This week’s headlines have shined a light on bank checking and savings account fees, as Bank of America recently began charging fees to account holders with low balances.
To best understand their business decision, you have to first explore how banks make money. Higher deposits give financial institutions more lending power, which increases their interest income. For that reason, low balances can adversely affect profits, so charging a fee is one way to mitigate this. Credit unions like ours are member-owned, therefore our fees are minimal or non-existent in many cases. However, we are still in the banking industry, so we have knowledge of what types of fees banks leverage and what consumers can look for to avoid unnecessary charges.
Research whether there is a minimum balance requirement for the account, and if so, how this impacts your monthly finances. If you haven’t run into this problem, it’s likely not something your financial institution is charging or not something that’s affected you yet. However, if you’re living paycheck-to-paycheck, fees like this can really add up and impact your overall financial peace of mind. Be aware that organizations can charge a fee on checking and other accounts if you do not maintain a specific minimum balance, even on “free” checking accounts.
This may be less about whether ATM fees are charged (since many financial institutions do), and more about the size of your financial institution’s ATM network. Since most only charge if you use an ATM outside of network, convenience and access to cash can be an important part of your banking experience. For example, our organization uses a co-op network with other credit unions so our members can access ATMs with ease. What does your bank’s ATM network offer? Compare the amount your financial institution charges for out-of-network ATM transactions. The amount can vary drastically between financial institutions.
If you have an account you don’t use very often, some banks may consider it dormant due to the low number of transactions, resulting in a fee. This is because financial institutions make money on interchange from card companies like Visa, MasterCard and Discover every time you swipe your card. Therefore, financial institutions want you to use your account as much as possible. In addition to card transactions, it costs financial institutions money to maintain accounts, especially those that are unused. As a result, some financial institutions offset the cost of dormant accounts by charging low balance and dormancy fees.
Financial institutions charge penalties for account overdrafts or missing payments on loans or credit, as this poses a risk to their organization. However, the amount of the penalties can vary drastically from one bank or credit union to the next, as well as their willingness to work with customers on a solution. Unfortunately, most people learn what their bank charges in penalties after they’ve run into an issue.
Check out your financial institution’s fee schedule to see if you can save money. Additionally, familiarize yourself with the fine print on any loan contracts you may hold. If you don’t understand a fee, call them for more information. Comparing these fees gives you the knowledge to do additional research and choose what’s right for you. Bottom line, you certainly have options when it comes to your banking choices.
Kat’s Money Corner is posted on Dollars & Sense every Tuesday. Kat Hnatyshyn, when not blogging or caring for her little ones, is a manager with CommunityAmerica Credit Union. For more financial chatter, visit http://communityamerica.com.