Bank fees might be the single most annoying part of having a checking or savings account. Sometimes they're hidden and sneak up on you, other times they’re blatantly up front, feeling like they're just taunting you. But in all cases, when you see one of those fees on your monthly statement, you get annoyed, maybe even angry.
A recent review of bank fees collected during the pandemic showed that big banks, including Bank of America, Chase, Citi, and Wells Fargo, charged consumers over $11.6 billion in bank fees just during the first three months of the pandemic.
So what gives? Why are bank fees so rampant, and costly?
A big reason is — and there’s no way to sugarcoat this — banks by design are structured to make money, and if they can charge a few dollars here or there, they will. Most banks are a business, and businesses are all about their bottom line.
To understand the "whys" of fees, it might help to drill down to consider some of the most common fees you're likely to see.
Minimum balance fees
Different banks have different policies when it comes to how much you need to have in your checking or savings account. A lot of times, this is done to encourage you to deposit more money, which in turn gives the banks more capital to work with and grow their business.
While this fee makes sense from a business standpoint, it fails to take into account the financial hurdles many families face today. With more than half of Americans holding less than $1,000 in their savings account, it's easy to see how a minimum balance fee could send someone who's already struggling financially into the red.
Many banks charge a monthly maintenance fee in order to cover costs associated with maintaining accounts. These fees might also cover the banks' costs to offer additional perks to their account holders. Some of these perks include overdraft coverage programs, no charge for using ATMs outside the bank's system, cashback on spending, and more. A number of these perks cost the bank money, this is one way they cover those costs.
To see if your maintenance fee makes sense for your financial situation, look at your account and do some simple math to see if the perks outweigh the fee. If you aren't receiving perks on your account, it may be time to reassess your bank account.
If you're ready to ditch banking fees altogether, this is the checking account for you.
It's somewhat uncommon to find yourself in a cash-only establishment these days, but when you need to crab cash wherever you are when it happens, that ATM fee stings. According to a 2020 Bankrate.com study, if you pay the average ATM fee just once per week, you could be paying over $240 per year.
It's important to realize there are two types of ATM fees and you can get hit with both. You'll incur fees from withdrawing money from an ATM because the machine is owned by a separate company from your bank. For example, a grocery store may set up an ATM machine as a way to serve customers and make money, which is also known as a "surcharge fee." (In addition to these fees, there may be ATMs that are not well monitored and could put your card at risk for skimming.)
In addition to the fees by the operator of the ATM, your bank may charge you a fee as well. Its intent is designed to encourage you to use one of its own machines or branches so it does not have to pay its own costs to that external ATM. This fee is called the "foreign" or "transaction" fee. Now you've been charged twice for the one ATM withdrawal.
If you're ready to ditch ATM fees altogether, take a look at checking accounts that refund your ATM fees.
In terms of bank fees, an overdraft charge is probably the heftiest. Unlike the other fees that you can avoid by finding a legitimately free checking account. These fees get applied when you make a purchase for more than is in your account, the bank pays the merchant for the purchase, but charges you to cover the shortcoming on your part.
So why do you get charged $25 when your account was only short by $2? Think of it this way: By putting forward the money you don't have, the bank is essentially giving you a loan. The overdraft fee is the processing fee.
To avoid overdraft fees, work on building yourself a solid financial cushion by automating your finances – both your bills and your savings. From there you'll have a clear idea of what money you have leftover each month. You can also get into the habit of checking your online statements daily. bet yet, set up daily alerts through your online banking to update you on your balance. Not only will this help you avoid overdraft charges, but it will keep your money goals top of mind.
Time to eliminate fees
Understanding the reasoning behind bank fees may not help when it comes to easing your frustration over them, but hopefully, it clears up some confusion as to why fees are implemented by banks and how those charges hit your account.
Now that you have all the information, you can find a bank account that fits your wants and needs. If you're ready to ditch those fees for good, consider a Kasasa account. We offer (actually) free checking and savings accounts, that payout rewards each month, as well as refund your ATM fees.