How to avoid banking fees and overdrafts
Checking can cost $200-plus a year, but you can pay less if you know how to avoid bank fees and overdrafts.
Few people would pay a bank $15 or $20 a month for an account that pays no interest if they knew how to avoid it, and if avoiding it didn't take too much work.
Here are several easy, cost-cutting tips:
If you write a large number of checks, it may pay to shop around. Some banks charge $24 or more for a box of 200 checks. You can get that same box for less than $10 by ordering direct from the printer. There are a numerous services, including Checks in the Mail or Checks Unlimited for more information. The online services also offer a far wider range of designs on the checks than any bank.
It's usually free to set up. The average bounced check fee ranges from $20 to $30. If ever you write a check that exceeds your account balance, overdraft protection automatically covers the extra money needed. But be sure your bank isn't hitting you with a daily fee in addition to the non-sufficient funds fee if you bounce a check. Also, make sure you get 30 days to repay the overdraft. A number of banks hide charges and restrictions for people who use their overdraft protection service.
Periodically check with your bank to see if there are better deals for your money. Over time, your financial situation changes and you may qualify for a higher-interest, lower-cost account.
Another way to dodge ATM surcharges is to ask for extra cash when you make a purchase with your bank's debit card. Just ask your grocer for an extra $50 in cash, and you'll pay no fees in most cases. (Most banks don't charge a fee, but make sure your bank is not in the minority, because you may be charged anywhere from 15 cents to $1.50 per debit transaction. If this is the case with your bank, be more cautious with the card's use -- or get a new bank that doesn't charge for debits.)
Some small- and mid-size banks offer free checking and free checks to shareholders. Contact a few local banks and ask if they offer special deals to shareholders. If they do, invest in a single share and open an account. Use a discount broker to buy that share.
Some banks offer no-fee checking accounts if you agree to do all your banking at its ATMs. If you must visit a teller, make sure it's for a transaction that you couldn't perform at an ATM, otherwise you'll be charged a fee. Banks also may offer low-fee checking if you confine yourself to 10 or fewer transactions a month, including ATM withdrawals, checks, and debit card purchases.
Most banks will give you "free" checking if you maintain a balance of at least $500 to $2,500 in a low- or no-interest account. But say your bank requires a $2,500 minimum to avoid fees, and you need only $1,500 to cover your checks every month. The remaining $1,000 could be earning more interest for you in a money market account at a brokerage or mutual fund company. Of course, the difference may be less than what you'd pay in checking fees if you didn't keep the required minimum balance, but "free" checking it's not.
One way around this hidden cost: Ask your bank to link your accounts. For example, if you have a high-yield CD in addition to a checking account at the bank, you can satisfy the minimum balance requirement if your bank treats the money in all your accounts as one combined balance.