Personal Finance Best Practices

What's This?
By Cathy A. Norris CFP®, CLTC, CRPC®
Published: September 2008

People often joke about storing their money under the mattress in order to keep it “safe.” The mattress option might actually begin to look a lot more attractive to some people today, especially if they are paying excessive bank charges. If you find yourself regularly getting stung by overdrafts fees, ATM withdrawals or even for services like obtaining a copy of an old check, you may well be paying more into the bank than you are receiving in interest.

Last year, banks raked in about $80 billion in fees, according to Smart Money.

That money comes from customers, and it indicates that it has become expensive for some to keep short-term cash in what is considered to be a safe haven.

Fees are becoming a bigger part of the banking business, and individuals need to pay more attention to what it may end up costing them if they aren’t careful. These can range from the small charges for ATM transactions to fairly significant fees for overdrafts on your checking account. Most important is that these fees can quickly add up, and effectively deplete any interest you might be earning through a bank.

Bank fees to watch out for
Here are some of the most common fees that can prove to be costly to you, and suggestions on how to avoid or reduce them:

ATM Fees
Fees banks charge for ATM withdrawals have been rising. If you average even a single ATM withdrawal per week, it is possible to easily build up charges of $100 or more in a year. Since the money is debited from your account without much fanfare, it is easy to overlook the impact it has. A better option may be to keep bigger sums of cash on hand to reduce the number of times you have to stop by an ATM to make a withdrawal. Just keep your money in a safe place at home.

Overdraft charges
One of the most costly bank fees comes from overdrawing one’s checking account. Those fees can average close to $35 for each overdraft. It adds up to $175 in fees for a year if you happen to overdraw your account five times. If you use a debit card, you need to be particularly careful. While in the past, debit card transactions would be denied if you tried to make a purchase without sufficient funds in your account, that isn’t always the case today. Banks may now allow such transactions to be approved, then charge you the costly overdraft fee. So the $4 cup of coffee you paid for with your debit card on your overdrawn account could cost almost $40 after the fee is assessed. One solution is to take advantage of a bank’s overdraft protection program. For a fee that is typically more modest than an overdraft charge (or, depending upon the account, for no fee), your account is covered in case you write checks or conduct debit card transactions that surpass your balance. Overdraft protection is typically tied to either a line of credit or your savings account at the bank. Watch out for other services, sometimes referred to as “courtesy overdraft” and “bounced-check protection,” as these can be more expensive alternatives that will not save you much money compared to standard overdraft charges. Also, it is important to stay on top of your checkbook ledger to make sure your account always has sufficient funds.

Check processing fees
If you need to have your bank stop payment on a check, chances are the amount you will pay to do so will be far higher than the $10 or so it might have cost a few years ago. You don’t want to be casual about writing checks thinking that if the purchase does not work out, you can always stop payment through your bank. It is another charge that can add up.

Other fees
Banks are now often charging fees for services such as cashier’s checks and money orders that might have been free of charges at one time. Some may add a charge for over-the-phone or online transactions. Be sure to check with your financial institution to know what you can expect to pay for any of these services. It is possible that alternative outlets, such as grocery stores, offer similar services for less.

Make sure it makes financial sense
By incurring overdraft charges and ATM fees, it is possible that the money you pay back to your bank will exceed any interest you might earn in your accounts, particularly given today’s low interest rates. It is important to pay close attention to the management of your cash flow on a day-to-day basis to avoid paying unnecessary charges that can quickly add up. Consult a financial advisor to discuss your saving and financial goals.

Cathy Norris can be reached at: cathy.a.norris@ampf.com. This column is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. Neither Ameriprise Financial nor its advisors or representatives provide tax or legal advice. The views expressed may not be suitable for every situation. Consult with qualified tax and legal advisors concerning your own situation.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC. © 2008 Ameriprise Financial, Inc. All rights reserved.

back to top