How bank fees are squeezing your budget: Should you and your bank go on a break?
“Every penny counts” might be a cliché to many people, but it’s true when it comes to bank fees, where a few extra cents for each charge can accumulate quickly.
The growth of online banking shows that it’s possible to be more discerning about how and where you bank, and therefore how to avoid unnecessary fees. Some fees have also begun to decrease as more banking options have become available — the average overdraft fee, for example, has dropped by 11 percent since last year, while nonsufficient funds (NSF) fees dropped by 25 percent, according to Bankrate’s latest checking and ATM fee study.
However, even in this digital banking age, traditional bank fees can impose a weighty burden on many budgets. To become a more vigilant consumer, here’s what you should know about bank fees, how they’re changing and what that means for your wallet.
Incurring bank fees on a regular basis represents a hole in the bucket of your finances, and will slowly drain money out of your account – needlessly. Attend to the details of which fees are charged and how to avoid them in order to keep more of your own money.— Greg McBride | Bankrate Chief Financial Analyst
Key banking fees takeaways
- While overdraft and NSF fees have declined since last year, the average for total ATM fees has increased.
- If you regularly incur high monthly maintenance fees, ATM fees and receive low interest rates on deposits, it may be time to switch bank accounts and save the money lost to fees.
- Online banks, credit unions and neobanks often offer lower fees compared with traditional, national banks, though there may be ways to waive fees at traditional banks, too.
Bankrate banking fees and insufficient funds data
Bank fees aren’t static. Instead, they fluctuate based on economic conditions, regulatory changes and competitive pressures. Tracking the changes in bank fees over time can provide a lens into broader financial trends and highlight how our money is being redirected.
Here’s a breakdown of bank fee data and trends, from Bankrate’s 2023 checking and ATM fee study:
- Increased ATM fees: The average for total ATM fees has increased by 7 cents per charge, to $4.73. Moreover, ATM surcharges — those charged by the ATM’s owner — have consistently risen over the past 25 years. For those who regularly rely on ATMs, especially outside of their bank’s network, these small costs can add up significantly.
- Decreased overdraft and NSF fees: The average overdraft fee has gone down from $29.80 to $26.60, an 11 percent drop, while the average NSF fee has decreased 25 percent to $19.94. While it’s encouraging to see these fees decline as more banks have eliminated them altogether, they still present a challenge for many. For someone living paycheck to paycheck, an unexpected overdraft fee can disrupt their monthly budget and even spiral into multiple fees before they realize it.
- Checking account yields remain low: Of interest checking accounts, the average APY rose negligibly from 0.03 percent to just 0.05 percent from last year. Consumers looking to earn returns on their money can get much higher APYs by putting their savings in a high-yield savings account and maintaining a low-fee checking account for day-to-day transactions.
The consequences of bank fees become more vivid when considering how the money lost to these fees might otherwise be used. Another Bankrate survey found that, if U.S. adults didn’t have to pay these fees, 30 percent would use the money to pay down debt, 29 percent would add to their emergency savings, 27 percent would use it for discretionary spending and 26 percent would save for a major financial goal.
Every bank fee impacts consumers in regard to financial wellness, and many can easily be avoided, either by finding an account that charges lower or no fees, or by taking measures, such as sticking to in-network ATMs, to bypass them.
Why do banks charge fees?
Banks essentially function as businesses. While they cater to important financial needs, they’re still for-profit institutions, and fees are one way they can add to their revenue.
But with all these fees, consumers are still committed to their banks. More than one quarter (27 percent) of Americans pay monthly fees for their checking account, according to the Bankrate checking account survey. For 18 percent of those who have stuck with the same checking account, satisfaction with the customer service is the main reason. Another 18 percent said it’s about familiarity — they stick with what they know. Comparatively, 15 percent cited low or no fees.
By sticking to the same account, you could potentially be leaving money on the table. Just as you would shop around for the best deals on household goods or car insurance, reviewing and comparing different banks’ fee structures can be financially beneficial. A new banking product might offer fewer fees or easier ways to waive those fees.
It’s important to understand what different types of fees are, so you’re not caught off-guard by them. Here are common terms you might see related to bank fees:
- ATM surcharge
- A fee that an ATM owner charges non-account holders. For instance, using an ATM from a bank where you don’t have an account can incur this fee.
- Out-of-network ATM fee
- A charge by your bank for utilizing an ATM outside of its network and partnered networks. It’s often combined with the ATM owner’s surcharge for a total ATM charge.
- Overdraft fee
- A fee levied when you make a transaction that exceeds the available balance in your account. Instead of declining the transaction, the bank temporarily covers the difference and charges a fee for the service.
- NSF fee
- Similar to an overdraft fee, but with a crucial distinction: NSF fees are imposed when a transaction is declined due to insufficient funds.
- Monthly service/maintenance fee
- A regularly occurring charge for having an account with the bank. Often, certain actions, such as maintaining a specific balance or setting up direct deposit, can get this fee waived.
- Monthly average balance (MAB)
- This isn’t a fee but a term that refers to the average amount you’re required to maintain in your account over a month. If your balance falls below the MAB, you might incur additional fees, like the monthly service fee.
Keep in mind: If you believe you were charged a fee unjustly, reach out to your bank. You can dispute charges and, in many instances, negotiate with your bank to refund or lower them.
Alternatives to your current bank
By routinely paying fees to traditional banks, many consumers are inadvertently leaving free money on the table. It’s akin to giving away a portion of your hard-earned income.
Look into whether your current bank offers fee waivers under specific conditions, such as if you maintain a certain balance or receive a minimum amount in direct deposits each month. If fees are eating into your budget, and they can’t be waived, it might be time to consider switching banks.
Here are some alternative banking options to check out.
| Bank type | Why choose this banking option? |
|---|---|
| Online banks | With no brick-and-mortar overhead costs, online banks often pass on their savings to customers through reduced fees and/or higher interest rates. However, they may not be suited for those who value in-person services. |
| Credit unions | Member-owned and not-for-profit, credit unions often offer lower fees on their products and prioritize member service. Note that they may have limited branch and ATM networks, as well as certain requirements to join. |
| Regional banks | Regional banks can provide a personal touch with more product offerings and services than small banks, but they might still have higher fees than online banks or credit unions. |
| Community banks | Community banks prioritize local interests and personalized service. Their fees may be lower than big, national banks, but they could lack the technological tools larger banks boast. |
| Neobanks | Neobanks are fintech firms that operate exclusively online. They often offer innovative features and low fees, but might not have the same level of protection as traditional banks. Many come with FDIC insurance through bank partnerships, but it’s a good idea to check that this insurance is available. |
When asked what is the most important feature when considering a financial institution, 37 percent said no or low monthly fees, according to Bankrate’s survey data.
Avoiding bank fees isn’t just about choosing the right bank, but also about smart banking habits. By regularly monitoring your account, understanding your bank account’s fee structure and preventing overdrafts, you can steer clear of many common fees. Opt for banks that have large ATM networks or reimburse ATM fees for out-of-network usage.
Finally, embrace technology: Many banks offer apps that help track spending and account balances, which can be a fruitful tool to stay on top of your finances and avoid unwanted surprises. You may also be able to set up mobile banking alerts, such as those that warn you of a low balance, which can stop you from overdrawing.
Banking fees FAQ
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Overdraft protection is a service offered by banks that prevents a purchase from being declined due to insufficient funds. You can often choose to opt in or out of this service. If you opt in, the bank will cover the transaction amount that exceeds your available balance, usually for a fee.
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An NSF (nonsufficient funds) fee is charged when a transaction exceeds the available balance in your account and the bank doesn’t cover the shortfall. Even if you opt out of overdraft protection and a transaction is declined, you may still be charged an NSF fee.
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Here are five simple steps you can take to avoid bank fees:
- Regularly monitor your account balance.
- Set up balance alerts.
- Use ATMs within your bank’s network.
- Maintain the required minimum balance or set up qualifying direct deposits to avoid a monthly service charge.
- Regularly review your account statements for any unexpected fees, and query them if needed.
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Many banks offer no-fee checking or savings accounts, which come without monthly maintenance fees, and in some cases may also waive ATM and overdraft fees. Examples include online accounts, like those at Ally Bank or Capital One, and certain accounts at credit unions or community banks.
Some larger banks also offer basic accounts with no or waivable fees, provided you meet specific criteria, such as maintaining a minimum balance.
