Slash those fees
Smart consumers get more for less by beating banks at their own game.
February 25, 2002: 5:03 p.m. ET
Sarah Max
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NEW YORK (CNN/Money) - Before you get nostalgic for the good old days of banking, when no fees, personal service and toasters were standard fare, consider that in many ways consumers are better off today than they were a decade ago.
Thanks to deregulation, banks have been forced to offer more competitive interest rates, which is worth far more than free appliances.
"Banking was never free because consumers were not getting a market rate on their savings and were paying a lot more for loans," said Fritz Elmendorf, spokesperson for the Consumer Bankers Association.
Because the gap between what banks pay for deposits and make on loans has narrowed, banks have had to cut costs and troll for new sources of income. Consequently, they've replaced human tellers with automated tellers, segmented their customers and rolled out a laundry list of fees. Even online banks, which were once considered a haven from minimum balances and fees, have started going the way of traditional banks.
The new model of banking is a good news, bad news scenario, says Richard N. Speer, Jr., president of Speer & Associates. It's good news for customers with decent balances and few demands and bad news for those with big needs and smaller balances. "Fees allow banks to allocate costs to the customers that are costing them money," said Speer.
Although fees can easily add up to $200 a year, you can bank for less -- even for free -- if you understand how to avoid unnecessary tolls.
Find the right account in the first place
If you take some time to consider where you do most of your banking, what your average balance will be and the kinds of transactions you make, you will have any easier time avoiding fees and scoring the perks you need.
"You really need to think about the convenience factor. That will save you money in the long run," said Julie Malveaux, a spokesperson for the American Bankers Association. That means making sure a bank has plenty of branches or ATMs near your home or office.
Typically banks offer at least two kinds of checking accounts. Basic accounts often limit the number of free transactions you can make, but hold you to a smaller minimum balance for avoiding monthly fees.
Premium accounts or interest bearing accounts typically allow for more transactions, but they also require a higher balance to avoid service fees.
Although every bank has its own menu of choices, most reward customers who opt for direct deposit. In fact, in exchange for the steady in-flow of funds from your employer, banks are almost always willing to waive monthly service fees.
To search for checking accounts by region click here.
Consolidate your accounts
The average customer has two or three banking accounts, according to Speer. If you consolidate your accounts, you'll not only have an easier time meeting minimum balance requirements and staying away from fees, you're apt to be rewarded for your loyalty.
"Consumers that aggregate are likely to get better service and pricing than if they have accounts with several institutions," said Speer. They're also in a better position to negotiate for the best deals.
Think twice about interest checking
If you don't keep a sizable balance in your interest-bearing checking account, you could be paying more in fees than you are earning in interest. In a survey of 350 banks, Bankrate.com found that, on average, banks levy $10.85 in monthly service fees for interest accounts that fall below the required minimum balances, which averages $2,434. But for all these fees, customers aren't earning much in the way of interest. The average yield for these accounts is now less than 1 percent.
"Give some careful thought to how much money you can have in that account," said Elmendorf. "With yields as low as they are, it might not be your best option."
Don't get a double whammy on ATM fees
Every time you use another bank's ATM, you're warned that you'll be charged for the transaction. What you aren't warned about, at least not on a regular basis, is that your own bank is also going to charge you for that transaction. "Eighty-six percent of institutions will charge you for using a different bank's ATM," said Greg McBride, an analyst for Bankrate.com. Considering that the average bank charges its customers almost $1.50, you're likely to be paying $3 for the convenience of using another bank's machine. It adds up. Consumers now pay $2.2 billion in ATM charges.
If you use the ATM as an extension of your wallet, choose a bank with a large ATM network in your hometown and go the extra block to use its machine. While you're at it, try taking out more cash and making it last. If you use a debit card, ask for cash back when it's an option. It's free.
Put a lid on insufficient funds
We don't need to tell you that bouncing a check is bad. But we will remind you that it will cost you about $25 every time you do it. The obvious solution is to pay closer attention to your balance. An easier solution is to get overdraft protection. "There's likely to be a charge when you use this service, but it's less than the $25 bounce check fee," said Elmendorf. Overdraft protection is typically linked to a savings account, a credit card or a line of credit. If you choose the latter, be careful about running up extra debt without realizing it.
Broaden your search beyond big banks
The largest 50 banks claim about 70 percent of all banking assets, but you don't need to confine your search to the national banks. There are still more than 8,000 independent banks in the country, said James Record, director of bank research for SNL Securities.
According to Bankrate.com, the minimum balance to avoid fees at smaller banks is half of the average for the 350 banks it recently surveyed. Before you open an account with your local bank, or any bank for that matter, just be sure it can provide you with all the services you need. "Small banks come out with an edge on pricing, but what is not measured is the convenience factor," said Elmendorf.
Credit unions are another option. "Credit Unions are not-for-profit, which means they exist for the benefit of their members," said McBride. Because they don't worry about profits or pay taxes, credit unions typically pay higher interest rates and charge lower fees than banks. On the downside, credit unions typically have fewer branches and ATMs than banks.
To join a credit union, you or a family member must be affiliated with the organization it serves. Because there are so many kinds of credit unions, finding one for which you'll qualify is not as difficult as you would think. You can search for credit unions through the National Credit Union Administration. 
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