Do you get what you pay for? Not always. There are plenty of people in the banking industry trying to separate you from your money by charging you fees for things you don’t want or need. If you’re paying any of these fees, they can quickly eat into your budget and make saving or getting ahead difficult.
Here is a list of banking fees you should never pay, and how to avoid them
Monthly maintenance fees - The way banking is supposed to work is you that you lend banks money in the form of deposit accounts and they pay you a little bit of interest in exchange for the right to use your money for a period of time. Bank’s then take that money and lend it out to other people who pay a slightly higher interest rate for the privilege of using the bank’s money for a period of time.
Some bigger banks have this idea backwards and believe you should pay them to hold your money in the form of a monthly fee to have a checking account. Why would you pay somebody to hold your money when there are plenty of smaller community banks, internet banks, and credit unions who would love to give you a checking account for free? That’s not a trick question. Take the free account.
When my bank sent me a letter last year explaining they were going to charge me $10 per month to have a checking account I fired them immediately and opened a new account at an institution with no monthly charge.
Overdrafts - Overdraft fees have skyrocketed over the last few decades to the point where some banks now charge as much as $40 for overdrawing your checking account. It has gotten so bad that the government has stepped in during the last few years and put limits on how much banks are allowed to charge.
The reason banks charge so much for overdrafting is because nobody makes their decision on where to have a checking account based on how much they charge for overdrafts. If you are like most people, you are given a fee schedule showing you what the overdraft fee is and you say to yourself, “Wow, that’s a lot! It doesn’t really affect me though, because I will never let my account get overdrawn.”
But, a lot of people eventually break that promise. And they get charged with one (or more) of those darn overdraft fees. Even in the aftermath of the exorbitant fee they still won’t change banks for two reasons. First, nobody wants to admit they are changing banks because of overdraft fees, and secondly because people promise themselves they will never let their account go negative again.
To avoid overdraft fees you need to keep the promise you made to yourself when you opened your account and never overdraw your account. I know that balancing your checkbook takes a lot of work, but doing that work is assuredly better than paying those high overdraft fees.
Besides balancing your account, the other way to avoid overdraft fees is to keep a nice big cushion in your account just in case you make the inevitable subtraction error. Keeping an emergency fund of an extra $1,000 will not only keep the overdraft fees away, but makes sure you can cover the kind of mini-disasters that happen in life from time to time.
Late Fees - Just as bad as overdrafts are late fees. All kinds of different accounts will charge you late fees if your payment arrives a day or two after the scheduled due date, but credit cards seem to be the worst. With late fees as much as $35, it only takes a couple of those to tear a major hole into your budget.
The easiest way to avoid late fees is to set all your accounts up for automatic payment. Most if not all companies you owe payments to will have a form you can fill out to have your payments taken out of your checking account automatically each month. Setting up these payments will save you a bunch of time every month paying your bills and will make absolutely certain that you don’t get any of those nasty late fees.
Now I have heard Clark say on the radio many times that he doesn’t recommend doing this, but my opinion is that this is one area where Clark Stinks! Clark has stated automatic payments aren’t a good idea because you are giving companies access to your checking account and there is nothing stopping them from taking money out whenever they want.
While it is true that in theory companies could take money out of your account whenever they want, it just doesn’t happen very often. Companies and banks that send or receive ACH payments are subject to a strict set of rules that prevent them from doing this. While mistakes will happen, the fact is that fraud is less prevalent in the ACH system than in other payment systems such as credit cards or paper checks.
When mistakes do happen and a company takes money out of your account they should not have, that doesn’t mean they can keep it. According to the ACH rules, if there is an unauthorized withdrawal from your account all you need to do is notify the bank of the error within 60 days of the debit, sign a form called a Written Statement of Unauthorized Debit they will give you, and they will give your money back without further investigation.
Because the risk is relatively small, the time it saves you, and the fact that late fees will be eliminated, I believe automated payments are the best way to pay your monthly bills.
Credit Card Interest - To put it quite plainly, credit card interest is just too darn expensive. Many credit cards have interest rates of above 30%. Even the best credit card rates are well above rates you would pay for any other type of loan in today’s market. Paying that much in interest makes it very difficult to start chipping away at the principal and actually getting to the important stage of reducing your credit card debt.
Credit cards are a great tool and offer many benefits that no other payment system can match, but should only be used by someone with the right mindset. The right attitude to have about credit cards is that come hell or high water, your bill will be paid in full no matter what. You should pay your credit cards in full with the determination of a mama bear protecting her cubs. Even if something unexpected happened this month, or even if you promise you’ll pay it off next month for sure, there can be no flexibility in this. Credit cards must always be paid in full.
While I understand that there are times when it is hard to make ends meet, taking the easy way out by not paying your credit card in full is just simply too expensive. And it’s the kind of thing that keeps people poor forever. There are always better options on the table!
About the author: When Andy Prescott isn’t busy not paying fees to banks he is the author of ArtofBeingCheap.com, a website he describes as an instruction manual to saving money.