by Gary Foreman
Q: My bank has charged me almost $150 in fees and over $100 of that is in fees from a negative balance, 4 times! They can't charge me like that, can they? - Matt
* * *
A: The simple answer to Matt's question is, yes, they can charge him that much. And he's not the only one complaining about increased bank fees. Many consumers have noticed the hit to their wallets.
Competition for loans has forced bankers to offer lower interest rates to borrowers. That's great for homebuyers. But it also means that banks aren't making as much on those loans. So they're using fees to boost their bottom line. For instance, ATM fees raise over $2 billion a year. Public interest groups claim that because of the fees that banks impose there are over 10 million families that can't afford bank accounts.
So what can Matt do? Basically he has two options. He can avoid negative balances or find an account that's more lenient when he does have a negative balance.
According to Bankrate.com the average service fee for interest accounts that fall below the minimum balance is $10.85 per month. Bounced check fees generally run about $25.
Frustrating as the fees are, Matt can control the situation by not writing checks for money that's not in the account. Many bounced checks can be avoided simply by entering each check in the check register, subtracting it from the previous balance and balancing the checkbook each month.
Overdraft protection might be appropriate for Matt. He'll pay for the service. But probably less than what the bounced checks are costing.
The problem could also be with Matt's paycheck not being available quickly enough. His bank is required to tell him how long they 'hold' incoming funds before they're available for payment. The length of holds is regulated by law. If Matt needs to have the money available sooner, direct deposit might solve the problem for him.
Matt has already recognized that bank fees can eat up his savings. So if he's going to continue to flirt with a negative balance, he'll need to find an account that's more forgiving.
The American Bankers Association commissioned a survey on bank fees. They found that 58% of the consumers surveyed said that they paid $3 or less per month in fees. However, 64% also said that they avoid fees by maintaining the minimum balance required by their account. In effect, they've found an account that matches their needs.
Recently more banks have been offering free checking. "Free" sounds good, but most have hefty fees for bounced checks, negative balances and ATM use. Matt might have one of those accounts.
He might be better off with a 'no frills' account. Or even an account that costs him a few dollars each month if that account has a low negative balance fee. It's a matter of finding an account that works for him. Might be as simple as asking his current bank what they have available.
Matt should also check out smaller local banks or credit unions. They won't have as many branches or ATMs. But they do generally have lower fees.
Finally, it's possible that Matt could benefit from combining accounts. Many people have more than one account. If he's struggling to meet the minimums he'll earn more interest and/or pay lower fees by combining accounts.
Matt has recognized a problem. I'm sure that he could have found a better use for the $150 that was consumed in fees. Hopefully he'll find an account that matches his banking habits better.
* * *Return to Budgeting Article Index
Copyright © 2003 by Gary Foreman. All rights reserved.