Your bank accounts act as a financial command center where the money you earn comes into your financial setup and where the money you spend makes its way to the exit. While your checking and savings accounts are vital for managing your money, you shouldn’t pay an arm and a leg for them. In fact, you shouldn’t pay anything at all in most cases.
But that doesn’t mean banks don’t have creative ways to charge you extra fees in your account. Here’s a look at common bank fees you may encounter and tested strategies to avoid them.
Banks Make A Lot Of Money From Fees
Before getting into the different types of bank fees, let’s look at how much banks earn from fees. According to the Federal Reserve, banks earn 34% of their total income from non-interest income sources, primarily made up of fees.
Banks in the U.S. earned a total of $68 billion in non-interest income in just the first quarter of 2018, indicating that banks earn more than $270 billion per year from these sources, primarily made up of “service charges.” According to Senator Elizabeth Warren, four of the largest banks in the United States made $4 billion from overdraft fees alone during the COVID pandemic.
While many banking customers pay hundreds or thousands of dollars per year in fees, savvy consumers don’t pay a cent. If you’re in the habit of paying bank fees, consider changing banks (or your banking and spending habits) to avoid these fees going forward.
Common Bank Account Fees and How to Avoid Them
These are among the most common bank fees you may encounter:
- Monthly service fee: Some banks charge a monthly fee just to have an account if you don’t meet a certain minimum balance, direct deposit, debit card transaction or other requirements. If your account charges this kind of fee, make sure you always meet the minimum requirements or consider moving to an account with no recurring fees.
- Overdraft fee: Overdraft fees are charged when you spend more money than you have in your account. Some banks charge more than $30 per occurrence, which can easily lead to hundreds of dollars of fees in a single day if you’re not careful. Always know your checking account balance, so you don’t overspend, and consider moving to an account with no overdraft fees if you regularly run into this situation.
- Returned payment fee: Similar to overdraft fees, you may see a non-sufficient funds (NSF) or similar fee for a bounced check. Again, don’t spend more than you have in your account to avoid this fee.
- Out-of-Network ATM fee: Many banks charge a fee if you use an ATM from another bank. Even more, the other bank may charge you as well, giving you a fee double-whammy. If you regularly use ATMs, consider an account with no ATM fees, or even better, one that reimburses you for fees charged by other ATMs.
- Paper statement fee: Most people don’t have any need for paper statements in the digital age. Some banks charge fees for paper statements in the mail, which you can avoid by opting out. As a bonus, it’s also good for the environment.
- Foreign transaction fee: Using your debit card outside the U.S. could lead to added charges of around 3%, depending on your bank. Consider a no foreign transaction fee credit card if you’re a frequent international traveler.
- Inactivity fee: Some banks charge fees if you don’t deposit or withdraw funds for a specific period of time. If you have that happen, consider closing the account and switching to a bank without these fees. If you haven’t used the account in that long, you may not need it anyway.
- Wire transfer fee: Most banks charge a fee for wire transfers, a fast, secure way to send funds between banks and accounts. You can avoid this by using other transfer methods, like Venmo, Zelle or even a paper check.
- Lost debit card fee: Many banks will replace it for free if you lose your debit card. Others charge a fee for replacements or charge a fee after giving you the first one for free. It’s easy to avoid this one. If your bank charges this fee, don’t lose your debit card!
Best No Fee and Low Fee Bank Accounts
If you’re ready to give up on your bank due to a history of big fees, here are alternatives to consider with very low fees or no fees at all:
Ally Bank: Ally is a popular online-only bank with leading checking and savings account options. The Interest Checking Account pays you up to 0.25% interest and charges no ATM or overdraft fees. The only fees you may incur with regular account use are for outgoing wire transfers or returned deposited items. In addition, Ally reimburses users for up to $10 in fees charged by other banks’ ATMs.
Capital One Bank: 360 Checking for Capital One Bank is a popular low-fee account that gives you flexible overdraft options, including multiple with no fees. The account has a limited branch footprint and works great as an online-only bank. There are some fees for less common services like cashier’s checks, stop payments and outgoing wires. But most people can use the account for free.
Charles Schwab Bank: Part of the large investment company Charles Schwab, the low-fee Schwab Bank Checking Account charges very few fees and reimburses all ATM fees charged by other banks with no limits, including international ATMs. This makes it a popular account for regular international travelers.
Don’t Give Your Hard Earned Money to the Bank
You work hard for your money, and you shouldn’t have to give any of it to the bank. Banks make most of their money by lending out the funds you keep on deposit, so they don’t need those extra overdraft fees to get by. Banks make plenty of money without charging any fees for checking and savings accounts, so you should be wary of any account with recurring or high fees.
When you pick the best accounts and stay in tune with your budget and finances, you won’t pay any bank fees at all. For banking customers like you, that’s the best deal around.