked into this high-cost service.

4. Out-of-network ATM charges

If you use an ATM that is not part of your bank’s network, you can expect to pay twice for the privilege since both your bank and the bank that owns the ATM will charge a fee. On average, these fees add up to $4.60 per occurrence. On a $40 withdrawal, that would mean paying 11.5 percent just to access your money. When you choose a bank, an important consideration should be finding one with ATM locations that match your regular travels so you can avoid these fees.

5. Sub-standard interest rates

The average savings account interest rate nationally is 0.06 percent, but some banks offer rates in the neighborhood of 1 percent. If you have a choice between earning a dollar in interest or six cents, why would you choose the six cents?

6. Credit card interest

Though most interest rates are low these days, credit cards are an exception. The average credit card rate is 12.22 percent, but some rates can be twice that. To a large extent your rate will depend on how good your credit score is. However, in any case, shopping around can save you a substantial amount.

7. Early withdrawal charges for CDs

When you lock into a certificate of deposit (CD), you should know what would happen if you have to withdraw your money early. The fees banks charge for this vary, so check this and CD rates carefully before you commit to your next CD.

Banking is a business and it is not unethical for bankers to charge fees in exchange for services. At the same time, you should approach it as a business too, and not give away your hard-earned dollars when you could get the same services more cost-effectively.

Frequently Asked Questions

Q: After 10 years with the same bank, my bank is threatening to charge me $5 a month to continue to receive paper statements. I might understand if this were a checking account, but it is a savings account with virtually no activity. I can avoid the fee if I bring the balance up to $10,000. I have $10,000 available, but I hate to feel like I’m being extorted to deposit more money with them. Am I being unreasonable?

A: Your feelings are perfectly understandable. No one likes to suddenly be charged for something they are accustomed to getting for free. With that said, it is important to respond rationally rather than emotionally. The situation you describe is occurring more and more these days, and it is a function of the business dynamics of the banking industry. Just as they make a business decision about what kind of new fees to charge, you need to make a business decision about how your banking needs can be best met.

The important thing is that you should avoid paying that fee. That $5 monthly fee will cost you $60 a year, and given how low interest on savings accounts is these days, that fee could wipe out most if not all of your annual interest. With that in mind, here are some options to consider:

  1. See if the bank offers a paperless option. Some banks that charge a fee for paper statements also offer the option of getting statements online for no fee. Even if you like to have a hard copy of your banking records, that can be easily accomplished if you have a printer at home.
  2. Meet the minimum balance requirement if the interest rate is competitive. You could deposit enough money to meet the $10,000 threshold for waiving the fee, but you should do this only if that money is going to be earning a competitive interest rate at your bank. Otherwise, you may be avoiding the fee but costing yourself interest.
  3. Shop around. If your bank’s interest rates are not competitive enough to justify an additional deposit, start shopping for a new bank. It is likely that you can kill two birds with one stone, by both avoiding the statement fee and finding a higher savings account rate.

People often remain with the same bank simply out of inertia. However, one thing that can trigger a change is a new fee policy, so you should look at this as an opportunity to review and potentially upgrade your banking situation. You may find that you can not only avoid that new $5 fee, but also improve your interest rate.

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Richard Barrington