Jean's Blog

Don’t Get Buried by Bank Fees

Posted by Jean

The ink on the Credit Card Bill of Rights (officially the The Credit Card Accountability, Responsibility and Disclosure Act) is barely dry but banks have already figured out they stand to lose big bucks in lost interest and fees from consumers. Not surprisingly, they’re already figuring out how to make up that ground. Despite the fact that the new law won’t go into effect for nearly nine months, some of these fees/charges are already on the way – others you should simply watch out for.

* Higher Checking Account Fees: We’re already starting to see some changes in this arena. In recent changes: Bank of America (BAC) will increase its monthly account maintenance fee on its MyAccess checking from $5.95 to $8.95 per month in June. In particular, customers who don’t maintain significant balances should be on the lookout for additional or higher fees.

* Higher Overdraft Fees: It is already common to see overdraft fees of $35 – sometimes $39 – when you spend more than you have in your account. You’re then charged interest on the amount of money you’ve essentially borrowed to cover your bad checks or debits. Watch out in particular for two new kinds of overdraft fees: A tiered overdraft fee which means that with each successive overdraft the fees go up. Nine out of the 16 largest banks also have sustained overdraft fees, which means if you don’t pay off the overdraft amount and the fee in full, an additional fee gets tacked on. Sometimes it’s a per day fee and sometimes it’s a flat fees.

These overdraft fees – many of which are charged on debit and ATM transactions — are particularly annoying because banks do something called “stacking the debt.” They program their computers to process withdrawals not in the order that you make them but by the largest first. So if the largest withdrawal takes you over your funds, you’ll then incur overdraft fees on all of the smaller ones. And very few banks, according to the Consumer Federation of America, limit the amount of fees they’ll charge you in a single day. So if you swipe at the dry cleaner, the supermarket, the hardware store and the movies in a single day, you could be looking at $140 in fees. Ouch.

What can you do about it? One suggestion: Most banks automatically enroll consumers into their overdraft-protection program. Ask the bank if you can opt out of overdraft protection linked to your credit card. Some banks will do this. And the Federal Reserve is considering whether to give all consumers this right by law. I’ll keep you posted.

* Debit Card Fees: Consumers have already switched their devotion from credit to debit. One big reason is that debit has been cheaper – you don’t pay interest when you use your debit card and you haven’t paid fees, until now. They’re launching overseas. Citigroup charge 3 percent of the transaction for some ex-US debit card purchases. Also, keep an eye out for fees at checkout for withdrawing cash there instead of at the ATM. I suspect they’re on the way.

So, what’s a beleaguered consumer to do?

Consider a smaller community bank. These tend to be slower to increase fees to their customers. If they need to increase profit margins they tend to do it by offering lower interest payments to their customers on savings instead.

Consider a credit union. Credit unions, unlike banks, are not for profit. This model alone allows them to charge lower fees – according to a recent survey by Data Track, bounced check fees are 20% lower, annual fees are 75% lower, mortgage closing costs are lower — and often return higher interest to their customers. They also didn’t have the sort of risky loan portfolios that many banks did and as a result haven’t been hit as hard on the downside. The trade off is that they don’t have as many ATMs and other services as banks, particularly big banks do, but you can often find a credit union that is part of an ATM network so that you don’t come out of pocket simply to access your cash.

Bundle your business. One thing I expect to see more of is tiered pricing. If you’re a good customer – if you have your mortgage, a credit card, checking and savings with a single bank you should be able to find yourself (or at least negotiate you way into a better deal.)

Finally, before you open any account ask the bank for a copy of the fee account schedule – that’s a list of fees – for a consumer account. They’re required to give it to you by law. At least that way you can make an apples-to-apples comparison.

And stay tuned.