Before you decide to park your hard-earned money in any bank, there are several factors you need to weigh to land the right one for you. And one of the major considerations is the fees, as these financial institutions charge us a reasonable amount for the services, they provide that you might have thought were complimentary. But if you research the different bank fee charges and how to avoid them, it can help you trim those extra costs.
What are bank fees?
Bank fees are charges imposed by financial institutions for various services and transactions they provide to us, the customers. These fees help banks cover the costs associated with maintaining and operating their banking services.
Banks charge customers for opening certain accounts, for conducting transactions, or as penalties for bouncing cheques, credit cards, wire transfers, automated teller machine (ATM) fees, non-sufficient fund (NSF) fees, and more. However, certain fees are waived for customers who have long-term relationships and multiple assets and liabilities with a bank.
Banks list their fees on customer bank statements, passbooks, and on their online portals. But for any doubts consult the bank’s relationship manager and get your doubts clear.
What are the most common hidden fees charged by banks?
Saying that choosing the right bank to open a bank account is crucial and essential. So, knowing the different fees and how they work will help you avoid the hidden cost. Below are the top hidden fees charged by banks you should know.
1. Account Maintenance/Service Charges
This charge bank takes to maintain your account monthly. Some bank charges may vary from a few dollars to more than 15$.
It’s important to note that opting for a low or no-fee account can potentially lead to savings, but it may also come with certain limitations. For instance, some accounts with low or no fees may limit the number of withdrawals allowed per month. When selecting the right account for your spending habits, it’s advisable to consider these factors.
How to avoid?
Banks that impose a monthly maintenance fee stipulate that the fee can be waived if the consumer fulfills specific criteria monthly. These may include:
- Maintaining a minimum balance in the account
- Setting up a recurring direct deposit
- Using the associated debit card, the minimum number of times per month
- Or searching for banks that do not charge any maintenance fees.
2. ATM fees
Banks charges fees to their customers for making excessive withdrawals from ATMs or if they use machines out of their bank’s network. These fees are cut when the transaction is executed rather than at the end of the month. ATM charges are increasing due to the rise in online payment apps making it more costly for banks to maintain and operate ATMs.
How to avoid?
By using ATMs that are in your bank’s network or some banks partner with other banks and offer fee-free withdrawals. Also, several banks provide ATM locators through their mobile apps, allowing users to easily locate the nearest cash machine that does not impose any fees.
3. Overdraft fees
Overdraft fees are charges imposed by banks when a customer’s bank account balance goes below zero (becomes overdrawn) due to a transaction or withdrawal that exceeds the available funds. When a customer spends more money than what is available in their account, the bank may cover the transaction but will typically levy an overdraft fee for the service. These fees can vary in amount but are typically charged per occurrence. Overdraft fees serve as a penalty for the negative balance and the bank’s provision of funds to cover the overdraft.
How to avoid?
Banks take customer consent before charging overdraft fees, they are given the option to opt in or out of overdraft service. With the opt-out option, you don’t need to worry about overdraft fees as your debit card will be declined if a transaction would overdraw your account balance. However, for online payments or recurring payments overdraft fees still apply and to avoid that, linking a secondary account might help. Secondly, it’s best to keep track of account balance by setting up monitoring notifications. By linking your savings account to your checking account, you gain the ability to make instant transfers, enabling you to transfer funds from your savings to your checking account and avoid overdrafts in situations where your balance is low.
4. Insufficient fund fees
Insufficient funds fees, also known as non-sufficient funds (NSF) fees or bounced check fees, are charges imposed by banks or financial institutions when a transaction is attempted, but there are not enough funds available in the account to cover it. These fees are typically applied when a check is returned unpaid, a debit card purchase is declined, or an automatic payment is rejected due to insufficient funds in the account. The purpose of these fees is to cover the costs incurred by the bank for processing the failed transaction and to discourage customers from overdrawing their accounts. The amount of the insufficient funds fee can vary depending on the bank and the specific circumstances, but it is usually a fixed amount per occurrence.
How to avoid?
Check your account balance regularly to avoid such fees. Also, customers can set reminders to get notified of low balances.
5. Paper Statement fees
This charge is imposed on customers for receiving a printed copy of their account statement through traditional mail instead of opting for electronic statements. This fee is intended to encourage customers to switch to electronic statements, which are more cost-effective and environmentally friendly for banks.
How to avoid?
Customers can choose to receive electronic statements, and customers can access their account information online or through mobile apps, reducing the need for physical paper statements to be printed, mailed, and processed. The paper statement fee is typically a fixed amount charged per statement cycle. It’s important to note that not all banks charge this fee, and some may offer exemptions or waivers for certain account types or customer segments so typically customers can opt for such banks also.
6. Wire transfer fees
Wire transfer fees are charges imposed by banks for electronically transferring money between accounts, especially across different banks. The fees can vary depending on factors like the destination, currency, amount, and the policies of the involved banks. Typically, wire transfer fees include outgoing and incoming fees, with the sender usually responsible for the outgoing fee and the recipient potentially incurring an incoming fee. These fees can range from a fixed amount to a percentage of the transferred sum. International wire transfers may have additional charges, such as foreign exchange fees or intermediary bank fees. It’s important to check with your specific bank or financial institution for their fee schedule before initiating a wire transfer.
How to avoid?
Consider using online banking methods for transfers, such as online banking or a person-to-person transfer via your bank’s app.
7. Foreign transaction fees
Foreign transaction fees are charges applied by banks or credit card companies for making purchases in a foreign currency or with merchants outside of your home country. These fees, usually a percentage of the transaction amount, cover currency conversion costs and processing transactions in different countries. For instance, if you spend $100 in a foreign currency with a 2% foreign transaction fee, you would be charged an additional $2.
How to avoid?
It’s important to note that not all credit cards or banks charge foreign transaction fees. Some credit card issuers offer cards specifically designed for international travel or online shopping, which may waive these fees. So, if you frequently make purchases abroad or in foreign currencies, it’s recommended to check with your credit card provider or bank to understand their foreign transaction fee policy and explore options that offer lower or no foreign transaction fees.
8. Inactivity fees
Inactivity fees, also known as dormancy fees, are charges imposed by banks or financial institutions when an account remains inactive for a specified period. These fees encourage account holders to keep their accounts active. The fees can vary based on the bank’s policies and account type and are typically deducted from the account balance. Inactivity fees aim to cover administrative costs for maintaining inactive accounts, usually targeting low-balance or long-unused accounts.
How to avoid?
To avoid inactivity fees, it’s important to understand the account terms and conditions and fulfill the requirements to keep the account active. Closing unnecessary accounts is a good practice to avoid potential fees. If you wish to keep an unused account open, setting up a recurring deposit or payment can help you maintain the minimum activity to avoid the fee.
9. Account closing fees
Account closing fees, also known as account termination fees, are charges imposed by banks or financial institutions when a customer closes their account.
These fees help the bank recover costs related to closing the account and handling necessary paperwork. Most financial institutions will charge this fee if an account is closed that is less than 180 days old, although some have shorter windows.
How to avoid?
Try opening an account with a long-term view but in case you end up deciding to close the account try to stick it out past the cutoff window to avoid having to pay an account-closure fee.
10. Lost debit card fees
Lost debit card fees, also known as replacement card fees or card re-issuance fees, are charges imposed by banks or financial institutions when a customer requests a replacement debit card due to a lost or stolen card. These fees are meant to cover the costs associated with issuing a new card and ensuring the security of the customer’s account. The specific amount of the lost debit card fee can vary depending on the bank’s policies and the type of account. It is typically a fixed amount that is charged for each replacement card requested. The fee may be waived in certain cases, such as if the loss or theft is reported promptly or if the customer has a premium or high-tier account.
How to avoid?
To avoid incurring additional expenses for replacing a lost debit card, it is crucial to take precautionary measures to protect your card. This includes storing it securely, regularly keeping track of its location, and immediately informing your bank if it is lost or stolen. Many banks offer the option to temporarily freeze or lock your card using mobile banking apps or online platforms, preventing unauthorized usage in case of suspected loss or theft.
By opting for the standard processing and shipping time for your replacement card, instead of expediting the process, you can save on associated costs. In the meantime, you can utilize mobile wallets or cash for a few days until your new card arrives by mail.
Conclusion
By implementing the above strategies, you can reduce or eliminate banking fees and save money in the long term. The financial institution you choose to bank with can have a significant impact on the amount of fees you pay. It is important to carefully consider your options and if you discover that your fees are becoming burdensome, it might be a good idea to explore other banking options. It is crucial to seek trustworthy financial institutions that are transparent about their fee structures. By identifying and understanding any hidden fees associated with everyday purchases, you may find opportunities to reduce your expenses.
