Learn what banking fees are and ways to avoid paying more than you have to.
Let’s face it, banking fees are a fact of life. While fees might seem small at first, they can add up fast and eat away at your hard-earned money. It’s important to be aware of banking fees and take steps to avoid them whenever possible. In this article, we’ll look at some of the most common fees and why they exist and offer practical tips on how to avoid them. Whether you’re a seasoned banking customer or just getting started, understanding these fees can help you save money and make the most of your banking experience.
What Are Banking Fees?
Banking fees are basically charges or costs that financial institutions impose on their customers for using their services. These fees can be for services like account maintenance, ATM usage, overdrafts, foreign transactions, wire transfers, and more. Financial institutions charge these fees to cover their costs and make money. While some of these fees are unavoidable, many of them can be skirted or reduced with careful planning and management of your accounts.
Let’s look at 12 common fees and when you might encounter them.
- Monthly Maintenance Fee. Many financial institutions charge this fee for maintaining your account. These fees vary and may seem like unnecessary expenses. However, avoiding them is often easy. One way to avoid the fee is to open a checking and a savings account at the same financial institution. Additionally, maintaining a minimum balance in your account or setting up a monthly direct deposit can often be enough to waive the fee. Check with your financial institution to find out what you need to do to avoid this fee.
- ATM Fee. You’ll often pay this fee if you use an ATM that isn’t in your financial institution’s network. Out-of-network fees can add up quickly if you frequently withdraw cash. To prevent these fees from taking a toll on your finances, use in-network ATMs whenever possible.
- Overdraft Fee. An overdraft happens when you use your debit card or a check to spend more money than you have available in your account. For example, if you have $50 in your account and you spend $100, you’ll overdraw your account. Some financial institutions offer overdraft protection, which means they’ll cover the shortfall, but this service usually comes with a charge. To avoid overdraft fees, it’s important to keep track of your account balance. One way to do this is to sign up for balance alerts. These alerts can be set up to send you a text message when your balance falls below a certain amount, such as $50. Another way to avoid getting dinged for overdrafts is to link your checking account to a savings account to cover any shortfalls. You can also opt out of overdraft protection. This means that if you don’t have enough funds in your account to cover a purchase, your financial institution won’t cover it. For example, if you want to buy something for $50 but only have $25 in your account, your card will be declined. While this may be inconvenient, it’s a good way to avoid the fees associated with overdraft protection.
- Insufficient Funds Fee. If you make a purchase or a transaction that exceeds the balance in your checking or savings account and haven’t opted for overdraft protection, the financial institution may decline or return the charge unpaid. This fee can be particularly frustrating because it can be charged even if the transaction doesn’t go through. To avoid an insufficient funds fee, keep track of your balance and set up alerts for low balances so you can transfer or deposit money to avoid having insufficient funds. Fortunately, financial institutions are not permitted to charge both insufficient funds fees and overdraft fees for the same transaction.
- Card Replacement Fee. If you need to replace your ATM or debit card (except for fraud), there’s usually a charge. This fee can be particularly frustrating because it’s often out of your control. To avoid this fee, ask your financial institution if they’ll send you a replacement card for free. For an added layer of security, consider uploading your card to a mobile wallet and using it for contactless transactions.
- Check Ordering Fee. While checks are less common these days, they still have their place in certain transactions. When you open a new account, you’ll typically receive a pack of starter checks, which are like regular checks, but without your name and address. However, if you need more checks, you may have to pay a fee to order them. Fortunately, many financial institutions offer free checks to customers who meet specific criteria, such as maintaining a minimum balance or setting up direct deposit. You can avoid check ordering fees altogether by using online bill pay.
- Wire Transfer Fee. Wire transfers can be a fast and convenient way to transfer money, but they come at a cost. It’s best to use wire transfers only when necessary for transactions involving significant sums of money. Otherwise, you can consider transferring funds through your financial institution’s online or mobile app to avoid wire transfer fees.
- Foreign Transaction Fee. When you use your debit card outside the U.S., you may be charged a foreign transaction fee. These fees are typically charged for making purchases and using ATMs abroad. Visa and Mastercard charge a percentage as a foreign transaction fee, and some financial institutions may also charge an additional percentage. Keep in mind that when using an ATM while abroad, you may be charged an out-of-network ATM fee in addition to the foreign transaction fee. Foreign transaction fees are difficult to avoid when using your debit card abroad. However, you can reduce these fees by withdrawing more money at once to avoid multiple ATM visits. It’s important to consider safety when carrying a large sum of cash, though.
- Paper Statement Fee. Digital statements are usually provided for free by most financial institutions. You can easily access your latest statement by logging into your online account each month. However, if you prefer paper statements mailed to your home, you may pay a small statement fee each month. To avoid these fees, you’ll need to opt out of paper statements. If you’ve received a statement by mail, it means you’re currently enrolled. To check your status, you can contact your financial institution and ask about your statement delivery method.
- Excess Transaction Fee. Excess transaction fees can be charged when savings and money market account holders exceed the federal limit of six free withdrawals and transfers per month. This fee can quickly add up if you regularly go over the limit and may cause frustration if you’re not aware of how many transactions are allowed. To avoid excess transaction fees, monitor your account activity and ensure that you stay within the allowed transaction limit. If you’re dipping into your savings too often, you could try keeping a bit more cash in your checking account as a backup. Another idea is to look for a financial institution that doesn’t charge you extra fees for making too many transactions from your savings account.
- Inactivity Fee. If you haven’t made any deposits or withdrawals from your account in a long time, you might get hit with a dormancy fee or inactivity fee. This charge often kicks in after a few months of zero activity. To avoid getting dinged with this fee, you can set up automatic transfers, like paying a bill from the account every month or moving a set amount of money into it from time to time. If you’re not going to use the account at all, just close it to avoid the fee altogether.
- Early Closure Fee. If you close your account shortly after opening it, you might end up paying an early account closure fee. Many financial institutions impose this fee if you close your account within 90 days of opening it. Some financial institutions have a longer window and require you to keep the account open for up to 180 days to avoid the fee.
Stay Alert and Informed
Understanding the various fees charged by financial institutions is crucial to managing your finances effectively. By knowing which fees apply to your account and taking proactive steps to avoid them, you can keep more of your hard-earned money in your pocket. If you’re unsure about how to manage your account or have any questions about banking fees, don’t hesitate to reach out to your financial institution for help. They can provide valuable guidance on managing your money and avoiding unnecessary fees.
