Aside from being the place where the vast majority of us store our money, banks (and credit unions) play an indispensable role in facilitating effectively all of the financial transactions we engage in on a day to day basis. It is almost impossible to avoid having an account at a bank at this point in time as even if you choose to store all of your money in a vault in your basement, if you have a job, your employer most likely will want to pay you through direct deposit or by check. And if you own your own business, you will have customers that want to pay by check or credit card, and in both cases a bank is required to process the transactions.
Pretty much every active participant in the modern economy cannot avoid using banks, therefore in many ways, these institutions have a monopoly on consumer financial transactions – this creates the opportunity for them to charge for all sorts of services many of which there’s clear value being added but several that we think are entirely avoidable. This article discusses 7 bank fees which many people are less familiar with but which can pop up from time to time and are completely avoidable expenses.
1. Non-ATM Cash Withdrawals at Competitors
First up are bank fees customers incur when they make withdrawals at a competing bank. This could happen if you need to withdraw cash but are not close to an ATM from your bank and instead choose to go to another bank’s branch and choose to withdraw the cash from a teller instead of an ATM. This decision process can end up being costly as some banks charge the greater of 3% of the withdrawn amount or a minimum of $5.00 for withdrawing cash at a teller at a branch of a different bank. So for illustrative purposes if you withdrew $200 in cash in this manner you could be charged $6.00 by your bank for doing so. The easiest way to avoid this is by seeking out ATMs or branches from your bank. But even if that’s not available, in this example it is cheaper to just use the ATM of the competing bank as the majority of banks in the United States will charge $2.50-3.00 for this, which would be a savings of 50%!
2. Opting to Receive Paper Bank Statements
Not every bank charges their customers for paper statements, but several banks still do. The adoption of digital banking is high but still well below 100% as our recent survey showed:
So while 75% of people in the United States now use online banking or mobile applications to view their account balances, there’s still a quarter of people that don’t use digital means and so a paper statement is most likely still valuable. Several banks will charge $2-3 a month to mail a paper statement to their customers and given the ubiquitous availability of online banking free of charge, no one should have to pay for this.
3. Out of Network ATM Balance Inquiry
Not many people are familiar with this category of ATM charges and it is one of the easiest ones to avoid on this list. Several banks will charge you for going to an out of network ATM, inserting your card and checking your account balances. And the charge is oftentimes $3.00, though it can sometimes run above this. Having to pay anything at all just to see your account balance when its available for free through online banking or a mobile banking seems outrageous to us. In the worst scenario you can call your bank or visit a bank branch – this is a bank fee that can be very easily avoided.
4. Early Account Closing Fees
The business model of banks is centered on lending out customer deposits and earning interest on those balances. The business model breaks down if banks do not have a stable or predictable deposit base, and this is in part why they charge customers for balances falling below thresholds (and one of the reasons free checking accounts are so valuable). It is also why banks impose fees if you choose to close your account. That’s right, if you decide you would like to close your bank account and move your funds elsewhere, several banks will charge you if your account has only been open for a period of less than 90 to 180 days typically. The amount banks will charge varies but ranges from $15 to $50. So for instance, if you opened an account that had a $100 minimum deposit and no monthly service fees, then had a change of heart a month later, the bank could charge you $50 to close down the account and move on. The way to avoid this fee is simply to do the research upfront so that you’re well informed about the account you’re signing up for and therefore unlikely to have a change of heart.
5. Wire Transfer Related Fees
There are two charges related wire transfers that are less well known, not frequently charged, but still noteworthy and costly. The first is a fee for amending wire instructions – this is for situations where you’ve sent a wire transfer then realized you need to make a modification. Some banks will charge you $30 for this privilege. The second is a fee for receiving a telephone notification that a wire has been processed which can cost $5.00. Double and triple checking wire instructions is the only way to avoid the first charge, and many banks have online prompts and systems in place to help minimize errors. The second charge is unnecessary given that banks will send e-mail or text confirmations of a wire in addition to the availability of an online record of transaction.
6. Account Research Fees
This was by far one of our favorite on this list and is a service that is offered by most banks. Banks will perform research on their own account options on your behalf and charge you typically $30-40 an hour for this service. Not only do banks provide extensive information on their account offerings for free online, but they have also been under pressure for many years by regulators to do this in a more transparent fashion. The Consumer Finance Protection Bureau has been leading the charge on greater transparency and a reduction in what they view as unnecessary fees. The easiest way to avoid this fee is to spend the hour or two the bank would spend on your behalf (and charge you for!) reading the various account options listed on the bank’s website.
7. Account Inactivity Fees (aka Dormant Account Fees)
The last of the bank fees consumers should never have to pay is what is known as an account inactivity fee. The specific definition of this and the time frame to trigger a charge can vary from bank to bank, but inactive usually refers to transactions i.e. deposits or withdrawals (one bank actually also includes phone conversations between customer and the bank). These are some of the time periods and bank fees charged from actual banks:
- Bank A: $5.00 per month charge if your account is inactive for 6 months
- Bank B: $10.00 per month charge if your account is inactive for more than 12 months
- Bank C: $6.00 per month if your account is inactive for more than 12 months
- Bank D: $6.00 per month if your account is inactive for more than 30 months
- Bank E: $5.00 per month if your account is inactive for more than 12 months and you have less than $50 deposited at the bank
It obviously makes little sense to be paying $5 to $10 for an account which based on the inactivity definition, for all intents and purposes you don’t actually use. The best way to avoid these charges are to close accounts that you don’t plan to use going forward. Make sure you find out what the bank’s policy is on account closures before doing so to ensure that you’re not in the window where you could incur a fee for doing so.
Concluding Comments on Bank Fees
Each of the fees discussed in this article aren’t very significant on an individual basis. However, in our view it is just so easy to avoid each of these fees, it doesn’t make sense to have to pay for any of these charges. More importantly, these fees can easily add up to a more significant number over a period of years. And when you recall that your bank account exists purely as a place to store your money and facilitate transactions, the mindset has to be to pay as little as possible for this service and to minimize any unnecessary costs.