Bank Fees and What You Can Do About Them
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A recent USA Today headline proclaimed that “Wells Fargo expands checking account fees to more states.” I know it's popular to decry the fees that banks charge as unfair and unnecessary. I know that you give your hard earned money to your bank and they should be able to make enough off of that. Here's the problem, banking isn't the same business that it used to be. Banks have to charge fees to offset costs, and to make a profit. If you don't want to pay these new fees, you do have other options.
Wells Fargo & Company (NYSE: WFC) is generally regarded as one of the better managed banks in the country. The company is one of Warren Buffett's holdings, and he has said he admires their management. So why would a bank that is well known and respected, resort to charging a fee for having a checking account? The answer is, they aren't. Unfortunately, most people have very bad short term memories. Checking accounts were not always free. Not that many years ago you had to either have a direct deposit coming into your account, or you had to keep a minimum balance. The average checking account costs a bank about $300 a year to maintain. This cost covers statements, online banking, CheckCards, fraud monitoring, software, overdraft disposition, and more. If you are keeping funds in your checking, the bank is probably making less than 3% on your funds per year. Think about that, if you keep $1,000 in your account all year and never touched it, the bank might make $30. With short term interest rates at near zero, most banks make their money on accounts through fees. Sorry to be the bearer of bad news, but most banks can't make money on accounts that keep less than $1,000 on a regular basis. The only way the bank wants your account, with a balance less than $1,000, is if you have direct deposit, use other services, or have other accounts.
So what is the average American to do? Well, as I see it you have basically 3 choices. First, decide what bank you really want to do business with, and take all of your financial business there. What I mean is, pick one good financial institution, bring them your relationship, and you'll see just how much banks value you as a client. Most banks will offer additional benefits, better interest rates, and free services, but only if you bring your relationship. Do you have investments? If so, check with your bank and see what they might be willing to do if you moved your investment account(s) to them. I bet you would be surprised at what is offered. Is your mortgage elsewhere? If you've been considering refinancing, you will usually qualify for a better account if you have your mortgage in the same place as your checking.
Your second choice is to have your accounts at a credit union. Since credit unions are non-profits, fees will be lower, and deposit interest rates may be higher. However, you have to accept the reality that with credit unions you usually get less locations, and most are only in one area. You should be able to get your standard checking, savings, money market, CDs, online banking, and CheckCard. However, not all credit unions offer additional services like safe deposit boxes or credit cards. If you generally stay in the same area and don't need anything fancy, this could be a good choice.
Your third choice is don't have an account at all, instead go with a pre-paid debit card. GreenDot (NYSE: GDOT) sells its pre-paid cards in many stores, and you will never get overdrawn. However, you do either need to make at least 30 purchases a month, or load at least $1,000 to avoid a monthly fee. You can't avoid fees completely though, because to reload the card usually has a cost, and to purchase the initial card has a cost. Since the cards are Visa and MasterCard you can use them anywhere either is accepted. This also allows you to pay bills over the phone or online.
Long story short, if you don't like a fee that your bank proposes, ask your banker how you can avoid paying this charge. If there is no way around it and you don't feel like paying the fee, then explore other options. You have at least two other choices beyond your standard bank. Now can we all just agree that banks are not forcing fees down anyone's throat and move on? Let me know what you think in the comments section below.
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