How to Keep Your Checking Account from Busting Your Budget

When you’re trying to stick to a budget and build your wealth, every dollar counts – especially when it comes to unnecessary expenses that chip away at your cash balance. And the number one culprit here: bank fees.

Bank fees slowly and steadily eat into your money, especially when you don’t even notice you’re paying them month after month. Most banks (especially big national banks) charge a long list of fees that can add up very quickly.

And if you’re like most people, you don’t pay much attention (if any) to your bank statements… unless there’s a problem. So you may not realize how much you’re being charged – and that can cause big problems. If you’re not watching out for them, bank fees can trigger more bank fees, and even send your account into a negative balance (for example, a monthly maintenance fee plus a few “foreign” ATM fees and a paper statement fee could cause one or more of your checks to bounce, bringing on overdraft fees).

But all it takes is a few simple actions and you can eliminate all – or at least most – of these cash-draining fees. And if your bank keeps finding new and different ways to tack on fees, switch to a more customer-friendly bank (usually local banks), a credit union (where bank customers are also part owners, like shareholders), or an online bank (which typically only charge action-based fees, like for overdrafts or wire transfers).

Here are the 5 commonly charged checking account fees and the easiest ways to avoid them.

  1. Monthly maintenance fees. A lot of banks charge somewhere around $10 to $15 per month for account maintenance fees. These kick in if your balance dips below a preset minimum balance (which can be as low as $250 or as high as $1,500). Different banks have different ways of measuring this - and that can make a huge difference in whether you’re getting charged the monthly fee:

    • Minimum daily balance means you have to have at least that amount in your account every single day to avoid the fee
    • Minimum average daily balance means the bank adds up your balance every day and divides that total by the number of days in the month – as long as that average is higher than the minimum, you won’t get charged a fee
    • Minimum combined balance means the bank looks at the total of all your accounts (checking, savings, and possibly also money market or retirement accounts) when determining whether to charge the fee

    Avoid these fees by keeping a minimum cushion in your account (or accounts, if it uses combined balance) at all times. Many banks also waive this fee if you have at least one direct deposit per month going into your account. If you can’t swing the minimum and don’t have access to direct deposit, switch bank that offers no-monthly-fee checking.

  2. ATM fees. If you use a major U.S. bank, it probably charges you every time you use a “foreign” ATM. Here, “foreign” just means “not theirs.” So, if you use a different bank’s ATM, or use one at a convenience store or gas station, your bank will charge you a fee. And that’s on top of any fees the ATM charges! These fees can really add up, too – they range from $2 to $10 every time you use a foreign ATM, no matter how much money you take out. Think about it: If you take out $20 and your bank charges $2, you’ve already lost 10% of your money!

    Avoid these fees by only use your bank’s ATM system, and take out enough cash to last until the next time you swing by. If that’s too inconvenient, think about switching to an online checking account (see the box) that offers access to tens of thousands of – and sometimes EVERY – ATM without charging you fees.
  3. Returned deposit fees. If you deposit a bad check (meaning the person who paid you didn’t have enough money in their account to cover the check), your bank will charge you a fee, which can be as high as $19. This is an unfortunately common problem for freelancers and people working side gigs. Not only do you lose the money you thought you deposited, you’ll also be out the amount of the bank fee. That can lead to a cascade of bank fees (for example, you could overdraw your account and bounce checks because of this) and potentially big financial problems.

    Avoid these fees by making sure you can rely on the people paying you. Keep a close watch on any checks you receive from new clients or people you’re unsure of – that way you can catch the issue before you make your own payments using that money. Try to keep a safety net in your checking account so one bad check won’t sink your finances.
  4. Overdraft fees. If your checking account goes negative, you’ll be charged overdraft fees – and those can be more than $30 each. So any time you withdraw too much money from the ATM, overspend with your debit card, or bounce a check, you’ll get hit with that fee – even if they all happen on the same day (which happens often). One reason people end up in overdraft situation: depositing a bad check (like we talked about in #3). But it can also happen if you don’t pay enough attention to your checking account, and don’t account for bank fees when you’re making payments.

    Avoid these fees by making sure that you account for every little thing that pulls money from your account, including:

    • automatic payments
    • checks you’ve written
    • online payments
    • ATM withdrawals
    • debit card transactions, and
    • bank fees
  5. Paper statement fees. Most banks now monthly charge fees for mailing out paper statements, and that can cost $2 to $4 a month. You may not even realize you’re paying for this service, because you’ve been getting paper statements forever with no charge – so check and see if you’re paying a fee now.

    Avoid these fees by switching to online statements. You can always print a statement if you need it on paper.
Online banks offer lower fees AND interest
If you don’t care about being able to walk into a branch office, online-only banking might be right for you. The best online options charge low or NO fees, and many even pay out interest on checking accounts (regardless of the balance). The best online options include Ally Bank’s Interest Checking, Capital One 360 Checking, and Aspiration Summit Account (Aspiration is a Socially Responsible Bank).

Not sure what your bank is charging?
No matter what your financial situation is, there’s no reason to pay unnecessary bank fees – that’s just throwing away money. To find out everything your bank is charging you, go to their website and look at the Schedule of Fees. Like most banking documents, these can be hard to find and hard to understand (Bank of America’s is 24 pages long!), but it’s important to know what you can expect.

Bottom line: You could be paying out hundreds – or even thousands – of dollars a year in bank fees without realizing it. Find out what your bank is charging. And if you don’t like it, switch banks.

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