Nickels and dimes
Recently I was reviewing a client's cash flow statement and learned that he had paid over $250 in bank fees on an account of only $9,000. That is a little more than $20 per month. The fees alone cost him just over 2.5% of his investment, and with banks paying a pittance for interest, he was actually losing money after taxes on this account. Now, don't get me wrong - banks serve a very important function in each and every one of our financial lives, but this "nickel and diming" to death is really getting out of hand.
The human touch
The National Bank of Chicago decided to charge customers three bucks every time they talked to a human teller. This was a simple business decision made on the part of management to encourage customers to utilize electronic banking services such as ATM's and banking by phone. This move prompted quite an annoyance to many bank customers. The national media feasted on the event and created animosity between the reminiscent, way-things-used-to-be-folk, and the net-surfing, need it in a hurry, "can't you do that any faster" customers.
Banks have learned that automation, computerization and electronic banking, though intimidating to many, is not only cost effective but more efficient and fool-proof than ordinary human tellers. Since many of us refuse to deposit our paycheck, withdraw money or make a loan payment through the ATM, banks are forced to raise fees because it costs a lot of money to continue paying a human workforce for tasks that could be executed electronically.
The fact is, banks have been raising fees and instituting new ones for several years now. According to one report, banks charged 95 different types of fees in 1989. Four years later they charged more than 225. Another study found that fees on simple checking and savings accounts rose 50%.
So what can you do?
You may think you don't have much of a choice now that you're already with your bank. But there are things you can do to make your present situation better.
- Pay Attention. Banks aren't about to announce new fees or rate hikes in giant red letters. Nor are they likely to higher a professional athlete to announce interest rate reductions. Often it comes in fine print stuck in with your bank statement. Take the time to read it. Look at the fees charged on your monthly statement. For example, bounced checks now average $20, up from $15 only eight years ago. Few bank customers noticed the increase, or objected if they did. And did you know that two thirds of the nation's banks ding customers for bouncing someone else's bad checks?
- Ask... or Complain. Banks don't like losing customers. Some banks will waive a bounced-check fee for valued customers who complain, or allow time to cover the shortfall. Ask the bank who issues your credit card to waive its annual fee, lower the interest rate, or both - or hint you'll go elsewhere.
- Shop Around. Some financial institutions, particularly smaller banks and credit unions, charge lower fees. Also, smaller banks are more apt to listen to complaints or even call you, such as in the event of an overdraft. Of course, you must weigh the issue of fees with other factors. For example, larger banks tend to offer more services than smaller banks. Convenience, financial stability, and quality of service also are issues to consider along with fees.
- Consolidate accounts and services. The more types of banking you do at one institution, the more likely you'll receive discounts or special deals. For example, if you keep minimum checking and savings balances, you might get loan discounts, higher certificate of deposit (CD) rates, or no-fee credit cards.
- Ask for a fee list. Banks are required by law to provide a list of fees it charges for basic service, but you may have to ask about fees for less-used services such as transferring funds between banks. Also, be aware that such things as "free checking" may be free only for a limited time or have special deposit requirements.
- Consider what services you really need. Examine the different types of checking accounts offered by the bank and the associated fees. Is there a monthly maintenance fee? How much does the bank charge per check? Which type of account do you really need? Perhaps you can get by with a bare-bones account that lets you write a few checks for free, doesn't require a minimum balance, and charge a low or no fee. Or if you bounce checks, you may want overdraft protection.
- Check out those "minimum" balances. Find out how the bank figures the balance. Some use an average-daily balance approach, but others use the low-balance method. This means that if your balance drops below the minimum for even a single day, you get hit with account fees and probably lose any interest due to be paid for that time period. Also ask what the bank counts toward the minimum balance. Some banks count savings along with the checking, and some even count CD deposits.