How to Pick a Bank and Avoid Fees

We’ve dealt with quite a few banks over the years, as we’ve moved from one location to another (we are currently living in our 9th house) and we’ve usually picked our bank based on how convenient it was to our house. That is definitely not the best way to make a decision about where to keep your money.

There are lots of options when deciding where to bank. There are regular ‘brick and mortar’ banks, which can range from small local banks to large mega-institutions.  Another option is the Credit Union, which is typically organized as a not-for-profit company, affiliated with a business, branch of the military or educational institution. There are some Savings and Loan institutions which originally started as a mutual association to benefit both depositors and borrowers.  And one of the newer choices in an online bank.

In order to make a decision on which type of bank is right for you, discern why you need a bank in the first place. Are you required to use an automatic deposit by your employer in order to get paid?  Do you need a checking account, savings account or a credit card? Do you want to establish a relationship with a bank in order to secure a home mortgage or a car loan?

Whatever type of institution you are considering be sure your money is insured. The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the US government that protects the funds of depositors in banks and savings and loan associations. All federal credit unions are insured by the NCUSIF (National Credit Union Insurance Fund). State-chartered credit unions may be insured by the NCUSIF, or might have their own state insurance or private insurance.

The typical accounts covered by insurance are checking, savings, money market deposit accounts and CD’s. Deposit insurance typically does not cover other types of financial products such as stocks, bonds, mutual funds, life insurance policies, annuities or securities.

Look at the bank’s website to determine how closely their services meet your needs. Are their locations and hours convenient for you? Can you access the bank when you are in a different location? Does the bank have 24-hour security monitoring so you are able to report a stolen card or fraud transaction off hours? Will you have access to online banking? Are there requirements for a minimum balance?  Are there limits to electronic transactions?

And one of the most important things you need to know is their fee structure.  Ask what situations result in a fee and what are those fees.  Because not knowing this little tidbit can hit you right in the wallet. According to a CNN Money report from February 2017, in 2016, the “big three” banks earned the following in fees:  $1.1 billion in ATM fees; $2.3 billion in maintenance fees to keep accounts open and $5.4 billion in overdraft fees.

It wasn’t that long ago that if the bank received a check that you had written and you didn’t have enough money in the bank to cover the check, they would send the check back to whomever you wrote the check to marked with a big red NSF stamp, indicating that there were insufficient funds in the account to pay the check.

The bank would charge you a small fee (@$10) and you would also have to pay a small fee to the business which tried to cash the check. Today most banks will cash the check, even if you don’t have money in your account and charge you an overdraft fee, sometimes as much as $35 per check.  The legal amount for NSF fees varies by state.

A Pew Charitable Trusts report from December 2016 said that, at that time, more than 40 percent of banks in the U.S. shuffle transactions to maximize overdraft fees.  For example, if you have $100 in your account and have the following charges in this order: $75; $25 and $115, the bank may reorder your transactions so the $115 is deducted first so both the $75 and $25 charges result in overdrafts, thus the bank can charge you twice for two overdrafts, rather than the one which would have occurred if the transactions had been processed in the time sequence order.

Here are some tips that will help you avoid paying ANY bank fees. The first step is to have a clear understanding of the fees and go with the bank that has the lowest fee structure, based on your requirements.

Keep your check register up-to-date and record all transactions (checks; ATM and debit cards) every day. Also, be sure to keep track of related fees for using an out of network ATMs or monthly fees for your checking or savings accounts.

Balance your checkbook and savings accounts every month. If you have any questions or find any errors visit the bank and ask questions until you understand. It’s your money and you have every right to understand what the bank is doing.

Have an EMERGENCY FUND! Overdrawing your checking account by even a few pennies can trigger some hefty fees. Protect yourself by adding a small cash cushion to your account and don’t let your account go below that cushion.

In order to keep track of your cash cushion, sign up for online alerts with your bank or credit union. They will send you an email when your checking account balance dips below a certain limit, say $50 or $100.

Steer clear of “bounced check coverage” or “courtesy overdraft protection.”

Many banks and credit unions enroll customers into courtesy overdraft programs when they open their checking accounts. But you are supposed to agree with this option so be careful when opening an account at the bank. If you aren’t sure that your bank did you the ‘courtesy’ of enrolling you in a super-expensive protection program, check the fine print of your account agreement or call your bank and ask. If you are enrolled, ask to opt-out of the program and be sure to follow up in writing.

If you feel you need overdraft protection, signup for a program linked to a savings account, line of credit, or credit card. You might pay an annual fee for this service and a small fee for each overdraft, but you will be guaranteed protection if you overdraw your account. Be sure to read the fine print when signing up for one of these services.

If you prefer to use debit cards rather than cash, be careful. Merchants can place holds or blocks on your checking account when you pay by debit card. These blocks can be more than the purchase amount, especially for gasoline, rental car and hotel purchases. They do not actually take the money out of your account, but the block does affect your available account balance for a day or two.

Remember that debit cards don’t have the same protections against fraud as credit cards. If someone obtains your debit card number and pin, they can clean out your checking and savings accounts and you don’t have any protection. If someone steals your credit card, your loss is typically limited to only $50 and most times not even that.

If you pay attention to how your bank operates then you can eliminate having to pay bank fees.  You want the money to remain in your account and not pad the bank’s bottom line. Remember the adage from Sirach 20:12. “A man may make a good bargain, but pay for it seven times over.