Seven Lessons on How to Pay More Bank Fees

Do you want to pay more in bank fees on your checking account? Follow my advice you will spend more than intended on bank fees!

1. Ignore your account between paychecks.

• Lots of people only look at their account on payday when they make a deposit. “I’m in a negative balance. Why?” They don’t keep a running total on their check register nor use online or mobile banking to track their usage. This can result in multiple overdrafts costing at least $35 for each occurrence.

2. Ignore financial institution correspondence that comes with your statement.

• Financial Institutions can make changes to their accountholder agreements. Often these changes affect the fee schedule of the institution. If one ignores the changes by failing to read the statement enclosures, they may fail to heed a warning that their minimum balance has increased and start paying a monthly fee or miss out on some other change that will result in higher fees.

3. Ignoring minimum balance or direct deposit requirements

• To maintain a free checking account, many financial institutions require that an accountholder maintain a specified minimum or have their paycheck directly deposited to their account. Drawing funds so the account balance falls below the required minimum or changing employers and forgetting to set up direct deposit can result in a member paying higher fees.

4. Skip Overdraft Protection

• Yeah, you probably won’t make any mistakes with your account so Overdraft Protection is probably unnecessary. But, of course, if you do make a mistake, you will pay $35 or more per occurrence. Good overdraft protection provides you with a line of credit or a transfer from your savings account that is paid to your checking account if an item is presented for payment and there are insufficient funds. Your fee for the transfer may be free or as little as $5. That is a lot less than an overdraft or Non Sufficient Funds charge.

5. Move to another financial institution and ignore your old account.

• You moved to a new bank or credit union and left a few bucks in the old account in case something comes in. After a while, you forget about the old account. Does your accountholder agreement have built in fees for inactivity? Some institutions enforce inactivity fees of $5 or more per month should you stop using your account and allow it to become inactive or dormant. Remember to close old accounts when you change institutions. Not only can you lose money with inactivity fees, your account could just get old and after three years of inactivity, it may go dormant. Allowing your account to go dormant means that any money remaining in the account at the end of three years of inactivity can be sent to the State of California’s Controller’s Office. The money can be redeemed by the accountholder but it takes time to go through the bureaucratic process.

6. Using money orders to pay for items that require guaranteed funds.

• A financial institution will charge $5 or more to issue a money order or cashier’s check. Did you know that if you send a check through your online banking it is a guaranteed check and it is free?

7. Use ATM’s indiscriminately

• If you are not using the ATM’s that are authorized by your financial institution you will likely be charged for each instance of usage. Those fees are not just from your bank, they are charged by the foreign financial institution’s ATM for non-customer usage. Costs: usually $5 -$7 per instance. You could be charged $2-3 by your institution and as much as $5 by the company that owns the ATM. 

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What is the difference between banks and credit unions? Some teenagers in Alberta, Canada came up with an ingenious video to describe the differences. It is linked here. I hope you enjoy it! 

Federally insured by NCUA. We do business in accordance with the Federal Fair Housing Law and Equal Credit Opportunity Act.
Copyright 2013 Meriwest Credit Union. All rights reserved.

Why do prepaid cards have a bad reputation?

Prepaid cards have a bad rep due to fees. People with modest incomes, such as students, seniors, or those on public assistance have very limited funds to pay for their living expenses. If one is only making about $400-$500 a month, the cards can be very costly. Depending on how you use a typical prepaid card, you could lose up to 10% of your monthly income in fees. Often they are seen as a predatory type of transaction card due to the charges they have for loading the card with money, using it at merchants or accessing cash at an ATM. All three transactions would be free at a credit union or a bank if they were using their checking account.

What would a typical month’s worth of fees look like?

I have looked up several prepaid cards over the past several weeks in researching them for use by the clients of some of our nonprofit partners in the community.  The fees I am quoting here are averages based on several typical cards.

Here is an example list of typical fees charged on a prepaid card:

Initial Purchase 5.00 Monthly Charge 5.95 Often Monthly service charges may be waived if one maintains a minimum balance or performs several transactions to offset fee. ATM Withdrawals-participating ATM's                N/C (non-participating ATM's.) 2.50 There may be charges from the out of network ATM Teller Withdrawals 2.50 Transaction Fee (Point of Sale/PIN Purchase) 0.15 Balance Inquiry Fee 0.50 Reload cash fee 4.95

In this scenario, let’s say I bought the card, reloaded it twice during the month with my paycheck of $250. I am a student making $500 a month in a part time job. I get paid twice a month on the 1^st and the 15^th. I had five ATM transactions, three of which were out of the network. I used the card to make 12 purchases at various merchants. I made three inquiries at ATM’s.

Purchase price	5.00
Two reloads @ 4.95	9.90
Two In network ATM withdrawals	0.00
3 out of network withdrawals @ 2.50	7.50
Out network ATM Fees @ 3.00	9.00
12 point of sale transactions @ .15	1.80
3 ATM inquiries @ .50	1.50
Total	34.70

Would a checking account have been cheaper?

Generally, yes. It depends on where you bank. With a checking account at most credit unions, the only fees I would have paid would have been the out of network ATM fees. Most financial institutions do not charge you to make a deposit, take money from your account with a teller, make point of sale purchases, or inquire on your account. 

But many checking accounts today have a fee unless there is a minimum monthly balance or you use direct deposit. Be sure to verify what the requirements are for your checking account before you open it

How are people confused about Prepaid cards?

People mix these up with gift cards. Gift cards typically charge a fee to purchase the card itself, but not for transacting on the card. Prepaid cards often charge for both items.

Also, people are confused by the fee schedules. There are fees for virtually anything you do with the card. Often, people think these are similar to their bank or CU ATM cards and can be used the same way. The fees eat into their balance and limit the amount of money they can use to pay for expenses.

Is a prepaid card a viable option for an unbanked person?

Yes, with caveats! If one is careful about its use. Card owners must use network ATM’s to avoid withdrawal fees. Use the internet to inquire on their balances as that is generally free with most cards. They must also keep tabs on and limit their purchases to avoid excessive point of sale transaction fees. 

How about using these for travel? 
That might be a good idea. If the card is lost or stolen, it can easily replaced and your accounts back home are not subject to identity theft. I suppose you could consider the cost of the fees part of your vacation expense!

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The next Meriwest Credit Union workshop-

Tax Changes for 2013

Speaker: Will Slade of Slade and Associates. Mr. Slade is an IRS Enrolled Agent with many years of experience in counseling his tax clients and tax preparation.

10am February 9^th at the Meriwest Credit Union Main Office

5615 Chesbro Ave. San Jose CA 95123

Please RSVP with Gmeyer@meriwest.com

The Mr. Slade will cover the following:

• Tax ramifications of “Obamacare”
• Alternative Minimum Tax (AMT) patch
• Permanent implementation of Bush era Tax Cuts

I hope you can join us.

 

Federally insured by NCUA. We do business in accordance with the Federal Fair Housing Law and Equal Credit Opportunity Act.
Copyright 2013 Meriwest Credit Union. All rights reserved.