How to Get the Most from Bank Fees

You are paying about $200 annually in bank fees, according to recent surveys. There are many different fees. I even got charged an excess account activity fee.

Fortunately, the financial services revolution continues. Deregulation, technology, and competition give you a number of ways to reduce these fees or get your money’s worth from them. Here’s are my three strategies for getting a great financial services deal.

Look for no fees. In virtually every sizeable community you can find at least one bank that is offering free checking. Some of these banks are offering free checking in hopes of capturing all your financial services business over time. Others are fairly small banks trying to build up business. In either case, you are able to return to the old days of free checking with unlimited service.

Many banks will give free checking in return for something, usually a high minimum balance in the account. A number of banks will let you apply balances other than the checking account balance to this requirement. For example, keeping a balance on a credit card or mortgage loan or in an investment account might get you free checking. But be sure that meeting the requirement is worth the free checking. With interest rates so low and monthly banking fees so high, it often is a better deal to keep the minimum balance sitting in a no-interest checking account than in a money market fund.

Drop your bank. The differences between banks and other financial institutions are fading rapidly. Banks are trying to become full-service financial institutions, and so are brokers. It looks to me like brokers are offering the better deals. Banks are trying to offer more services but charge fees on each service. Or the banks offering mediocre products, such as a selection of in-house mutual funds for investment accounts.

But brokers offer almost all the services of a bank at little or no cost. For example, you can go to Charles Schwab & Co. and open a Schwab One account. This allows you to write an unlimited number of checks for any amount against your account. If you have the money in a money market fund, shares are automatically redeemed to cover the checks. If not, investments automatically are liquidated so you won’t bounce checks. Schwab has enough offices that many of us can go to a local office to make deposits, do transactions, or ask questions.

What if you need cash? You get a debit cards that works at most ATM machines with your Schwab One account. You’ll pay a $1.50 fee to Schwab for each transaction, and probably another $1 or $1.50 to the bank whose machine you use. But compare that with the monthly account fees at your local bank. Limit yourself to one or two cash withdrawals a month, and you come out ahead with the Schwab One account.

Most brokers offer some version of the Schwab One account. The minimum balance requirement at Schwab is $10,000. But you can have this sitting in a money market fund or other investments instead of in a no-interest checking account. You also can transfer money quickly from investments to checking without having to change institutions.

If you are employed, deposits can be made through direct deposit. Deposits also can be made by mail or in person at a branch office. If you aren’t working anymore, deposits probably aren’t a factor. All your money is at the broker in different accounts or funds.

Use technology. You can get a lot more at most banks by using their technology. At many banks there is no charge to pay bills or move money between accounts over the telephone. That saves you a lot of time and lets you do the transactions any time you have the time.

Using a computer also is a big asset. You can pay bills and check your account online at any time of day. You can use Quicken to make the transactions at most banks, which lets you get instant reports at your earning and spending. Bill paying using the computer means you don’t spend time and money signing checks, putting them in envelopes, and mailing them.

My favorite approach these days is to combine a local bank with a brokerage account. For example, Schwab has a feature called MoneyLink. This lets you transfer money between your Schwab account and a bank checking account. You can have regular, scheduled transfers or make them one at a time as the need arises. Your money stays invested at Schwab. Then you submit bill payments over the computer or telephone. After that, transfer enough money from Schwab to cover the bills and keep a minimum balance.

There are many options available today. You should spend less than the average $200 annually in banking fees. You could pay substantially less. And you should get a lot of convenience and services for whatever fees you do pay.