Kevin Smith was fed up with his bank.
The 27-year-old advertising executive closed his
Bank of America
accounts in mid-April after what he called a "nonstop barrage of fees and charges." The latest round of surcharges began when Smith incurred one fee for attempting to transfer more funds than were available from one account to another. He then incurred a second fee for having insufficient funds to cover the initial charge.
The final straw came when Smith called Bank of America to complain. He encountered what he considered a discourteous customer-service rep who noted that other banks charge such fees as well. Bank of America soon lost a customer.
Bank of America says it has put in place dozens of tools and services -- such as email alerts, overdraft protection and interactive features on its Web site -- to educate consumers and help them avoid such fees. "We really want to work with all our customers," a representative says, "whether by phone, in person or online."
Fees are a common complaint for customers of all kinds of banks beyond Bank of America. Declining interest rates, tough competition to attract customers with higher yielding accounts and turmoil in the mortgage and credit markets have left banks tapping into other streams of revenue.
Banks brought in $38.63 billion of service charges last year -- fees from ATMs, bounced checks, overdrafts and the like -- which was 8.3% more than in 2006. Such fees made up a larger portion of noninterest income in 2007 than they had in 12 years.
Some outlets have simply raised surcharges while others have tucked fees into new places, leaving many unaware that they even existed. For instance, banks advertise checking accounts as "free" if there is no regular monthly maintenance charge. However, other fees involved with such accounts are less pronounced -- banks don't plaster fee disclosures on billboards the same way they do the "free checking" offers.
"Consumers have no idea that their bank is not their friend," says Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group. "You have to understand as a consumer that banks offer free checking, but it's free checking 'lite' with all the fees tacked onto the back," he adds.
While banks are required to disclose all their fees, such fine-print statements can be confusing, jargon-filled and sometimes hard to find. A Government Accountability Office study released earlier this year indicated that banks are not doing their best to inform consumers about fees. GAO staffers visited 185 bank branches of 154 different companies and were "unable to obtain detailed fee information and account terms and conditions" at more than one-fifth of the locations.
Banks' Web sites are not always helpful either. To review all the terms and conditions of
"free" checking account online, for instance, one must first "complete the account opening process." A customer-service representative reached by phone also could not find a fee disclosure statement online.
Credit unions tend to be more consumer-friendly than large chains, says Greg Daugherty, executive editor of
, although they tend to have fewer branches and services. "The trick for consumers is to find the right mix of services and conveniences that you really need without the fees that you don't need," Daugherty suggests.
Informed consumers can protect themselves better than those who sit back and let the fees pile up.
Here are the top 10 ways your bank might be sapping your cash and how you can protect yourself from the onslaught of charges:
Most major banks automatically enroll consumers into a program in which the bank will automatically cover checks or debit charges up to a certain amount, even when a consumer has insufficient funds. The perk is that consumers don't have to pay merchants for bounced checks and their purchase is covered. The catch is, these mini loans don't come free.
Banks typically charge $20 to $35 each time a customer tries to withdraw more than they have in an account. Opting out of this feature is tricky and not always possible. Some banks also offer overdraft protection, which transfers funds from another account with cash to the one you've overspent. This service also comes with a fee, but it can cost less than the overdrafts.
Mierzwinski suggests keeping a cushion of a few hundred dollars in the checking account at all times to avoid overdrafts in the first place. It is also useful to closely monitor credits and debits with an old-fashioned check register -- even for small purchases like a cup of coffee -- to ensure that you don't go over your limit.
2. Debit Cards
Debit cards are part of the reason consumers are facing more overdrafts. While they're quick and convenient, they also lead to overconfidence or confusion about the amount of money available. (It's easier to tell when there's no cash left in the wallet than when you've swiped too many times.)
Some outlets charge a fee for each debit-card transaction (ranging from 25 cents to $1.50) as well, or for issuing the card in the first place.
Another bank tactic that hurts consumers is processing debits and credits at the end of the day, starting with the largest. That can result in multiple overdraft fees, regardless of the order in which transactions occurred.
For instance, a consumer has $100 in her account. She makes three debit-card purchases during the day, totaling $50. Then a check for $125 is processed. If her bank starts with the largest item, she will face four overdraft fees, not just one.
Consumers should also be wary of "holds" that some retail enterprises place on accounts. These temporary charges can exceed the amount you actually incurred. For instance, a gas station might issue a $100 hold, whether you fill up with $30 worth of gas or $90 worth. This clears up once the actual transaction processes, but can take days. It can be unclear on ATM screens whether such "holds" are factored into the balance.
There is also, in most cases, a fee for replacing lost or stolen cards.
Oftentimes consumers get hit twice for using an out-of-network ATM. One fee comes from the ATM and another from the card issuer. With many banks increasing ATM fees to $3 per swipe, a customer taking out $20 could pay 30% of that withdrawal in surcharges.
Also be wary of higher fees when using your card abroad, or inside of casinos. These charges can be $5 per withdrawal or more, from your bank alone.
4. Interest Rates
Though not technically a "fee," banks that issue credit cards often change interest rates and have other terms. The interest rate can rise due to economic shifts, changes in your credit profile or because an "introductory" period of low rates or no interest has expired. Late payments can lead to higher rates as well.
Banks also can change rates simply because they've decided to, as long as they inform clients. (It's usually done with a densely worded, fine-print brochure that is mailed to the customer's home and promptly discarded.)
Daugherty says complaints about unexpected interest rate hikes have become more common, even among those with good credit scores. "There's no obvious reason why their interest rate all of a sudden went up," he said. "These are the kind of people who pay their bills. We're hearing that right and left at this point and you can only conclude that
banks are trying to make their money some place."
5. The Basics
With the abundance of "free checking" offers, basic charges for maintaining an account or dropping below a minimum balance have become less common. These charges vary dramatically among different banks and accounts.
If you're getting pegged with such fees, and want to switch to a new type of account, make sure you're aware of any charges associated with the new one -- and with switching.
There can also be charges for other remnants of Old World banking, like paper statements or paper copies of processed checks.
6. Late Payments
When credit card companies receive payments late, they tend to tack on a fee, usually around $35. If you're paying bills online, don't assume that the day you issue a payment is the day it posts. That's not always the case. Payments can take up to five business days to clear, which means that initiating them early is key.
Some Web sites automatically set the payment date to the due date, so double-check that digital calendar when paying online. You also can schedule automatic payments that will at least cover the minimum balance with ample time. Otherwise, call your bank and your credit-card company to figure out the right day to pay and set a reminder for yourself.
7. Stopping a Payment
Most banks charge a fee of around $20 to $30 to stop a payment from processing. In avoiding the fee, time is of the essence.
The best bet is to call your bank as quickly as possible and try to negotiate a fee-free courtesy. With online payments, if you realize the error quickly, your bank may be able to halt the process without a charge. Stopping paper checks is trickier and will likely not be free because of the added effort and risk the bank takes on to track down the check manually.
8. Human Interaction
Beware of the surcharges some banks impose for interacting with representatives. If there's an automated system you can use, the bank may charge you for taking up employees' time instead.
If working with a representative or making any "out of the ordinary" requests -- like exchanging currency or trading coins for bills -- make sure there is no fee imposed. There have been reports of oddball fees charged for visiting a bank too frequently or being unprepared at a drive-through window as well, but those seem to be more the exception than the rule.
On the other end of the spectrum, also beware of charges for online banking or using automated phone systems.
9. Dormant Accounts
Have you officially closed that checking account with your old bank that only had $2.07 left in it? Better make sure. Some outlets will charge a monthly fee for not performing any transactions for an extended period of time. If the fees add up to more than the remaining balance, you could get tagged with overdraft charges as well.
If you're going on an extended holiday or you're a college student going home for the summer, it's wise to make sure your bank won't charge any penalties. If they do, you might want to switch to a different type of account or a new bank.
10. Account Closure
Yes, banks even charge to close accounts -- anywhere from $5 to $35, depending on terms of the agreement.
Most of these fees apply only if you close the account before a stated period of time, like six months or a year. College students are particularly sensitive to such fees, says Mierzwinski, because they may open an account near school, but end up transferring to another state or finding out that there are no branches back at home.
If you've opened an account with an early closure fee, you can take out most of the funds -- while maintaining the required minimum balance, if there is one -- and wait to close the account until the term expires. You can inquire whether there are any loopholes or courtesy waivers, but the bank is not likely to lend a helping hand in ending a business relationship.
Early account closure fees for loans -- which essentially means the loan has been paid off early -- can be particularly brutal as the bank tries to recoup some of the interest it would have earned over the intended life of the loan.