Kevin Smith was fed up with his bank.The 27-year-old advertising executive closed his Bank of America ( BAC - Get Report) 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 Washington Mutual's ( WM - Get Report) "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 Consumer Reports, 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:
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.
There is also, in most cases, a fee for replacing lost or stolen cards.
banks are trying to make their money some place."
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.