Mellody's Math: Avoid Bank Fees

June 28, 2002 -- If only savings rates were as high as the personal fees your bank charges, bank customers across the country would be rich with contentment and satisfaction.

However, in addition to the much-talked-about surcharge fees of automatic teller machines, or ATMs, the reality is banks are increasingly charging their customers for their checking and savings accounts.

In the Federal Reserve's most recent study of retail banks, charges rendered for checking accounts and ATM transactions were confirmed to be on the rise.

Furthermore, a record number of institutions are increasing their minimum-balance requirements for opening and maintaining an account, making it more likely for consumers to incur a fee if their account level dips below their imposed ceiling.

Does ATM ‘Mean Automatically Taking Money?’

As ATMs are popping up in convenience stores and corners everywhere in America, the fees associated with their use are becoming as automatic.

In fact, according to the Fed's study, 91 percent of banks and savings institutions now offer ATM services, with almost 89 percent of them levying some type of charge for using their machines.

The charges come in all different shapes and sizes. Some institutions charge their customers an annual fee to access their ATM, while others hit their customers with a fee for just issuing an ATM card.

In addition, a small percentage of banks charge their own customers a fee to withdraw cash from their own ATMs. These charges average 81 cents per transaction.

However, the most common charges associated with ATM transactions are for users who access the ATM of a financial institution other than their own. These fees frequently result in the user taking two hits — one from their own bank and the other, a surcharge, from the institution in which they are a non-customer.

The average surcharge levied at a bank that is not one's own institution is at an all-time high, $1.47.

Savings Tip: Just Debit It

Consumers will pay more than $2.2 billion in 2002 in ATM charges — up 18 percent from the 1999 estimate of $1.91 billion, according to Bankrate.com.

Obviously, the best way to save your checking account from taking a hit is to only use the ATM machines of your own financial institution. Plan ahead and withdraw a sufficient amount of money at once to save yourself from being in a bind and having to access another bank's machine.

Also, when selecting a bank, consider the location and number of ATMs your institution offers because the machines are meant for convenience and should offer just that.

In addition, reach for your debit card instead of your ATM card. Most banks will not charge you for using your debit card to make a purchase, even when asking for cash back. Not only is a debit card an excellent way to avoid the ATM fees, but it is also a great way to avoid charging items to your credit card that could possibly cost you a lot in future interest charges.

Savings Tip: Don't Let It Bounce

Bouncing a check, or having nonsufficient funds, is a sure way to get penalized with additional charges. In fact, all banks and savings institutions charge a fee if your account does not contain the funds to cover your check.

Also, if you repeatedly bounce checks, your credit rating will be negatively affected. The average fee for a bounced check is $20.73 — a huge expense, especially if you are "bouncing" in the first place.

The best way to avoid this is to keep a careful eye on your balance. Not only is it against the law to write a check you know you do not have the funds to pay for, but also it is a sure means to bring about financial ruin.

In addition, if possible, write your checks in a timely and scheduled fashion. This allows you to develop a rhythm of crediting and debiting, which could save you from the hassle and fees of having your check cashed before you have the dollars in the bank.

Savings Tip: Telling Never Pays

Although ATMs can be costly conveniences, their charges far outweigh the cost of using a teller to complete a transaction.

While most banks allow their customers to make a certain number of teller transactions a month, depending on your balance, you may incur a charge for doing what you could have for free at your institution's ATM. In addition, many institutions assess a fee for non-customers to cash a check.

The best way to avoid any fee is to have your paycheck direct-deposited to your account or to use your bank's ATM to deposit or get cash back on your check. Some banks charge between $3 and $8 to cash a check for non-customers, a significant take-away from your hard earned payday.

Savings Tip: Use Online Services

Internet banking is an excellent alternative to the old-school banking institutions. Banking online provides a great means for the consumer to shop for high interest rates and low account fees.

While Internet banking usually requires a greater minimum to open an account, it usually allows consumers to carry a lesser balance before being hit with fees. According to Bankrate.com, 22 percent of interest accounts at Internet banks do not charge a service fee, compared to only 4 percent at traditional banks.

In addition, 85 percent of Internet banks do not charge their customers who choose to use another bank's ATM — a very nice selling point.

Savings Tip: Read Between the Lines

Most consumers never bother to open their bank statements and review their account status and history. This is a huge mistake. Like clockwork, every month you are reminded of your account type, balance, and history of withdrawals and deposits. Reading your statement is important because banks can make mistakes.

For example, it is not uncommon an ATM will fail to complete a transaction because of insufficient funds or because of a problem with the machine. It is very important to review your banking statement to make sure your account was not debited incorrectly to reflect your failed attempt of a withdrawal.

Reading your account summary is an excellent way to ensure you do not bounce a check or use your debit card for something you really cannot afford.

Mellody Hobson, president of Ariel Capital Management in Chicago, is GoodMorning America's personal finance expert. Click here to visit her Web site, ArielMutual Funds.com. Ariel associate Matthew Yale contributedto this report.