Bank fees for checking accounts, overdrafts and ATMs continue to go up year after year, but there are still plenty of ways to avoid them.
Average monthly fees for maintaining a checking account, the average charge for using an ATM and the average overdraft fee all rose in the first half of 2012, after a slight dip in the latter part of last year, according to MoneyRates.com.
Minimum balances also rose, and only 45 percent of banks still offer free checking accounts without minimum balance requirements, according to MoneyRates and Bankrate.com.
“Consumers need to be on the alert,” said Richard Barrington, senior financial analyst for MoneyRates.com. “This is the most comprehensive rising fee trend we’ve seen in one of our checking account surveys, which means it is likely to affect more people than ever.”
Consumers can still get around those annoying fees if they understand the complex rules of their accounts – such as using only their own bank’s ATMs – and bank accordingly. That includes monitoring their account to see what may be happening.
“This doesn’t just matter when you are shopping for a checking account,” Barrington said. “You need to watch for new fees popping up in your existing accounts.”
So what should consumers do?
• Know the basic terms of your account, including the minimum balance required. Monitor your account and stay above that minimum to avoid monthly fees. If you can’t, find a different account or bank.
• Stick to your own bank’s ATM machines as much as possible. If you have to use another bank’s ATM, such as when you’re traveling, find the cheapest alternative. Be aware of how much your own bank may charge you, and look for the warning on the other bank’s ATM about how much that bank will charge you. And plan your ATM trips to minimize the number of times you have to go.
• Keep track of the timing of your deposits and withdrawals. Make sure you always have enough in your account to cover checks and electronic transactions.
• Opt-out of your bank’s overdraft or “bounce” protection program if it just offers to cover any overdraft but charges you a high fee or series of fees. Instead, find out if your bank allows you to link your checking account to a savings account, credit card or line of credit. Usually, the transfer fee is significantly less and you just have to repay the “loan” and any interest.
• If you’re still not happy, shop around and compare the options. Consider a small community bank or a credit union.
However, the banks certainly don’t make it easy. Consumers have to wade through disclosure documents and account agreements that average 69 pages in length and can reach 150 pages, with dozens of fees and confusing terms buried in the fine print, according to a recent report by Pew Charitable Trust. Pew also criticized banks for not providing consumers with a clear summary of important fee information or giving them a clear picture of overdraft options.
“Consumers should be able to comparison shop,” said Cora Hume, project manager for Pew’s Safe Checking in the Electronic Age Project. “Right now, it’s difficult to do because of the length of the disclosures.”
Banks also restrict consumers’ options for handling disputes. And if consumers want to switch to a different bank or to a credit union – as nearly one-fifth of all consumers with checking accounts considered earlier this year – they might be deterred by a combination of bank policies and the headache of transferring automatic payments, according to Consumers Union.
A study early this year by J.D. Power & Associates found that about 10 percent of customers changed banks in the past year, up from 8.7 percent in 2011 and 7.7 percent in 2010. The biggest reason cited was fees.
“Unfair bank practices and rising fees are prompting more and more consumers to consider voting with their feet and taking their money to another bank or credit union,” said Suzanne Martindale, staff attorney at Consumers Union. “But many consumers don’t follow through because moving your money takes a lot of time and money, and some bank policies make it harder than it should be.”
Originally intended as deterrents for bad behavior and mistakes, bank fees have become a massive source of revenue for financial institutions, which have come to rely on the steady stream of income as a counterweight to more fickle income from interest on loans.
Banks are even quick to tout to Wall Street how much of their revenue comes from “noninterest income,” which includes not only deposit service charges and penalties, but also fees and commissions for selling insurance, annuities, stocks, bonds, money management and other products. The higher the fee revenue, the better a bank’s revenues look to investors. Last year, banks reaped $29.5 billion in overdraft fees alone, according to research firm Moebs Services.
Banks say the fees are necessary to cover their own costs of providing the services, such as servicing a checking account or maintaining a vast network of ATM machines. A report by Javelin Strategy & Research said maintaining an account costs a bank as much as $400 a year.
But bank fees also are among the biggest annoyances and irritants for consumers, who feel nickel-and-dimed whenever they try to do anything with their own money. And critics often question just how high the fees really need to be.
What’s not in doubt is the growth of fees. Inded, Pew found that banks on average levy 26 additional fees on top of the 12 most common charges, with fees ranging from 10 cents to $125.
According to MoneyRates’ semi-annual Bank Fee Survey, only 35 percent of checking accounts have no monthly service fee, down from over 38 percent last year.
Only 34 percent of traditional banks offered accounts with no monthly fee, while more than two-thirds of online banks did so. And among traditional banks, 46 percent of smaller banks, with less than $5 billion in deposits, offered free accounts, versus 21 percent of big banks with more than $25 bilion in deposits.
Bankrate’s own survey found that 72 percent of the nation’s 50 largest credit unions offered free checking, although that’s down from 76 percent last year.
The average minimum balance to avoid a monthly fee at banks soared by more than $850, with noninterest accounts requiring $585 and interest checking requiring a whopping $5,587, the two rival surveys said. At the largest credit unions, the minimums ranged from $100 to $750.
Bankrate found that 30 percent of credit unions and 29 percent of banks don’t charge ATM fees if a customer uses another institution’s ATM. But they will charge a non-customer for using their machines. Credit unions commonly charge $2 and average $2.08, while banks commonly charge $3 but average $2.40.
And overdraft fees jumped for the second straight quarter, to an average of $29.83, MoneyRates said. Specifically, credit unions charge an average of $26.65 for the first overdraft, while banks charge $30.83 on average, according to Bankrate, which said the most common bank overdraft fee is $35.
Meanwhile, Consumer Federation of America surveyed the 14 largest banks in May, examining their overdraft fees and practices. The median fee was $35, but two banks charge $37.
Several banks charge tiered fees based on the number of overdrafts in the past 12 months or the size of the overdraft. And banks have instituted complex new rules governing when the fee kicks in, how many fees they can charge and over how many days. Total fees can reach $370 in one day at one large bank. Consumer advocates even accuse the banks of reordering checks and withdrawals to maximize fees.
New federal regulations now prohibit banks from covering consumers’ overdrafts and charging a fee unless the consumers have specifically “opted in” to permit the practice, particularly at an ATM or a store’s checkout counter. But the rules are confusing to people, and many banks aggressively sought to solicit such permission.
And more fees are likely coming, as banks start charging for things that have been free in the past – such as paper statements – or come up with new products and services that they convince consumers to pay for.
BANK FEES BY THE NUMBERS
•90 Percent of checking accounts in New York that have monthly fees.
•$12 Median monthly fee for accounts without free checking.
•$5,000 Median minimum balance needed to waive a monthly fee.
•49 Median number of pages in bank account disclosure documents.
•$35 Median overdraft penalty fee.
Source: Pew Charitable Trust