When I was a kid, I was so excited to get my first bank account. My balance was only a few hundred dollars, but it was a thrill to watch it grow by a dollar or two each month. But today, that account would shrink each month. It would incur bank fees of a few dollars each month for failing to meet the bank’s minimum balance.
And that’s just one of many fees banks can charge. It almost seems like you’d be better off sticking with a piggy bank. But there’s no need to go to that extreme. If you’re smart and careful, you can avoid most bank fees – or at least keep them to a minimum.
Common Bank Fees and How to Avoid Them
These are the most common bank fees you will come across and can be costly.
1. Insufficient Funds Fee (Overdraft Fee)
Suppose you stop at the grocery store for a few items on your way home from work. At the register, your bill comes to $32. You hand over your debit card, not realizing that there’s only $30 left in your checking account.
If you don’t have overdraft protection on your bank account, the payment won’t go through. But if you opted in for overdraft protection when you opened the account, then the payment will go through as if nothing were wrong.
That seems like a good thing, but in the long run, it’s not. True, you’ll avoid the embarrassment of having your card refused. But you’ll pay for it later when the bank charges a $35 overdraft fee for spending $2 more than you had in your account.
That might not be the end of it either. If you make a second stop at the pharmacy to pick up a prescription, your $5 copay could trigger a second $35 fee. And if you stop for a quick cup of coffee afterward, that $2 transaction could trigger yet another fee.
By the time you leave the store, you could be $114 in the red – even though you only went over your balance by a total of $7. Many big banks limit the number of overdraft fees you can be charged per day to three to six. But at $35 a pop, that’s still a lot of money to lose in one day.
How Much It Costs You
Overdraft fees – also known NSF fees, for “non-sufficient funds” – are one of the heftiest fees banks charge. The typical NSF fee is between $30 and $36. Paying just one overdraft fee per month would add up to between $360 and $432 per year.
How to Avoid Insufficient Funds Fees
In theory, avoiding overdraft fees is simple. Just make sure never to overdraw your account.
But when you’re using a debit card for all your purchases, it can be tricky to know your exact balance at all times. Instead, consider these precautions.
- Don’t Opt In. A 2010 law forbids banks to charge overdraft fees without your consent. All you have to do is say no when asked if you want to opt in for “overdraft coverage” when opening an account. If you already have overdraft coverage, ask to cancel it.
- Watch Your Balance. Transactions don’t always post to your account immediately. If your balance dips below the amount of a debit purchase before it goes through, it will trigger a fee — even if you don’t have overdraft coverage. To avoid this problem, try to keep a cash cushion in your checking account to cover day-to-day purchases.
- Set Up Mobile App Alerts. You can set up your bank’s mobile app to deliver a text alert before any transaction that would overdraw your account. That way, you can cancel the transaction or transfer money from your savings account to cover it. You can also get alerts whenever your balance drops below a certain level.
- Link to Another Account. Some banks let you link your checking account to a savings or money market account with the same bank. If you take too much money out of checking, the bank transfers money from the other account to cover it. There may be a fee for this transfer, but it’s usually under $15 – much less than an NSF fee.
- Link to Your Credit Card. If you don’t have a savings account to link to, you can link your checking account to your credit card or line of credit instead. If you overdraw your checking account, the excess gets charged to your credit card. Once again, there can be a fee for this transfer, but it shouldn’t be anywhere near $35.
- Switch Banks. Some banks and credit unions don’t charge overdraft fees. Banks with NSF-free accounts include Alliant Credit Union, Ally Bank, Axos Bank, Chime, nkbc, and Wealthfront.
2. Account Maintenance Fee (Service Fee)
Of all the fees banks charge, perhaps the most annoying is the account maintenance fee. This is a fee you have to pay just to keep your account open. In effect, paying the bank for letting you keep your money with it.
This doesn’t seem to make much sense. After all, banks want you to keep your money with them so that they can loan it out to other customers. That’s how they make their money – or at least, it used to be.
But with interest rates so low these days, banks aren’t making much money on loans. Therefore, many tack on extra fees to make up the difference. As a result, truly free checking accounts have become fairly rare.
How Much It Costs You
Monthly service fees for checking accounts range from just a few dollars to $25 per month, or $300 per year. They’re generally higher for accounts that charge interest.
How to Avoid Account Maintenance Fees
In most cases, you can avoid monthly account maintenance fees by meeting one or more special conditions put in place by the bank. For instance, you can:
- Maintain a Minimum Balance. Many banks waive your service fee if you keep a certain amount in your account. That effectively makes these service fees the same as minimum balance fees, discussed below.
- Use Direct Deposit. Some banks waive the account maintenance fee if you make a certain number of direct deposits to your account each month. Other banks require you to deposit a minimum dollar amount.
- Link Your Accounts. You can sometimes avoid service fees with a checking account that’s linked to your savings account. The bank may require a minimum balance or a certain number of direct deposits across both accounts.
- Use Your Debit Card. Making a certain number of debit card transactions each month can be another way to avoid service fees.
- Read the Fine Print. When you open a “free” checking account, read the account agreement carefully. Make sure you can meet the bank’s requirements to avoid service fees every month.
- Read Notifications. Your bank can change its rules at any time as long as it notifies you in writing. To keep track of what you must do to avoid fees, read those boring-looking notices the bank sends you about changes to its terms. They’re actually important.
3. Minimum Balance Fee
Many banks charge a minimum balance fee in place of a monthly account maintenance fee. This fee only comes into effect if the balance in your account falls below a certain level.
The amount required to avoid a minimum balance fee varies. It can be as low as $100 or up into the thousands.
To figure out whether you’ve met this minimum, most banks look at your average monthly balance. They add up your balances at the end of each day, then divide by the number of days in the month. If the average was below the required minimum, you pay the fee.
How Much It Costs You
Minimum balance fees are just another version of monthly service fees. Thus, their cost is the same — from a few dollars a month to $25.
How to Avoid Minimum Balance Fees
The simplest way to avoid minimum balance fees is to make sure your account balance stays over the limit. If you can’t, consider a different bank, or a different account at your current bank.
- Open a Student Account. Some banks offer free checking accounts for full-time college students. For instance, free student checking is available at Chase, PNC, and Wells Fargo.
- Switch Banks. Other banks and credit unions have free checking accounts that are available to anyone. Online banks, such as Ally, Axos, Chime, and Wealthfront, are more likely to offer free accounts. So are credit unions such as Alliant.
- Switch Accounts. If you have an interest-bearing checking account, check to see if you can avoid fees by switching to an interest-free account. With today’s low interest rates, the interest you’re sacrificing isn’t worth much anyway.
4. Out-of-Network ATM Fee
Say you’re out with some friends in an unfamiliar part of town and you’re short on cash. You don’t know where to find a branch of your bank, so you stop by another bank to use the ATM. But because you’re not a customer, the bank charges you a $2.50 fee.
Later in the month, you review your bank statement and find that your own bank has charged an additional $1.50 for using an out-of-network ATM. All told, that $50 withdrawal has cost you $4 in fees.
How Much It Costs You
Banks typically charge between $1 and $3 for using another bank’s ATM. The fee is generally highest at traditional banks, lowest at online banks, and in-between at credit unions. On top of this, you can pay $1 to $4 to the other bank that owns the ATM.
How to Avoid Out-of-Network ATM Fees
Fortunately, ATM fees are one of the easiest fees to avoid.
- Stick to Your Own Bank. If you only withdraw cash from your own bank’s ATMs, you’ll pay no fees. Use your bank’s website or mobile app to find in-network ATMs when you’re out of town. Or, plan ahead and stop by your local branch to withdraw cash before a trip.
- Get Cash Back. If you can’t find an ATM that belongs to your home bank, you can get your cash at a store. Just make a small purchase with your debit card and ask for cash back. Many stores don’t charge a fee for this service.
- Switch Banks. If you find yourself paying ATM fees often, consider switching to a bank with more ATMs near you. Large national banks tend to have the biggest networks of available ATMs. Alternatively, choose a bank that doesn’t charge foreign ATM fees.
- Bank Online. If you open an account at an online bank, it may cover your ATM fees. Online banks don’t have ATMs and branches of their own, so most of them reimburse account holders for the cost of using other banks’ ATMs.
- Don’t Use Cash. If you don’t pay for things in cash, you don’t need to visit the ATM at all. Instead, make payments with your credit card, your debit card, or a payment app like PayPal or Venmo.
5. Inactivity Fee
Some banks charge an inactivity fee for maintaining an account that you’re not using. This fee is also known as a dormancy fee. Banks charge it because abandoned accounts are subject to strict government regulation, which causes major administrative headaches.
Generally, an account must sit untouched from six months to a year before the inactivity fee kicks in. Some banks provide an advance warning, but others simply start draining the money from your account.
If your account stays inactive long enough and the bank can’t reach you, the bank treats it as abandoned. It transfers all the money into it to the state treasury. But before doing this, it may take out a one-time escheatment fee — on top of the inactivity fees you’ve already paid.
How Much It Costs You
Not all banks charge account inactivity fees. For those that do, the fee is typically between $5 and $20 a month. Escheatment fees are usually around $50.
How to Avoid Inactivity Fees
You’re most likely to be hit with an inactivity fee on a savings account that you seldom use. For instance, it could be an account you opened a long time ago at your previous bank and forgot to close. There are a few ways to avoid this fee
- Close the Account. The easiest way to avoid inactivity fees is to close the account. If you haven’t used it in six months, you probably don’t need it.
- Keep the Account Active. If you don’t want to close the account, keep it active by making at least one transaction each month. This can be a deposit, a withdrawal, a check, or a debit card purchase. Sometimes, just checking your balance online is enough to keep your account active.
- Make a Recurring Transfer. If you’re afraid you’ll forget to use the account monthly, do it automatically. Set up an automatic monthly deposit or withdrawal to keep the account active. Just be careful not to deplete the account fully, or you’ll trigger an NSF fee.
- Read Notices. Once again, read any mail or secure online messages you receive from your bank. It could be a notice warning that your account is about to become inactive.
6. Excess Activity Fee
Bank fees hit you both coming and going. You can pay a fee if you make no savings account transactions at all – but if you make too many transactions, there’s a fee for that as well.
Banks blame this fee on Federal Regulation D, a law governing banks. This law defines a savings account as one in which depositors make “no more than six transfers and withdrawals…per calendar month or statement cycle.”
If you go over the allowed number of transfers and withdrawals, the bank must warn you not to do it again. If you keep doing it, the bank must either close the account or convert it to a checking account. The law doesn’t require the bank to charge you a fee, but many banks do.
During the COVID-19 pandemic, the Federal Reserve suspended the transaction limits set by Regulation D. Banks no longer have to notify you for making more than six transfers or withdrawals per month. But the bank can still charge a fee if it chooses to.
How Much It Costs You
Excess activity fees can be anywhere from $3 to $25, but the average is around $10. Some banks charge higher fees for larger numbers of transactions over the limit.
How to Avoid Excess Activity Fees
Fortunately, this is another fee that’s easy to avoid. Just stick to these guidelines:
- Know Your Bank’s Rules. Some rules have suspended their excess activity fees during the pandemic. Others don’t charge this fee at all. Check with your bank to learn what its rules are and how close an eye you need to keep on your number of transactions.
- Use Your Checking Account. Excess activity fees apply only to savings accounts, not checking accounts. So, for any payments and transfers you make on a regular basis, always use your checking account.
- Plan Ahead. Try to avoid transferring money between your savings and checking accounts too many times in one month. Instead, use your personal budget to figure how much money you’ll need for the month. Then transfer the whole amount at once.
- Keep More Money in Checking. Alternatively, you can just keep a little extra cash in your checking account at all times. That way, if you need money for an unplanned expense, you won’t have to dip into savings for it.
- Visit the Bank. Federal Regulation D only limits transfers and withdrawals made by check, debit card, phone, and automatic transfer. You can make as many transactions as you want at the teller window or the ATM. So if you need to make a transfer that would put you over the monthly limit, do it at the bank.
7. Paper Statement Fee
These days, most banks send out your monthly bank statement electronically rather than by snail mail. Not only is this cheaper for the bank, it reduces clutter and paper waste for customers. Also, your statement reaches you faster and is easy to find if needed in the future.
However, some people still prefer to receive an old-fashioned paper statement. If you’re one of them, there’s some bad news: Most banks now charge a fee for this service.
How Much It Costs You
Paper statement fees aren’t large. Most banks charge only $2 to $3 per statement, though some charge as much as $5. However, if you receive all your statements this way, it adds up. A $3 fee each month comes to $36 over the course of a year.
How to Avoid Paper Statement Fees
There’s really only one way to avoid this fee. All you can do is give in and sign up for electronic statements. If you still want a paper copy, you can always print one out at home.
8. Lost Card Fees
Having your wallet or purse stolen is a big hassle. In addition to losing all the cash you were carrying, you have to go to the effort of canceling and replacing all your credit and debit cards. And to make matters worse, some banks actually charge a fee to replace your lost debit card.
How Much It Costs You
Only a few banks charge a fee for a replacement debit card — usually between $5 and $10. However, if you need your new card in a hurry, most banks charge for rush delivery. The fee for this service can range from $5 to $30.
How to Avoid Lost Card Fees
There are a few ways to avoid lost card fees:
- Watch Your Wallet. To avoid losing your cards, keep a close eye on your wallet or purse at all times. When in a crowd, move your wallet to a front pocket, or keep your purse in front of your body or under your arm. And never leave either one sitting out in the open.
- Keep a Backup Card. Always keep one debit or credit card at home, stored in a safe place. If you lose your wallet or purse, you can use this card until your new one arrives. That way, you don’t need to pay for rush shipping.
- Pick Up Your Card in Person. Another possible way to avoid rush shipping fees is to pick up your new debit card at the bank branch. Some banks can print out a new card for you right on the spot.
- Get a Temporary Card. Even if your bank can’t issue a new credit or debit card for you, it can probably give you a temporary card to use until your new one arrives. There’s usually no charge for this service.
- Use Cash. A final way to avoid paying for rush shipping is to rely on cash for a while. Just go to the nearest bank branch and withdraw enough cash to last until your new card arrives.
9. Wire Transfer Fee
A wire transfer is a way to send money directly from your bank account to another person’s. It’s often the fastest way to send money, especially to another country. However, this service generally comes with a cost — whether you’re sending money or receiving it.
How Much It Costs You
Banks typically charge between $10 and $35 to send money to another bank account in the U.S. Sending money abroad costs more, usually $35 to $50. Not all banks charge fees for receiving money by wire, but for those that do, the fee is generally around $15.
How to Avoid Wire Transfer Fees
A wire transfer isn’t the only way to get money to another person. To avoid wire transfer fees, consider these other options:
- Use Online Banking. You can send money to most businesses through your bank’s online bill payment service. This is usually free. Some banks also allow transfers to individuals through online banking if you know the other person’s bank account info.
- Use a Payment App. If you can’t transfer money through your bank, try a third-party payment app. With Venmo and Zelle, you can send money for free to anyone else who uses the app. Other options, like PayPal and PopMoney, let you send money to anyone whose email or cell phone number you know, even if they don’t have an account.
- Use a Transfer Service. For international transfers, consider a third-party service like Wise or OFX. These services charge a fee, but it’s likely to be less than your bank’s.
- Write a Check. Old-fashioned paper checks still exist, and they’re still a safe way to send money. However, this method takes a while, so it’s best when the other person doesn’t need the cash in a hurry.
- Pay in Person. If you have access to the other person’s bank, you can simply walk in and ask to deposit cash or a check in their account. You’ll need their bank account information for this, though.
- Switch Banks. If you need to make wire transfers often, consider switching to a bank that doesn’t charge for them. Some banks, such as Fidelity, offer free wire transfers. Others waive the fee for certain accounts, such as HSBC’s Premier Account.
10. Foreign Transaction Fee
Spending money while traveling abroad used to be a lot of work. Since you couldn’t access your U.S. bank account from outside the country, you had to buy travelers’ checks. But those aren’t accepted everywhere, so you had to exchange currency as well.
ATMs and debit cards have made it much simpler. Now you can use foreign ATMs to retrieve cash from your own bank account. Or you can simply swipe your debit card and punch in a PIN to make a purchase.
But this convenience comes with a cost: Each time you use your debit card overseas, you pay a fee to convert your dollars into local money.
How Much It Costs You
A foreign transaction fee is usually 1% to 3% of the amount charged or withdrawn at an ATM. On top of that, most banks tack on their usual charge for out-of-network ATM transactions.
How to Avoid Foreign Transaction Fees
There are a few ways to avoid fees on foreign transactions.
- Use a Credit Card. To avoid fees on purchases, leave the debit card in your wallet. Instead, use a credit card that doesn’t have foreign transaction fees. Choices include all Discover and Capital One cards and many travel rewards credit cards from other issuers.
- Withdraw Larger Sums. To reduce the amount you pay in ATM fees, make fewer withdrawals. Take out a large sum all at once and use the cash gradually. But don’t do this in areas where you’re at risk from thieves and pickpockets.
- Look for Partner ATMs. Some banks, such as Bank of America, have partnerships with certain foreign banks. You can use those banks’ ATMs overseas without paying a fee.
- Switch Accounts. If you travel abroad a lot, it could be worth looking for an account that waives foreign transaction fees. Banks that offer such accounts include Charles Schwab and Capital One Bank, an online bank.
11. Returned Deposit Fee
Banks don’t just charge you fees for what you do. Sometimes, they charge fees for what other people do to you. For example, suppose your roommate gives you a check to pay for her half of the electric bill, but she doesn’t actually have enough money in her account to cover it.
When you try to deposit the check, it bounces. Your roommate pays an NSF fee for writing the bad check. But you pay a returned deposit fee – also known as a “bounced-check fee” – for depositing it, even though it wasn’t your fault.
How Much It Costs You
If you deposit a bad check from a U.S. bank, most banks charge you a returned deposit fee between $10 and $20. For a check from a foreign bank, the fee can be as high as $40.
How to Avoid Returned Deposit Fees
You can avoid putting someone else in this situation by following the same steps you’d take to avoid overdraft fees. However, it’s a bit harder to avoid getting stuck with a bounced check from someone else. Still, there are several steps you can take to protect yourself.
- Ask Before You Deposit. Before depositing a personal check in your account, talk to the person who wrote it. Ask them if they’re sure there’s enough in their account to cover it. Try to word the question so it sounds like a friendly reminder, not an accusation.
- Check on the Check. If you can’t talk to the person who wrote the check, talk to their bank instead. If you take a check to the bank where the account is held, it can tell you whether there’s enough money in the account to cover the check.
- Watch Out for Fake Checks. If you get a check from someone you don’t know well, examine it carefully. Make sure it lists a real bank’s name. number, and address. Check for security features like a security box on the back and the words “original document.” Be wary of checks that are glossy or have no perforations on the edge. And look out for smudges that could suggest the check was altered.
- Check the Federal Reserve Number. Another way to spot a fake check is by the Federal Reserve number at the top. The last three or four digits should match the first three or four digits of the bank routing number at the bottom.
- Wait for Checks to Clear. It sometimes takes days or even weeks for your bank to notify you that a check has bounced. If you assume the money from the check is already in your account, you might overdraw your account and pay overdraft fees on top of the returned deposit fee. So always wait until a check has cleared and the money shows up in your account balance before trying to use it.
- Ask to Have Fees Waived. If you’re a good customer who has never deposited a bad check before, your bank may be willing to waive the returned deposit fee. It can’t hurt to ask.
12. Early Account Closing Fee
Usually, it costs nothing to close a bank account. However, some banks charge a fee for closing an account that’s been open less than three to six months. Opening and closing accounts creates work for the bank, so they want to avoid doing it for customers who won’t stick around.
How Much It Costs You
Not all banks charge account closure fees. At those that do, the fee is typically around $25. However, it can be as high as $50.
How to Avoid Early Account Closing Fees
There are two main ways to avoid account closure fees:
- Don’t Open Accounts You Don’t Need. It’s tempting to open a new account to take advantage of a juicy new-account bonus. But if you open an account and immediately close it, the fee you pay will offset the bonus.
- Check Your Bank’s Policy. Before closing an account, check your bank’s policy for account closures. If you’ve had the account for five months and there’s a fee for closing it within six months, you can avoid the fee by waiting a little longer.
Final Word
Although it’s often possible to avoid bank fees, sometimes mistakes happen. If you open your bank statement and realize that you’ve slipped up and have been slapped with a fee, don’t assume that your only option is to swallow it.
Often, banks are willing to remove a fee from your account if you call and ask politely. Treat the call like any other negotiation. Explain what you’re asking for and why you think it’s fair. Emphasize your past history with the bank. And ask to speak to a supervisor if necessary.
It can’t hurt to ask. The worst the bank can do is say no, and if this happens, you’re no worse off than you were before.
