Did you know that banks are allowed to loan out money they don’t physically have in the vault up to a certain percentage? Isn’t that crazy? No wonder some banks needed to be bailed out during the real estate crisis. They acted recklessly, and thus ended up in danger of losing everything.
On one hand, a person might think, “Of course, this is exactly why it makes no sense to pay the bank a ‘maintenance fee’ to hold your money when they are using your money to make more money for themselves!” But alas, the bank is a business, and like all businesses, they have to turn a profit or they go belly up. Buildings, ATMs, tellers, mobile apps, postage, statements, debit cards, “free” checks, managers, brokers, customer service agents, websites, chairs, electricity, maintenance for the buildings, websites, and mobile apps, NONE of these things are free. They all cost money. So, sometimes, the banks try to force you to do more business with them by imposing fees on you unless you meet certain criteria.
Here’s a bit of the reasoning behind that:
1 – It means you’re investing in their bank. You want to do business with them, and you care if they succeed or not. Someone with 20 grand in the bank cares a lot more than someone with say like, 50 bucks in the bank. They make little money off that $50, so they charge those people a fee. They don’t have to, but they do it to make more money off the people with less money. Furthermore, people with automatic deposits and debits coming in and out of their account are statistically less likely to up and move to another bank, because it would be a lot more of a hassle for them to change everything over.
2 – Having more money in your account gives them more money to invest and lend out. Not only do they take your money and loan it to other people for a premium, they also use your money to “grow” themselves more money with investments. Then they give an often pitiful percentage back to you in return as a way of trying to keep your business. And this is also why that percentage fluctuates so much.
3 – The banks get a certain percentage of money from businesses whenever you spend with your debit card. If they make you use it so many times to avoid a fee, they are guaranteeing that they will make some money off of you. Debit, credit, it doesn’t matter, they get money. But sometimes they make it debit transactions because they have to share credit transaction profits with whatever international credit company logo they are using on their cards.
Banks are required by law to give you a full disclosure of all of their fees when you open an account with them, and they also have to notify you in writing whenever anything changes. So let’s take a look of some of their most common fees.
Nice, Shiny Fees
eStatements: Most banks will waive this fee or offer a reduced maintenance fee on the account if you opt in for paperless statements.
Mobile Deposits: As this feature is becoming more popular, the fee is expected to either go the way of the dinosaur or become more widespread. However, how people feel about this fee is more about principal, because it’s a free service at the vast majority of banks, than it is about money. Fact is, it’s far cheaper for the banks to process a mobile deposit than a teller deposit, so I would think they would want to encourage this. As it stands, there has been surprisingly little actual backlash against it overall as it tends to be about 50 cents per check and the average person feels like they burn more money in gas driving to the bank. That said, as of this posting, not even the giant mega banks have tried charging a fee for this.
Person-to-Person aka POP Money: Not everyone has a Paypal account or wants to fool with it or Google Wallet, so some banks are capitalizing on this and charging people for a service they can use for free somewhere else. Some people feel it’s worth it to spend $1 or more for the convenience, especially if it’s going to save them from having to drive across town. Market dictates price. Things are worth whatever people are willing to pay for it.
Overdraft: This is stupid tax plain and simple, especially since it’s completely optional. I’ve actually read articles on CNBC and CNN Money, and have even heard managers at banks say that some people see this as a cheaper alternative to a PayDay loan! In any case, the bank will charge a per transaction fee for every transaction you don’t have the funds for, as well as a fee for every day your account is in the red. I’ve even seen overdraft packages where you can pay a fixed monthly amount to cover your overages so you don’t get hit with a daily or per transaction fee. The reason they tell you sign up? “Just in case” and to “avoid the embarrassment” of have your check card declined at the register. (Madness)
Minimum Balance: Banks will “offer” to waive the fee if you keep so much money in your account or in the bank period between all of your accounts. If you’re responsible and have an emergency fund like you should, this shouldn’t be all that hard. Still, it can be an added nuance depending on how you like to manage your finances if you have to keep the money in a certain account.
ATM Fees: Some banks will refund a certain number of out-of-network visits or all of them, or at least they will with certain account types. But to the ones that don’t, which are most of them, the charges can get pretty high. Not only will your bank charge you to use another bank’s ATM, the other bank will charge you as well. A completely free solution to this is the Cash Back option at the check out line in just about every grocery store and pharmacy in America.
Maintenance Fees: Most of these can avoided by things like utilizing direct deposit, having an open loan account, or by keeping so much money in your accounts. But sometimes this is a flat fee that can’t be waived, so make sure you know exactly what you’re signing up for so you don’t get a nasty surprise at the end of the month.
Debit/Credit: Banks are sometimes given incentives if people use their debit cards as credit because credit card corporations make THAT much money off of swipe fees. To encourage using your debit card as credit some banks will charge you a fee to use your debit card outside of the ATM.
Early Account Closure: A lot of banks will charge you a fee for closing your account within a certain time period. It could be as little as 30 days or as long as 6 months. It should be listed on the fee disclosure page they give you when you open your account.
Banks make things incredibly convenient, but if no one banked with them, they would go out of business. While there is little reason to pay extra for basic banking services, not all fees are out of line. To the ones that are, if people want to pay them, it’s their prerogative. If nothing else, we should at least be aware of what the fees are, if we’re paying them, and how to avoid them. At least then you will be making an informed decision on whether you think those fees are worth it or not.