A recent study of banks, the types of accounts they offer, and the fees they charge found what many smart consumers have already noticed: banks charge many different fees and the cost to consumers now is higher than ever before. The study also found that most customers would pay at least one fee during a statement month.

Use a non-bank ATM and you’ll pay 19 percent more than five years ago. Use another bank’s ATM and it will cost you 57 percent more than five years ago. You may also be penalized by your bank for using the other bank’s ATM with a charge equal to or greater than the other bank’s charge. Limit how often you make use of ATMs to minimize what can be a very high charge simply for convenience. FYI - The charges commonly total $3 per transaction... for a $20 withdrawal is a 15 percent surcharge!

Fees can include charges for excessive consumer withdrawals (at some banks excessive = two a month), lost passbook replacement, and some even charge for deposit and withdrawal slips. $50 in a child’s savings account can be eaten up in charges within five months. The lesson of saving money would be quickly derailed if you must explain to your child that their money is gone due to bank fees!

The average nonsufficient funds (NSF) charge is now $25.80 (up 20 percent in five years) and some banks have NSF charges as high as $38.
With basic account protection (the old way), the checking account is attached to your savings account or credit card with a small per usage fee of around $5 to $10. Or the bank will establish a line of credit attached to your checking account - but if you use it interest charges begin to accumulate immediately. The new fee-based programs have been compared by consumer advocates to payday loans due to the high per transaction and daily fees. ($1 billion in overdraft fees were charged last year to customers of Washington Mutual alone.) These new programs, consumer advocates fear, encourage customers to overdraw accounts using checks and/or ATM’s and banks do not declare these funds as loans and as such are not subject to truth-in-lending laws.

Some banks are using such aggressive marketing techniques that ATM balance inquiries show not only the actual balance available but also include the amount available if the entire overdraft limit where to be tapped. Most smart consumers can figure out that when banks payout funds above the account balances to consumers these are cash loans. Yet banks are not currently required to notify borrowers of the interest rates charged in these situations. Worse, these programs are specifically marketed to lower income consumers or seniors (those receiving monthly social security or government checks). Repayment is automatically deducted when the next deposit is made, potentially continuing the cycle, especially if the consumer is not aware of this bank ‘advantage’ or the additional charges or fees (both transaction and daily) applied to the consumer’s account. Nor are the banks legally required to inform consumers about other methods available to protect accounts without the large fees - like linking the account to a savings account as previously mentioned.

The ABA Banking Journal conducted a survey and said that 75 percent of those banks that responded automatically provide fee-based over-draft protection on new accounts and may or may not inform the consumer. (And yet, doesn’t it make you wonder why nearly half of these banks won’t allow their own employees to use it?)

Banks cannot, according to current regulations, describe the account as no cost or free if it includes overdraft protection for which the customer must pay. And new proposed rules would require any advertising for overdraft protection to mention fees. Of course, this information will most likely appear in the small print.

Generally banks utilize two methods in their processing.
1. ‘Checks first, then deposits’ - even if you have automatic deposit, checks are cleared first, then deposits added to account balance.
2. ‘Big-to-small’ processing - biggest check cleared first (regardless of when written)

Example: Let’s say you have $500 in your account. On day one you write three $100 checks. Two days later you write a $520 check. On the fourth day your payroll automatic deposit for $800 will be deposited. If all four checks are presented on the fourth day you might think a) the deposit would be added to your balance and all four checks would clear or b) the three $100 checks would clear and only the $520 check would ‘bounce’.

Unfortunately, what will happen if your bank uses first checks, then deposits and big-to-small processing is the $520 check will be presented first - and bounce, the three $100 checks will also bounce, NSF charges will be assessed to your account and then, and only then, your account will be adjusted for the deposit. How much would this cost you? Fees and charges will run anywhere from $80 ($20 per bounced check) and up.

It’s apparent from this information that it is up to you, as a smart consumer, to monitor all your bank accounts, and maintain vigilance even in the ‘small’ day-to-day financial decisions and transactions you complete. Remember, saving money includes wise spending, but wise spending does not include your money eaten away by bank charges. In a future DebtEdge, Credit Advisors Foundation will share some ideas to help you win the bank charge battle.