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You might call it legalized bank robbery, although, in this case, it is the banks that are doing the robbing. From small transaction fees that nibble away at your hard-earned cash, to eye-popping overdraft charges, banks are making billions every year from often-unwitting consumers.
In recent years new laws and regulations have been proposed and in some cases passed to protect consumers from excessive fees such as overdraft charges. But banks still can and do make a lot of money from fees, and they are not going to give up that profit center without a fight. Fortunately, consumers can keep these fees to a minimum through self-education, wise money management, and a willingness to either negotiate or change banks.
Overdrafts are serious money-eaters
Ideally, we would all have sufficient funds and adequate money-management skills to pay all our bills and other expenses in full and on time. But since that is unlikely to happen anytime soon, the financial industry has become adept at making a profit off our unexpected expenses and even emergencies. Being profit-based businesses that they are, the banks and other financial services businesses have always endeavored to charge as much as they can get away with for giving consumers access to those critically-needed funds, often driving their customers even deeper into debt.
In some countries, financial regulators have been working to put a cap on fees such as overdraft charges, but since it is impossible to legislate best financial practices on individuals and businesses, even the lower fees that are within the government-established limits can add up and have a significant impact on your finances.
By becoming educated as to how these fees are charged and managing your finances so as to not having to rely too heavily on overdrafts, you can actually increase the net income from your business and / or effectively add more money to your personal budget. If you find that you have difficulty understanding the intentionally confusing process by which the fees are charged, or have trouble managing your finances in a way that reduces or eliminates your need for overdrafts, there are any number of legitimate consumer counseling services that will help you learn how to make ends meet and reduce your reliance upon overdrafts. But overdrafts aren’t the only types of fees you need to worry about.
It can seem as if you are being charged for everything your bank does, even if their actions are clearly in the bank’s favor rather than yours. And trying to get control over the myriad fees can often feel like playing a game of whack-a-mole, where every time you get one under control, another pops up. Here are a few fees that you need to be aware of and attempt to minimize.
Monthly checking account fees – The balance in your checking account doesn’t just sit there in a box, waiting for you to take some out; it is a resource that the bank uses (and makes a profit from) until you need it. Yet many banks charge you for the privilege of letting you use your funds until you need them.
Statement fees – Not satisfied with charging you for essentially lending them your money, banks will often charge you for the privilege of getting statements showing how much money they are holding, and the details of when you add or take away from your balance.
ATM fees – Although your bank won’t usually charge you for using one of their own ATM’s, you can get hit with a doubled charge for using another network‘s ATM; one charge from your own bank, and another from the bank on whose network the ATM is connected.
These are but a few examples of the most commonly charged fees. Individually, they might seem inconsequential, but they can add up quickly, and represent billions in additional profits to the banks.
Can you fight those fees?
In the case of overdraft fees, the obvious best answer is to avoid them, either through better money management or opting out of overdraft privileges entirely. If you opt out, however, you will still more than likely face significant insufficient funds fees should you accidentally overdraw your account – not only from the bank but also from the party to whom you wrote your check. Instead of sending the payment through, your bank will return the check to the vendor and you will most likely have to make other arrangements to complete the payment. The vendor will not only charge you a fee, but will most likely insist that you pay by some means other than a check, and may even refuse to accept future checks from you for a given period of time, perhaps up to a year. So as expensive as overdraft fees can be, they can save you considerable embarrassment and inconvenience.
Your best bet may be to retain your overdraft privilege but use it sparingly. For many people living paycheck to paycheck, this is easier said than done, and most folks cannot expect their banks to help out very much in this regard. “Banks will always have more incentive to encourage overdrafts than their customers will avoid overdrafts,” says Rebecca Borne, a researcher with the (U.S.) Center for Responsible Lending.
That said, you may be able to get your bank to waive or reduce overdraft or other fees on a case-by-case basis, and there are other workarounds. For example, if your bank offers automated online banking services, you might see whether you can set up text messaging alerts to warn you when your account balance falls below a certain level or goes into overdraft, so you can arrange to deposit additional funds as necessary (and as feasible for you to do).
Alternatively, you could apply for an automatic line of credit, linked to your savings account to cover any transactions that push your account into overdraft. If neither of these is available and you have even moderately good credit, you could open a credit card account to be used only to cover any expenses that push your account into the red. But you need to exercise discipline and not use your available credit card balance as an alternate source of funds, and you should pay off the entire balance every month to avoid interest charges. If none of these options is feasible, you may need to change banks (or threaten to do so).
There is one principle that you should bear in mind: despite the banks’ attempts to present themselves as your benevolent financial partners, they are in business to make a profit, and will not be too inclined to pass up any of their profits just to be nice to you. But if you manage your finances properly, and shop around to find the bank that offers you the best service along with the fewest fees, you should be able to significantly reduce or even completely eliminate the fees that can stand between you and your financial security.
Have bank fees gobbled your hard earned cash? What tips or tricks do you have to avoid bank fees?
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