Banks Boost Fees for ATMs, Overdrafts

FIGURING OUT THE various fees your bank charges can be a vexing and expensive job.

Jason White experienced this first-hand a few months ago when he scheduled an online payment from his checking account at SunTrust Bank to pay his credit-card bill. The 30-year-old database administrator in Warner Robins, Ga., mistakenly arranged the payment to be processed the day before his paycheck was to be direct-deposited, resulting in an overdraft.

White says the bank charged him five "nonsufficient funds fees" at $35 each, totaling $175. But three of those fees were for small debit-card transactions that had been processed and approved days earlier but had not yet posted to his account. "They all cleared the same night — before my paycheck — so they all got hit with a $35 per item fee," he says. White, who writes a blog about his family's finances, went in person to two SunTrust branches before a manager agreed to waive the three fees.

Bank fees have been on the rise the past 10 years — a pricey trend that's only expected to continue. "If you look at the composition of earnings at banks and other financial institutions, there's increased reliance on noninterest income," says Greg McBride, senior financial analyst at Bankrate.com. That income has been crucial as interest rates have see-sawed over the past decade, he says.

A recent report by the Government Accountability Office found that fees for check overdrafts and insufficient funds rose about 11% from 2000 to 2007. Those were among the highest fees charged by banks, ranging from $23 to $27 per transaction, the report said. Return deposited item fees (for checks you deposit that are returned because the check writer's account is overdrawn) rose by 49% over the same period. In all, the GAO found that banks last year imposed $36 billion in fees to consumers, up about 33% from 2000. (GAO found some fees, like monthly maintenance fees, declined since 2000.)

More problematic, the GAO found, is that some banks do a lousy job of disclosing these fees to customers. Information about fees is "required to be in brochures, and they're not doing that," says Ed Mierzwinski, consumer program director with the U.S. Public Interest Research Group in Washington, D.C.

Mierzwinski, who recommends that consumers in general use credit unions rather than banks (they usually have lower fees and offer better interest), attributes much of the fee problem to the widespread use of debit cards. As in White's situation, "they make it easy to overdraft and they're not protected from fraud," he says. For more on debit cards, click here.

Here are some of the biggest fee culprits and tips to avoid them:

Overdraft fees

Many banks and credit unions allow debit and check transactions to go through even when there isn't enough money in the user's account to cover the purchase. Some banks pay the difference and then charge you an overdraft or nonsufficient-funds fee, with your debit card acting much like a credit card. What's particularly egregious about these fees is that banks "may not tell you the service is on your account until you invoke it by accident," says Linda Sherry, a spokeswoman for Consumer Action, an advocacy group in San Francisco.

Tips for avoiding fees Bank fees aren't going away, but consumers can avoid them by keeping track of their withdrawals and account balances. Periodically review your package of banking services — including those inserts mailed along with your bank statements you mindlessly throw in the trash — because conditions may have changed since you signed up for that great free checking account five years ago. Do comparison shopping to make sure you're not subject to more fees than necessary. "Be active about searching out low-fee accounts or no-fee accounts," says McBride. If you're making out-of-the-ordinary transactions, like a wire transfer, call customer service and check if it's going to cost you. It's worth calling or visiting the bank if you think you were charged for something you shouldn't have to pay. Say you've got five consecutive overdrafts; they might knock it down to four. Put $100 in your checking account and "pretend it's not there," says Mierzwinski.

The fees are getting steeper at some banks. Beginning April 18, for example, Bank of America will raise the charge for an overdraft or returned item (i.e., a check, ATM withdrawal or online bill payment) to $25 from $20. Keep in mind, though, that's just for the first day — $35 will be charged for each overdrawn item for each subsequent day the account is overdrawn.

To avoid overdraft charges, consumers have a few options. They can apply for an overdraft line of credit, in which case they'd be borrowing from the bank for the overdrawn amount at a variable interest rate, somewhere around 18%, says Leslie Parrish, senior researcher at the Center for Responsible Lending, a nonprofit research organization based in Durham, N.C. If they have enough money in a savings account, consumers should set up an automatic transfer of funds to checking from savings when the former account falls short. That's what White, the SunTrust customer, ultimately did in order to prevent future overdraft charges. (A SunTrust spokesman said the bank recommends this set-up as one way to avoid fees.)

A third option is to have any charge that resulted in an overdraft be linked to a credit card. These alternatives would be less expensive than getting hit with a $30 fee, but consumers need to be proactive about setting them up, says Parrish.

ATM fees

It's no secret that convenience will cost you. Both Bank of America and Citibank, for instance, have recently increased their ATM fees for consumers who aren't customers with them. "Paying an ATM fee is completely avoidable; you're paying for convenience," says McBride.

One option if you're far from one of your own bank's ATMs and desperate for cash is to get cash back when making a transaction with a debit card, such as a purchase at a supermarket or drug store. "It's tantamount to a free withdrawal," says McBride.

Minimum balance requirements

A minimum balance requirement is like a promise to your bank that a certain amount of money will always be in your account. If you break that promise and dip below that minimum, you get charged.

For checking accounts, especially those that pay interest, both the average balance required to avoid fees and the fee incurred if you don't maintain that balance have increased consistently, says McBride. According to Bankrate.com, the average minimum balance to avoid fees for an interest checking account is currently $3,316, more than double the average from 1998. The average monthly service fee for an interest account increased to $11.72 in 2007 from $9.29 in 1998.

"Consumers should look for a free account, one that doesn't have balance requirements or monthly fees," McBride says, even if most of them happen to be noninterest. (For more on that, see our column on free checking.)

Bank	ATM fee	Overdraft fee
Washington Mutual	Customers not in WaMu Free Checking or Platinum accounts are charged $2 for using other banks' ATMs to withdraw cash. WaMu assesses a $2 ATM surcharge fee to noncustomers.	Effective April 1, 2008, overdraft fees will increase by $2 — to $34 — in most markets. (Exceptions are California, where the fee will be $33; Oregon and Texas will have no increases.)
Bank of America	Non-BofA customers are charged $3 to use bank ATMs, up from $2 last July.	Effective April 18, 2008, overdraft fees will increase $5 to $25 for first day of occurrence. On subsequent days, the fee will be $35 for each item.
Chase	Some Chase checking accounts allow two or four free non-Chase ATM withdrawals; some charge $2 each time a customer uses a non-Chase ATM.	In 2006, Chase began charging $25 for the first overdraft occurrence in a year, $32 for second, third and fourth occurrences, and $35 for five and more. It had been $32 each time before.
Citibank	Non-Citibank customers are charged $3 — up from $2 in the past year — when they use Citibank ATMs.	Most accounts carry a $30 overdraft fee.