Ben Todd | Jun 2, 2017 | 1
How To Avoid Bank Fees – Part One
How do you avoid bank fees in this day and age? We explore the different types of bank fees you may encounter in our two-part series, and we explain how you may avoid such bank fees. Follow the advice on our articles, and you may avoid every type of modern bank fee. Luckily for you, there are so many banks, building societies, credit unions and money companies available so that you may find a bank that suits you and where you need never pay a bank fee ever again.
Banks, Banks And More Banks
In this article, I say things such as “Your bank may do this,” and “Your bank may do that,” but I do not mean banks exclusively. Much of what I write will also apply to building societies and money-companies that offer banking facilities. I have used the word “Bank” as a general term to avoid confusion, so remember that what I write also applies to credit unions, building societies, online banks and many money companies too.
Arranged Overdraft Fees
These are fees that you pay for an overdraft you have arranged. For example, if you set a $400 overdraft on your account, then that is an arranged overdraft. You have credit of $400 on your account, but if you eat into it, such as by spending some of it, then you will be charged interest.
Avoid Bank Fees
Some people have an arranged overdraft so that if they do overspend, they will not be hit with unarranged overdraft fees, which are typically higher than the interest you pay for your arranged overdraft. The trick is to pay off whatever you owe before the end of the month and/or billing cycle, so that you may avoid any interest being added to your account.
Unarranged Overdraft Fees
When you spend on your checking account and you do not have sufficient funds, then your account goes into the red and you may be charged a fee. Many people send their account into the red because they have direct debit payments going out that they have forgotten about. You may be charged a daily fee for being overdrawn, and they may also charge interest on the amount of money you have overdrawn by.
Avoid Bank Fees
Decline overdraft protection and/or cancel it if you have it. Overdraft protection does not protect you from overdrawing; it actually allows the bank to overdraw your account. It means that if a direct debit is due or you overspend in a store, then the bank will allow you to overdraw in order to “Protect” you from embarrassment from having your card or direct debit rejected. Opt out of overdraft protection, and your bank shouldn’t be able to overdraw your account.
Temporary And Then Applied Overdraft Fees
Some banks will allow you to overdraw, and will then create a temporary overdraft for the amount you have overdrawn. This is known as a temporary informal overdraft, where you will not be charged a fee and will not have to pay interest on the amount you have overdrawn by. Usually, the bank will ask that you rectify the problem within less than one business day (i.e. the same day). If you do not, then you will have to pay interest on the amount you have overdrawn, and you may also be charged fees.
Avoid Bank Fees
Sign up for alerts from your bank. You may have turned down overdraft protection, but there is still a chance you may overdraw on your account because your account has NSF (Non Sufficient Funds). Some banks will send you a message if you have overdrawn and give you a temporary overdraft. Pay the money back within the time limit they allow, and in most cases you will not have to pay fees, or interest, and your credit rating will not be affected. If you have not signed up for text message and/or email alerts…then do it right now–especially if they are free.
You Opted Out Of Overdraft Protection And Still Overdrew
Remember that overdraft protection actually stops your bank from overdrawing your account. For example, if you try to draw out funds from an ATM and you do not have sufficient funds, then it will refuse to pay out. If you write a check, shop online, in a store or have a direct debit, then the recipient will not be paid and you will not overdraw if you do not have the funds in your account. Under some circumstances, you may overdraw even if you have opted out of overdraft protection. For example, if you buy something and have money in your account and it takes a few days for the payment to be drawn from your account. A common example is with PayPal, since you may buy something on eBay and pay with PayPal, but the money is not taken from your account until after the item is received.
Avoid Bank Fees
You need to keep an eye on your balance and take good care of your money. If you buy something, then keep the money in your account. Take a look at your pending transactions on a regular basis because they will indicate things such as PayPal payments being taken out. Finally, you should have a cash cushion in your account for unexpected (or forgotten) expenses. A cash cushion is money you keep in your account that you do not use.
I Overdrew And Repaid But Was Still Overdrawn
Let’s say you overdraw by $10, and you pay it back, but then a day or two later you find that your account is still overdrawn. This may happen if there are fees or interest applied right away, (or a few days later). You may then be charged again and have to repay even more.
Avoid Bank Fees
When you repay the amount you have overdrawn by, it is a good idea to leave some money in your account. For example, if the company charges $12 fees for overdrawing and a 2% interest for money overdrawn, then you are better off leaving a balance of $20+ just in case they take out any fees or interest after you overdrew.
Additional Unplanned Overdraft Avoidance Measures
If your bank allows it, you may be able to link your account to another account in your name. Some banks call this facility an “Overdraft Transfer,” where the bank will draw funds from another account if one account is at risk of going overdrawn. Be warned that some banks will charge additional fees for transfers.
Another facility that some banks offer is called “Overdraft Coverage,” which is similar to the temporary overdraft mentioned above where they treat the amount you have overdrawn as a loan. The terms depend on your bank, but most will charge a fee for setting up the loan or temporary overdraft facility.
Some banks will allow you to set up an overdraft transfer if you have a credit card. If your account overdraws, the money required for the transaction will be drawn from your credit card. There are some banks that will not charge you for this, and there are some that will.
When you use an ATM, you may be charged for drawing out money. If you are drawing money from a credit card, then you will probably be charged from any ATM you use. However, if you are drawing from another account, such as a checking/current/debit/pre-paid account, then you may avoid ATM fees. Fees are often applied on an ATM-by-ATM basis. For example, there may be an ATM in a remote location or a vacation destination that charges fees, (no matter which bank you use or what type of account you have).
When banks sell their services to you, they often mention how many ATMs they have in the country or in your state. If you use one of the ATMs that your bank either owns or has a deal with, then you should not have to pay a fee for drawing money out.
Avoid Bank Fees
Search out the ATMs that your bank owns or has a deal with and use them exclusively. Your bank should have a website or an app that tells you where their ATMs are.
Another trick is to do a little research and find out which banks offer free withdrawals from your local ATM. Let’s say that you bank with Chase, but your local ATM charges a fee for cash withdrawals with your Chase card. However, the same ATM doesn’t charge a fee for withdrawals with a Citibank card. Simply sign up for a Citibank account, and each time you need to withdraw your money, you make an Internet transfer from your Chase bank to your Citibank account. Just make sure the bank you choose/have will not charge maintenance fees or transfer fees.
Having To Pay ATM Fees Because There Are No Local ATMs
There is a chance that you live in an area where your bank doesn’t own any ATMs nor have any deals with local ATMs. The ATMs near you may all charge you a fee. Your nearest no-fee ATM may be miles away to the point where it will cost you more in travel than it will in ATM fees.
Avoid Bank Fees
Search out local stores that give cash back and use that instead of going to the ATM, especially if there is no charge for in-store cash back. Sign up with a bank that reimburses people when they pay ATM fees. Some banks exist online only, and some of them reimburse you for ATM fees. You may also try the transfer-to-another-bank trick that was mentioned earlier in the Chase/Citibank example.
Account Maintenance Fees
Some banks will charge you a fee for having an account with them. Typically, the account is a special one that has extra features, or if the account has overdraft facilities, or if you have poor credit and no other banks will allow you to have an account. Some banks will also charge you a maintenance fee if you do not use the account often enough or if you do not deposit enough money per month.
Avoid Bank Fees
Search out a bank account that does not charge maintenance fees and close your account that does. Alternatively, follow the stipulated guidelines that the bank gives for avoiding maintenance fees, such as making enough deposits or maintaining a suitably large balance. Some banks will waive their fees if you have your wages or income direct deposited into your account. Some banks will waive fees if you use your debit card enough times, and some banks offer maintenance-fee-free accounts to students. My advice is to find a bank that charges no maintenance fees under any circumstances. If you do not have a good credit rating and cannot get an account elsewhere, then spend six months building your credit rating and then apply for a fee-free account with another bank.
A Bounced-Check Fee
If you have ever watched Judge Judy, you will know all about bounced checks. Personally, besides what I have seen on Judge Judy, I know nothing about bounced checks, so I had to do a fair amount of research and have discovered a lot of conflicting information. For that reason, I am only mentioning checks that you put into your account that subsequently bounce. I am not writing about how you get the money you are owed, and I am not writing about how much you may sue the sender for.
Will you be charged a fee if you put a check in your account and it bounces? Is the bank going to give you a fee for simply putting the check into your account? The answer is “Yes, Usually.” If you deposit a check from somebody else and it bounces, then you may be charged a fee of up to $35. Some banks may call this a “Returned check” fee.
There are banks that will charge YOU for receiving and depositing a bad check as a way of disincentivizing you from accepting bad checks. Some banks will only charge you if you put in a bad check and spend the money.
Avoid Bank Fees
Sometimes, the only way to avoid this fee is to not accept checks from people. One thing you should definitely do is wait for the check to fully clear before spending or moving the money. Sadly, it can take as many as seven weeks (according to my research) for a bad check to bounce, which means you may have a wait on your hands before you are able to spend the money. Another option is to bank with a bank that doesn’t charge fees for depositing bad checks.
Some people in the online community (again, check my research) claim that you can take the check to the bank that is written on the check and ask the bank if there is enough money in the sender’s account to cash that check. I find it hard to believe that I could receive a check from Person A, and then go to person A’s bank and ask if there is enough money in Person A’s account to cover that check, but some people in the online community claim it is true.
Warning – Do Not Fall For Bounced-Check-Retrieval Scams
Some online fraudsters will say something along the lines of “Get your bounced-check fee back with this simple trick.” The line is a hook to draw you into a scam. It is true that you may call your bank and ask that they remove your returned check or bounced check fee, but that may be done with a simple phone call to your bank–it is not a trick.
The scam company will try to convince you that they can retrieve all the bounced check money, which includes the money you should have received and the fee you paid for it bouncing.
Do not fall for this scam; the companies that claim they are able to retrieve the money that was bounced are scamming you. If a person gives you a check and that check bounces, then you may or may not be able to sue that person, and that is your only recourse other than asking the sender to pay in another way. Scammer and fraudster companies will convince you that they can hunt down and retrieve the money you are owed, and they are lying to you.
Conclusion – What Are Other People Saying
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When people are charged fees by a bank, they are seldom happy about it and most are surprised by it. That is why it is easy to find forums and discussion groups that talk about bank fees. Have a look at what other people are saying and take note of the banks they are complaining about. We have covered the fees that most people suffer thanks to their bank. If you would like to see a list of general and ad-hoc fees that banks charge, then move on to How to avoid bank fees part two.