Why Some Banks Charge Fees & How to Avoid Banking Costs

Banks charge fees for their products and services in order to make money to pay for their business expenses. Everything from keeping the lights on in brick-and-mortar locations to paying the person who answers the phone at the bank costs them money, and those costs are passed to the consumer.

For example, a bank may charge a minimal processing fee for investment transactions, a monthly fee for maintaining certain accounts, a hefty fee for missing payments, and interest on any money that you borrow. All these fees can quickly add up.

The good news is that when you take actions that benefit the bank, they often reward you by lowering your fees or eliminating them altogether. Understanding how to avoid banking costs starts with knowing what costs might come your way and why. Then, you can learn how to avoid them.

We break down all the various bank charges below.

Common Bank Charges & How to Avoid Them

If you have a checking account with a brick-and-mortar bank, you will almost always see these fees:

Account Maintenance Fees

These fees are charged monthly, usually as a flat fee that is applied to basic checking or savings accounts. The average monthly checking fee is $13.95 per month, which adds up to a little over $167 a year.

These fees are more common with brick-and-mortar banks than with online banks. Many online financial institutions offer free checking and savings accounts. Current, for example, not only offers savings options with no fees but high rates of return as well.

The Best Way to Avoid Account Maintenance Fees

There are checking account and savings account options that reward customers for maintaining a certain balance in their account by removing fees or for having multiple accounts with their bank. For example, some checking accounts have a fee of $14.95 per month unless you maintain a minimum balance of $1,000 or have a savings account that maintains a minimum balance of $1,000.

Minimum Balance Fees

If you sign up for a checking account that waives the monthly maintenance fee as long as you maintain a minimum balance, but you allow your account balance to drop below that amount at any point during the month, you will be hit with a minimum balance fee. In most cases, it will be equal to the account maintenance fee that you would have paid for an account with no balance requirements.

The Best Way to Avoid Minimum Balance Fees

If you sign up for an account that triggers a fee if you drop below the minimum balance, you can make it a point to never drop below that balance, or sign up for a no-fee checking account online.

Non-Sufficient Funds Fees (NSF)

If you write a check for an amount that is not in your bank account, the bank won’t cover the charge, causing your check to “bounce,” and they will charge you a fee as well. The average overdraft fee is about $33.58. To make matters worse, whomever you were trying to pay with that check will likely tack on their own overdraft fee and possibly late fees.

The Best Way to Avoid NSF Fees

Of course, the best way to avoid overdraft fees is to make sure that you never overdraft your account. This means balancing your checkbook, so you don’t spend money that shouldn’t be in your account.

Another option is to find out if your bank will allow you to hook up an overdraft account to your checking account. This will mean that if there is not enough money in your checking account to cover a bill, the bank will automatically dip into an associated savings account to cover the cost without incurring a fee.

Overdraft Protection Charges

Another way to ensure that you don’t pay NSF fees is to purchase overdraft protection through your bank, but this service itself costs a monthly fee, usually between $25 and $35 per month. Why opt for this fee when it’s similar to an overdraft charge?

If it’s a problem that happens frequently and the overdraft protection is less than a single NSF fee, there is a small savings. Plus, because the bank will float you the money to pay your bill, you won’t be charged a bounced check fee, interest, or other fees by the institution you were trying to pay with the check.

The Best Way to Avoid Overdraft Protection Fees

Don’t sign up for overdraft protection if it costs money, or seek out an online bank that offers the service at no charge.

Returned Deposit Charge

Not only can you be charged if you bounce a check on your account, but if you attempt to deposit a check that bounces, you will be charged a returned deposit charge. If you spend the money in that check and have no other funds in your account when it is pulled back, you could also be looking at a slew of NSF fees from your bank and from the people whom you attempted to pay using the funds from the failed deposit.

The Best Way to Avoid Returned Deposit Charges

Always maintain a healthy minimum amount of money in your account in case this happens. Do not spend money that you receive until after it has been in your account for a week or more.

ATM Fees

If you choose to use your debit card to withdraw cash from an ATM that is not associated with your bank, you will likely have to pay a fee at the time of withdrawal. At this time, the fee is anywhere from $3.90 to $5.23, depending on your location and the bank.  

The Best Way to Avoid ATM Fees

Many online banks offer reimbursement for ATM fees when you use their cards at an ATM because they have no brick-and-mortar base to offer as an alternative.

Fees for New Checks

When you run out of the initial run of checks that your bank issues when you open your account, you will need to replace them with new ones. You don’t have to do this through your bank. In fact, you can buy checks online at a number of different venues. But the bank won’t give you checks for free.

The Best Way to Avoid the Cost of New Checks

Try to find alternatives to writing checks in order to minimize use. Paying bills online, purchasing things with cash, or using the debit feature on your debit card may be cheaper alternatives.

Less Common Bank Charges & How to Avoid Them

You may not frequently come across these fees, but it is better to plan for them in the event that you make use of these services.

Fees for Cashier’s Checks

Purchasing a cashier’s check, even at your own bank, will cost a fee, generally between $10 and $15.

The Best Way to Avoid Fees for Cashier’s Checks

There are no institutions that offer free cashier’s checks. If you need one, it’s hard to avoid fees.

Paper Processing Fees

If you choose not to opt-in to electronic delivery for bank statements and other correspondence from the bank, they may charge you a fee. These may cost anywhere from $1 to $5.

The Best Way to Avoid Paper Statement Fees

Opt-in for electronic statements! You also have the option of checking your account any time online, so you don’t have to worry about missing important announcements.

Replacement Debit Card Fees

This is another fee that not all banks charge, or some banks may not charge this fee in all circumstances. For example, some banks will charge to replace any lost debit card every time, while others may only charge you if you frequently lose the card or if you require a rush on the replacement.

The Best Way to Avoid Debit Card Replacement Charges

Many banks have the ability to print you a new debit card in-house with no fee assessed. Ask about this before you sign up so you know what to expect.

Fees for Debit Card Transactions

Some banks will tack on a fee for using your debit card to complete a transaction. In most cases, charges go to the business and not the consumer, however. Those charges are usually embedded in the cost of the item or service.

The Best Way to Avoid Debit Card Transaction Fees

Some businesses offer incentives to customers who pay in cash by dropping the price on an item or service, or tacking on the fees they would pay to the bill. Otherwise, the best way to avoid fees is to use a different method of payment or choose a bank that doesn’t enforce these fees.

Foreign Transaction Fees

Many banks charge a fee when you use your bank card in a foreign country or non-U.S. currency is processed on the account. In most cases, this is not a flat fee but amounts to about 3% of the total transaction.

The Best Way to Avoid Foreign Transaction Fees

It is actually recommended that you use a credit card or debit card for overseas purchases rather than seeking out a place to exchange your cash for local currency. Banks give respectable exchange rates, and even with the fees, it may be the safest and most cost-effective choice.

Excessive Use Fees

Many savings accounts, money market accounts, and investment accounts apply a fee if you make more than a specified number of withdrawals in a month. The number of allowed withdrawals without a fee will vary, so check with your bank if you’re going to make more than one withdrawal in a given month.

The Best Ways to Avoid Excessive Use Fees

There are some accounts that have no limits on the number of withdrawals you can make in a month. Find out if there are any limitations before setting up an account. Determine if their requirements are doable or if you need to find a different institution that doesn’t charge these fees.

Inactivity Fees

At the other end of the spectrum are fees charged due to a lack of movement (deposits or withdrawals) within an account. This usually happens after six months to a year or more of no activity. It is preceded by a number of warnings, so these fees don’t come out of the blue.

The Best Way to Avoid Inactivity Fees

This one is easy. With the first notice that an inactivity fee is about to be assessed, either deposit or withdraw money or close the account.

Get the Most Out of Your Money With the Least Fees

At Current, we offer a number of different options to help you get the most out of your money, including faster direct deposit, high interest rates on Savings Pods, fee-free ATMs, and no hidden fees.

Check out the options we have available to support you in achieving your financial goals today. We can help you stop paying all the fees and bank charges that are weighing you down financially. You can put the money you save on those fees and charges toward paying down your debt or saving for something special.

References

Checking Account/ATM Fee Survey 2022. (May 2022). Money Rates.

Overdraft Fees Hit Another Record High This Year—Here’s How to Avoid Them. (October 2021) CNBC.

Overdraft Fees: Compare What Banks Charge. (February 2021). NerdWallet.

How Much Are ATM Fees? (November 2021). Bankrate.

What Is a Cashier’s Check? Definition, Uses, How to Buy One, Cost and Alternatives. (May 2021). Bankrate.

How Bank Paper Statement Fees Work, and Ways to Avoid Them. (May 2021). Business Insider.

Foreign Transaction Fee. (August 2021). Investopedia.
Banks Have Lost Control of Their Fees. It’s Time to Start Over. (August 2021). Forbes.

Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Member FDIC.