Evaluating Financial Institution Fees

(3 of 7)

Evaluating Financial Institution Fees

Fees are often the big bone of contention among bank and credit union customers that causes them to angrily part ways. Some fees seem unreasonably high or just plain ridiculous to many people. They can total in the hundreds of dollars every year, too. But they have purposes—to pay for the services being offered or to make up for lost earnings elsewhere. Generally, credit unions have the advantage over banks when it comes to fees, because they are not-for-profit and therefore can plow their earnings back into their business, thereby reducing fees and offering a higher dividend rate.

Let’s look at the most common fees charged and how you can work with them:

• Maintenance fees. These are periodic fees (usually monthly) that compensate the institution for the services it provides. Not all accounts charge them; some of those that do charge them may waive the fees if, for example, you use direct deposit for your paychecks. Fees are generally understandable, but compare them to other banks or credit unions to make sure they are competitive.
• Low-balance penalty fees. This is a fee levied on you if your balance falls below a certain amount. It is therefore an incentive to keep your balance high, which is a benefit to the institution. How it is calculated may be important to you: is it based on your average daily balance, the balance on a certain day of the month, or the lowest balance during the month? Depending on the method used, you may be able to dip below the required amount at various times and still avoid the fee.
• ATM fees. There are several possible charges related to automated teller machines. You may be charged a fee to use your institution’s ATM; there’s a strong chance you’ll be charged to use the ATMs belonging to other institutions. On top of that, if you lose your ATM card, you may be charged for a replacement card. You can get around ATM fees by taking out larger withdrawals when you visit your branch, and also by taking out extra from a debit card when you make purchases with it.
• Bounced check fees. If you write a check and don’t have enough funds in your checking account to cover it, you will have an overdraft and will likely be charged an insufficient funds fee (bounced check fee, in other words). You can avoid these by being careful with your checking and/or by getting overdraft protection.
• Returned check fees. If someone writes you a bad check that you deposit, you may be charged.
• Overdraft protection fees. Overdraft protection lets you write checks when you don’t have enough funds in your account to cover them. There may be a fee for this, which will be less than the bounced check fee, and there may also be an interest charge, because overdraft protection is essentially a loan given to you until your balance gets out of the negative.
• Check printing fees. If you want your bank or credit union to print checks for you, there will be a fee. This fee may be waived if you are new, if you have a high minimum balance on your account, or if you belong to certain preferred groups such as senior citizens. Alternatively, check printing fees are often much less at professional check printers.
• Per-check charges. If your institution limits you to a certain number of checks per month, you will be charged fees if you write more than the limit.
• Cancelled check return fees. If you want cancelled checks but they are not normally provided, you can often get them for a fee.
• Closed account. If you close an account early that you agreed to keep open for a certain length of time, there may be a fee for closing it.

Ask yourself some questions about these fees

If you are not careful or strategic with your account, you could rack up a lot of expenses. Take a running total of your expenses for the past month and multiply them by 12 to see how much you are paying in expenses. If the total is in the hundreds of dollars, do a mental cost-benefit analysis and determine for yourself whether the fees are worth what you are getting. Has your bank or credit union met your expectations throughout the year? Is it offering what you really want and need? Do you see other uses for that fee money, or is it justified for you?

If you haven’t yet opened an account for yourself, be aware of all these fees and be aware that they can take a large bite out of your account balance if you are not careful.

Consider these questions as you look at the fees you are paying. If you don’t like them, you might consider switching to a different institution or changing your behaviors to incur fewer fees.