Last Updated: August 2, 2010
Being financially smart means keeping an eye on fees – all fees.
Starting July 1, new federal rules kicked in that require banks to require customers to opt in for overdraft coverage. Overdraft coverage is a line of credit that kicks in when account holders make purchases that exceed their available checking and debit account balances.
To get customers to sign up, some banks are slashing their overdraft fees. Under the new law, if account holders don't opt in, banks won't be able to cover their charges when their account balances fall short. The charge simply will be declined, and the customer won't be charged an overdraft fee, which at some banks had gone well over $30.
Yet if you have overdraft protection, that means you will have to pay a fee, sometimes on a rising scale that takes you back to the fee you were paying when you didn’t opt in for such coverage.
So how do you avoid overdraft fees entirely? Start acting responsibly.
Don’t join, but keep an eye on that balance: If you don’t opt in, you won’t be charged overdraft fees, period. But then it becomes your job and your job alone to make sure your accounts are covered. Redouble your efforts to record transactions and double-check those balances. If you bank online, you can do this every day if you choose.
Keep a particular eye on debit transactions: Many in-store debit transactions will not automatically be rejected, so that’s why checking your account often is so critical. That’s why that if you don’t use financial planning software to download your transactions on a daily basis, it might be time to do so. Checking your banking statistics at regular intervals will not only help you keep an eye on overdrafts, it will help you spot bank or personal errors and possibly identity theft.
Sign up for bill payment alerts or keep a reliable calendar: Most banks and credit card companies will give you the option to have bill payment alerts sent to you five or more days before they’re due. Even if you write these dates in a calendar, it’s not a bad idea to have backup.
What about other fees? Keep in mind that overdraft fees are not the only bank charges you need to watch. Last September, Bankrate.com released the following data on ATM and checking account fees:
- NSF or bounced check fees rose to a record high of $29.58 in 2009, rising 2.7 percent annually on average over the last decade.
- ATM surcharges – fees for when you use an out-of-network ATM – rose 12.6 percent from 2008-2009 with an average fee of $2.22. According to Bankrate, ATM surcharges have gone up at an average rate of 7 percent a year since 1999.
Interest-bearing checking accounts had fees averaging $12.55 a month, up nearly 5 percent from 2008 levels, though non-interest bearing accounts hit a new low of $1.77 a month.
And don’t forget these other nagging fees you should watch for:
- Credit card fees: Late fees, processing fees, and surcharges on cash advances are just some of the fees that banks and credit card companies use to increase their revenue. Just as you become more diligent in examining your banking options, apply the same standards to your credit cards.
- Retirement plan fees: If you work for a company, it makes sense to ask your human resources department how much they’re paying in fees to your 401(k) plan manager – or managers. As for your personal retirement investments, check your portfolio management fees, also known as assets under management (AUM) fees. These are various fees that might be assessed against professionally managed portfolios. It is always important to understand these fees, see how they compare with competing types of portfolios and investments and keep an eye on what triggers them.
- Restocking fees: Avoid retailers who charge restocking fees, particularly for electronics. While certain chains have dropped them due to customer protests, make sure you call the store or check their sales policies online before you spend.
If you do a financial checkup every six months, it might not be a bad idea to start examining the fees you pay to all sources and determine whether there’s a more affordable way to save, spend, shop and invest. Weigh these options against any incentives you might gather along the way.