This is part 1 of a pair of articles on getting a better bank. Read here for the second story, “How To Switch Banks In 5 Easy Steps.”
On a recent vacation with friends, I was shocked to discover some of them were paying monthly maintenance fees for their checking accounts.
And they are not alone: 45% of Americans pay those or other fees in a typical month, according to the American Bankers Association.
This is absolutely unnecessary given how many bank accounts these days are free or have avoidable fees, such as when the charge is waived if you receive a direct deposit, maintain a minimum balance or sign up for electronic statements. Bankrate found that 96% of checking accounts at traditional banks fall in either of these categories (38% are flat-out free, as are 72% of checking accounts at credit unions).
If your bank charges you $10 a month just to hold your account, making a switch could save you $120 a year, the equivalent of a pair of concert tickets or a big night out on the town — and more than a Fitbit or one share of Apple stock.
And that’s just the savings from the monthly fee. Others, like the overdraft fee, can be as high as $35 per overdraft.
“You have to be careful and read your agreement with the bank, the way you’d read a contract with a credit card or debit card, because a lot of banks charge fees and they are hidden,” says Pamela Banks, senior policy counsel covering financial services issues for Consumers Union. “One of the things you are looking for is a bank that will allow you to conduct your affairs but not be charged fees, or be nickeled and dimed for fees or have high fees associated with it.”
Remember the brouhaha that erupted a few years ago when Bank of America announced it would charge people $5 a month to use their debit cards to make purchases? “Bank of America dropped it, so you thought, ‘It’s a victory for consumers, this is great,’ but they made it very clear, ‘Okay, we’ll drop that fee, but we’ll have another or a higher fee on something else to make up the revenue that will be lost.’ It’s like whack a mole. You shut down one fee and another may come up or not be as transparent,” she says.
Have a feeling your bank doesn’t stack up? Here’s what to look for:
1. No Monthly Fee
For checking, Greg McBride, chief financial analyst at Bankrate.com, recommends getting an account with no monthly fee — or one that’s avoidable, preferably through something like direct deposit. Some banks, as an incentive for you to keep your savings and retirement accounts in the same place, allow you to avoid this charge with a minimum balance maintained across all the accounts, but keep in mind that some financial planners recommend keeping savings and checking accounts at separate banks to minimize the temptation to plunder savings for daily expenses.
2. No Minimum Balance Requirement
A good bank account has no minimum balance requirement which can range from $500 to $10,000, says McBride. That will keep that money locked up, earning pretty much no interest.
3. No Limitations On The Number Or Method Of Transactions