Not too long ago, finding a free checking account was easy.
They were plentiful, and there weren’t many fees unless you had overdrafts or some other major account issue.
Now, however, free checking accounts aren’t as easy to find. The ones that are still “free” aren’t exactly free as they are rife with hidden fees.
Now, if you’re not careful, checking accounts can routinely rob you of hundreds of dollars a year.
The Minefield of Checking Account Fees and How to Avoid Them
Trouble Comparing Services
Part of the trouble is that it’s very hard to do an apples to apples comparison of banks’ fees.
While many put their fee information online, nearly 14 of 50 banks that The Pew Charitable Trust evaluated when measuring checking accounts’ safety and transparency did not disclose any information online. Instead, a customer would have to visit the local branch to learn of the fees.
Once a customer has located the information about the fees, most banks don’t make it easy to pick out the pertinent details. The Pew study “found that the median length of the account agreement and fee schedule at the 36 banks studied was 43 pages – and that doesn’t include the pages that describe the product” (Today Money).
I don’t know about you, but I don’t usually wade through that many pages of legalese.
The Fees Can Wreck Your Finances
The Pew study also found that many banks charge what Pew considers excessive overdraft fees, from $30 to $40 per overdraft.
Keep in mind, once there’s one overdraft, they tend to pile up like falling dominoes. Often you don’t know you’ve had an overdraft because banks contact you by mail, which can take several days. Meanwhile, you could have several more overdrafts before you find out about the first one, and that could end up costing you hundreds of dollars. (Unfortunately, chances are if you have an overdraft, you likely don’t have a cushion in your account, so you don’t have hundreds of dollars to spare.)
The little fees can also eat at you.
Within the last year, my bank started charging $3.00 every month for paper statements. For months, I didn’t know why I was being charged $3.00 a month. Many consumers are lazy, and simply don’t make the call to switch to online statements, so the bank continues to happily deduct the fees. While that amount may not sound like a lot, it still adds up to $36 a year.
What’s a Consumer to Do?
Financially savvy customers need to take the time to find the best checking account for their money. Pew made this a bit easier by creating a chart which details what banks scored for both best and good practices. I was surprised to see that my bank wasn’t even in the top 20.
Another smart move may be to consider moving to an online checking account.
By their very nature, online banks must disclose their terms and fees online, so you can easily research their fee tables and compare online banks. In fact, Ally Bank scored number one in the Pew study for best and good practices. Plus, because online banks don’t have to support brick and mortar locations, they don’t need to rely on as many fees.
Related: Take a look at our recommendations for online checking accounts.
It’s Not Just About the APR
Many people, if they research banks at all, research how much interest they’ll earn by putting their money in a checking account.
Sure, interest is important, but if you’re making a bit of interest, are you losing that amount or more in fees? Do the math. You may find that it’s more cost effective to put your money in a checking account that doesn’t pay any interest but is also low in fees.
Often, online banks offer the best of both worlds, charging minimal fees and higher interest rates than traditional brick and mortar banks.
Most Common Bank Fees
As you’re looking for a new bank, keep in mind the most common bank fees:
1. Early account closure fee. Will you be assessed a penalty if you close your account within a certain number of days of opening it? How many days and what is the fee? (Often this is to keep people from immediately closing their account after getting bonus money for opening the account.)
2. Minimum daily balance fees. Are you required to maintain a minimum daily balance? Is this an amount you can easily maintain?
3. Transaction fees. Are you limited in the number of transactions you can conduct per day? What are the fees associated with each transaction?
4. Monthly fee. Some banks charge you a monthly fee just for maintaining your bank account. Don’t forget about the bank statement fee.
For a list of other fees you may want to consider, U.S. News has a round up of the 10 most common ones. You have to know about these fees so you can make sure to ask about them before signing up for the account.
Am surprised by some of these costs. When you think about it, it really does add up over time without you even noticing it. Annually it must be a small fortune one would have done something significant with. I use an online bank, mainly for the convenience and access wherever I am. The low transaction fees are also attractive not to mention seamless intergration with some of the other financial products I use online.
I picked my banks based on customer service, online banking, and low/no fee accounts. I have accounts at Schwab Bank, Capital One 360, and a local credit union. Have never paid a cent in fees to any of them. Schwab actually refunded my two wire fees I’ve incurred from real estate transactions without me ever asking!
Wow, that’s excellent customer service on Schwab’s part!
There are definitely banks out there that offer free checking accounts. This usually comes with no minimum balance, no monthly service fees but you have to pay for checks and other little servies sometimes, like cashier’s checks, etc.
I recommend smaller community banks that are conveniently located near your home. The large transnational banks tend to have lots of “hoops” to jump through for a free account. Credit Unions are great also.