What Are Bank Fees?
The term bank fees refers to any charges imposed by financial institutions on their personal and business customers for account set-up, maintenance, and minor transactional services. These fees may be charged on a one-time or ongoing basis. Examples of bank fees range from account maintenance charges, withdrawal and transfer fees, automated teller machine (ATM) fees, non-sufficient fund (NSF) fees, late payment charges, and others.
- Bank fees are imposed by financial institutions on their customers for account set-up, maintenance, and minor transactions.
- These fees may be charged on a one-time or ongoing basis.
- Fees make up a big portion of bank revenue, though some fees may be negotiable.
- Types of bank fees include account maintenance fees, withdrawal and transfer fees, and ATM fees.
- Consider monitoring your bank statement, researching the fine print on your account, and contact your institution if you have questions.
Understanding Bank Fees
Banks charge fees for the services they provide their personal and commercial clients—and they seemingly lurk everywhere. For instance, banks charge customers fees just to have certain deposit accounts open. In other cases, they may charge service fees to conduct transactions or as penalties for things like bouncing checks. Certain fees apply to all customers across the board, while others may be waived under certain conditions. Customers who have long-standing relationships and multiple assets and liabilities with a bank may qualify for a fee waiver.
All financial institutions must be transparent about their bank fees. There is a comprehensive disclosure of the fee schedule on bank websites and in the fine print of pamphlets. Customers must carefully read and review the disclosures to avoid surprises. While competition is a natural regulator of where a bank may apply fees and how much it thinks it can get away with, government authorities such as the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) stand by to field complaints and concerns from the public about fee-charging practices by banks.
All financial institutions must be fully transparent and disclose their bank fees in writing, so make sure you read all the fine print.
Fees are listed on a customer's paper bank statements, passbooks, and/or through the institution's online banking portal. In most cases, banks will post fees at the time the transaction takes place. For other cases—such as bank account maintenance fees—the bank generally add them on at the end of the month.
While the majority of a financial institution's total revenue comes from net interest income, a big portion comes from bank fees. Individual fees may be small but when combined, they can add up quite nicely. When the net interest margin for a bank is squeezed in a low-interest-rate environment, bank fees provide a measure of stability to bank earnings.
Types of Bank Fees
Here are some of the most common types of bank fees customers pay:
- Minimum account balance fees: Some bank accounts require customers to keep a minimum balance every month. If the balance dips below this required amount—even for a day—a customer will be hit with a fee at the end of the monthly cycle.
- Withdrawal and transfer fees: Many accounts allow customers to do a certain number of transactions each month. For instance, a checking account may allow the account holder to make up to ten withdrawals or transfers each month. The bank may charge a service fee for any additional withdrawals after that. For savings accounts, customers can make up to six free withdrawals per month, after which they incur a charge for each subsequent withdrawal. Other types of fees in this category include wire transfer fees.
- ATM fees: These fees may be charged if customers make excessive withdrawals from ATMs and if they use machines out of their bank's network. These fees are generally taken out when the transaction is executed rather than at the end of the month.
- NSF fees: When a customer doesn't have enough money to cover the full amount of a transaction, the bank will reverse it. As a consequence, the customer gets hit with an NSF charge.
- Overdraft fees: Whenever a customer's account balance dips below zero, the account incurs an overdraft fee. In some cases, the bank may also charge interest on the average overdraft balance, as it's often considered a short-term loan.
- Late payment fees: Banks and credit card companies charge cardholders late payment fees if they miss the due date listed on their statements.
According to Consumer Finance, many banks began eliminating non-sufficient funds fees. As a result, Consumer Finance estimated consumers would save approximately $1 billion each year.
Tips for Avoiding Bank Fees
You can improve your finances and save money by avoiding these fees above. The following are some suggestions that will assist you in avoiding frequent bank fees.
- Make sure you pick the appropriate account. Research and look into the many kinds of bank accounts available so that you can select one that meets your requirements and has low monthly maintenance fees. If it's not clear what the fees are for an account, speak to a banking representative.
- Keep a minimum balance. Many financial institutions will forego charging you a monthly maintenance fee on your account if you keep a minimum balance in it. Check with your financial institution to learn the minimum balance that must be maintained at all times, and then make it a priority to do so.
- Consider internet banking instead of traditional brick-and-mortar banks. This is because online banks and accounts that are accessible only through digital typically have lesser costs.
- Read the small print. To have an understanding of the price structure, it is important to thoroughly go over the terms and conditions of your account agreement. Pay close attention to any specific activities or transactions that may generate in fees, such as overdraft charges or withdrawals from an ATM. Examples include overdraft charges.
- Avoid incurring overdraft fees. Always know how much money is in your account. Set up notifications to let you know when it drops too low, and think about connecting your checking account to a savings account so that you can avoid going overdrawn.
- Use connected ATMs. Make use of ATMs that are part of your bank's network when you need to withdraw cash. If you use ATMs that are not affiliated with your bank on a regular basis, you may quickly rack up a large sum of money due to the associated costs.
- Review your bank statements on a regular basis. Be on the lookout for any unanticipated fees or charges, and get in touch with your bank if you find any inconsistencies.
- Establish a direct deposit. Some financial institutions can exclude you from paying monthly fees if you establish a direct deposit for your paycheck or for other frequent deposits. Investigate whether or not this choice is made available by your bank, and if it is, make use of it.
- Consider going paperless. As some financial institutions will charge you a fee for paper statements. Instead of paper statements, you can save money by opting to receive electronic ones.
How Can I Avoid Overdraft Fees?
To avoid overdraft fees, monitor your account balance regularly, set up balance alerts, and consider opting out of overdraft protection to prevent transactions that would result in negative balances.
Do Banks Charge Fees for Wire Transfers?
Yes, banks may charge fees for wire transfers. The fee may vary depending on the type of transfer (domestic or international) and the amount being transferred.
Can I Negotiate or Waive Certain Bank Fees?
Negotiating or waiving certain bank fees is possible in some cases. Contact your bank, explain your situation, and inquire about fee reductions or waivers. Be mindful that account owners with higher deposits will have more leverage with the bank.
Are There Fees for Closing a Bank Account?
Some banks may charge fees for closing a bank account, particularly if it's closed shortly after opening. This fee may be explained as an administrative fee necessary to cover the labor and costs of closing the account.
The Bottom Line
Bank fees are charges levied by financial institutions for various services and transactions. Common fees include overdraft fees, ATM fees, monthly maintenance fees, wire transfer fees, and foreign transaction fees. To avoid these fees, it is advisable to monitor your account balance, use in-network ATMs, maintain minimum balances, opt for electronic statements, consider alternative payment methods, and compare fee structures among different banks.