Yahoo Finance Banking Experts: 5 Things Banks Don’t Want You To Know That Could Cost You Money
If you have a bank account or if you’re thinking about opening one, make sure you’re not getting charged for things you don’t know about or could have avoided. Many financial institutions, including banks and credit unions, charge additional fees — sometimes called “junk” fees — that end up costing you money. And while some banks are very transparent about what they do and do not charge, you could still be caught unawares.
GOBankingRates spoke with a couple of financial banking professionals to find out more about the top things customers do that end up costing them money at the bank. Below is what they said.
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Interest Rates Aren’t All Created Equal
If you’re looking for a bank account that’ll help your money grow, you’re going to need one with a decently high annual percentage yield (APY). Generally, the best APY rates are on savings accounts, but some checking accounts also bear interest.
According to the FDIC, the national rate cap on both interest checking and savings accounts is 6.08%. The thing is, many banks don’t offer very high APY rates.
Oliver Brifman, senior financial services consultant with eMerchant Authority, said that some accounts have rates as low as 0.01% to 0.1%. Even if you just account for rising inflation, these lower yields can cut into the value of your money over time.
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Minimum Balance Fees Can Rack Up … and Fast
One of the most prominent — but easily overlooked — fees banks charge is minimum balance fees.
“Minimum balances always catch account holders by surprise. I’d say it happens in somewhat of a cycle, where account holders don’t care much for frugal spending and end up nearly emptying their savings,” said Mark Pierce, CEO and founding partner of Wyoming Trust and LLC Attorney.
“Most banks charge a fee if you fall below the minimum account balance they require. Consider it a way of them pushing you to budget a bit more wisely — but it only works if you’re paying attention,” Pierce said. “The problem is that people don’t review their account balances regularly, so they don’t notice these charges incurred each month. By the time they become aware, they’ve already lost close to hundreds, depending on the bank and their stipulated fee.”
According to Pierce, most financial institutions charge anywhere from $5 to $25 for falling below the minimum balance threshold. “It’s easy to lose 3-figures from absent-minded money management,” he said.
Those Pesky Little Fees Can Eat Away at Your Funds
Bank accounts come with a lot of fees. Some are avoidable, while others aren’t. These fees, even if they seem small at first, can add up extremely quickly and eat away at your hard-earned money.
Dennis Shirshikov, economics professor at the City University of New York and head of growth at GoSummer, said that some of the most common bank fees include:
Overdraft fees: “Many customers are unaware of the high costs associated with overdrawing their accounts,” he said. “Banks often charge $35 or more per overdraft incident, which can quickly add up if multiple transactions occur before the account is brought back into positive balance.” Some banks charge an additional fee per day the account remains overdrawn.
Foreign transaction fees: These typically cost about 3% of the transaction amount and are most common amongst frequent travelers — or those who buy things from international vendors.
Inactivity fees: “Some banks charge fees if an account remains inactive for a certain period, typically six months to a year,” he said. “These fees can erode account balances without the customer realizing it.”
Paper statement fees: With so much of the banking world now digital, institutions often charge paper statement fees ranging from $2 to $5 a month.
Other common fees include monthly maintenance fees and out-of-network ATM fees. The good news is that you can avoid some of these fees.
For example, you can sign up for overdraft protection. This entails connecting your checking and savings accounts so that, if you do overdraw from one, funds from the other will automatically cover it. Some banks also automatically reject a transaction that goes beyond your available balance.
You can also make foreign transactions using cash, said Brifman. This will let you avoid international transaction fees. Signing up for digital statements and using your account every once in a while can prevent associated fees from occurring.
“Banks may be willing to negotiate fees and charges, especially for loyal customers,” Brifman said. So, if you have good rapport with yours and are having problems with excessive or frequent fees, contact them and see if they’re willing to work with you.
Banks Often Have Poor Currency Exchange Rates
If you travel internationally, chances are you’ve gone to your bank at least once or twice to exchange currency. Be aware, though, that banks don’t always offer the best exchange rates.
Brifman said these rates could be less favorable than what you’d find elsewhere. Compare currency exchange rates to make sure you’re getting the best deal possible and not losing out on money.
Your Bank Could Take Money To Cover Your Debts
“Banks can exercise the right of set-off,” Brifman said.
This essentially means they can take money from either your checking or savings account to cover a separate debt you owe them. They can’t do this for all types of debts, but they can do it for some — like an unpaid mortgage, auto loan or credit card payment.
The details of this should be in the agreement you signed when opening the account, but if you didn’t read it thoroughly, you could be caught unawares. And if you’re not checking your account balances regularly, you could then be hit with overdraft fees or non-sufficient funds (NSF) fees.
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This article originally appeared on GOBankingRates.com: Banking Experts: 5 Things Banks Don’t Want You To Know That Could Cost You Money
