How to avoid soaring bank fees

Charges on overdrafts, ATM withdrawals rise. How to avoid excessive charges.

With banks facing some of their biggest challenges in years, it's probably not surprising that they are trying to raise revenue any way they can. One way is to raise fees they charge to customers. But while this trend is gaining more attention now, it didn't begin with the current financial crisis.

"Fees have been on the rise for 10 years, and they'll be on the rise for the next 10 years," says Greg McBride, senior financial analyst at

From a business standpoint, he adds, higher fees make sense for the banks. "Fees are a way for banks to diversify their revenues, so they're not so tied to interest-rate cycles, which has certainly paid off lately."

Bankrate recently surveyed interest-bearing and noninterest-bearing checking accounts at 249 banks and thrifts in the 25 largest metropolitan areas. It found that:

•Overdraft charges that stem from bounced checks and other withdrawals, such as from debit cards, now average almost $30, up 2.5 percent from a year ago, and much higher at several banks. Some banks, in fact, charge as much as $60 to $70 for a single overdraft that is unpaid after seven days.

•The cost of using an ATM from a bank other that your own now averages nearly $2, an increase of more than 25 percent over the past five or six years. On top of that, you may also have to pay an additional fee to your own bank. That fee now averages $1.46, up from $1.25 a year ago.

•Stop-payment fees, that is, the cost to have a bank stop payment on a check you wrote, can run more than $30 per check. At the same time, many banks have added on fees for returned deposits. This fee can range from $5 to $10 and is charged after a check you deposit bounces. On top of this fee, you could face overdraft charges if you write checks on the assumption that the deposited check is good.

Perhaps the biggest annoyance, at least from a consumer perspective, is the overdraft fee. In the past, the only way you could be hit with this fee was to write a check when you didn't have enough money in the account to cover it. A decade ago, you would have been charged $10 or so for each bounced check.

Now, just as the fees have gone up, there are more ways to be hit with overdraft charges. Debit cards, for example, have become almost ubiquitous over the past several years. With these cards, money is automatically withdrawn from a checking account when a card is swiped at a store checkout counter. If you forget to enter the withdrawal in your checkbook register, or someone else in your family has access to the card, your account could be easily overdrawn.

Also, many people have money automatically withdrawn from their checking or savings accounts each month to cover mortgage, car, or other payments. This also creates an event that has to be noted somewhere.

Overdraft charges can add up another way, says Jean Ann Fox, director of consumer protection at the Consumer Federation of America. Banks often pay the largest checks first, then the smaller ones. So, while a check for a mortgage may be paid, a few other checks or debit-card payments, such as at the grocery store, coffee shop, or newsstand, can cost the customer $35 or more per overdraft.

But there's a reason for that, says Bank of America spokeswoman Diane Wagner. The bank tries to cover checks for "essentials" first, to make sure mortgages, rent, and utilities get paid, she says.

On the other hand, Ms. Fox counters, many consumers have said they would prefer to have the banks pay checks in the order they arrive, or pay the smaller checks first.

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"All fees are avoidable," says Greg McBride, senior financial analyst at All it takes is a little planning and some discipline. The easiest way to avoid overdraft fees, he says, is obvious: Make sure you have enough money in your account to cover all withdrawals. Most banks have websites where you can check your balance anytime you want. Some banks also offer to send account information to your e-mail address or cellphone.

Other ways to avoid bank fees:

•Get overdraft protection connected to a line of credit, or even better, to a separate savings account. A line of credit can help avoid overdraft fees, but it may also carry a hefty annual interest rate – perhaps 18 percent or more until you transfer money back into it.

•Stick with your own bank's ATMs to avoid being charged twice: once by the bank that owns the out-of-network ATM and once by your bank. Or, you might consider an online bank. EverBank, for example, will reimburse up to $6 a month in ATM charges for its interest-checking customers, says Frank Trotter, the bank's president.

•When you write a check or use a debit card at the grocery store, ask for cash back if you need it. That's like a free ATM withdrawal. Enter it in your checkbook.

•Consider a checking account that doesn't pay interest. Maintenance fees and minimum balances required to avoid fees on interest-bearing accounts have gone up, averaging nearly $3,500. But service fees and minimum balances on checking accounts that don't pay interest have declined over the past year or so, according to Bankrate.

•If you do get hit with an overdraft charge, ask your bank to waive it. You may have to go to a branch and speak with a manager, but if you're a first-time offender or hardly ever bounce a check, the bank may be willing to give up a small fee to keep a regular customer happy.

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