Wednesday, February 16, 2011

Bank Service Charges - Understanding Banking

Note:  This is an updating of an earlier posting on this subject.

Many people run down Bank of America on the grounds that they charge excessive fees if you overdraw your account.   But the truth is, all banks charge service fee - and bounce fees - if your are financially irresponsible.

On many online forums, I see people bashing Bank of America, claiming that their overdraft fees and other service charges "victimize the poor".

However, I am not aware of any bank or credit union that does not levy such charges, so what is their point?

For example, one fellow says "withdraws all his money" from Bank of America and "closes the account" only to later be charged an overdraft fee when the monthly service charge causes him to have a negative balance.

There are holes in this story you can drive a bus through. If you really went to the branch and closed the account, then the account is closed, period. They cannot assess any fees on a closed account. More likely, he went to his ATM and withdrew all the money, thinking it would close the account.

After ranting about how horrible Bank of America was, he admits that after he went down to the bank and explained the situation, they waived all the fees and closed the account for him. What was the big deal again?

(By the way, as I have noted before, if you setup your checking account at Bank of America to automatically deposit $25 a month to your savings account, it will eliminate the $12 a month account fee.)

But regardless, these sort of stories illustrate the problems many lower class people have with banking. When I was at the Patent Office, I had a friend who worked at the Credit Union. Every payday, a line would snake around the place and out the door, as dozens and dozens of clerical workers would request money orders for their rent, utility bills, and other payments.

I asked my friend why they did this, and he replied, "We gave them checking accounts and they just wrote checks until they bounced". Fiscal responsibility, as I have noted time and time again, is not taught in any school these days, when in fact it should taught starting in Kindergarten and up through high school and college.

So these GS-2 clerical workers, who could least afford to squander money, end up bouncing checks and paying hundreds of dollars in bounce fees. Denied checking accounts, they then have to rely on expensive money orders ($2.50 to $5.00 apiece) to conduct business. The real poor do even stupider things - paying money to cash paychecks at "check cashing" stores. The less you make, it seems, the more you waste.

Banks don't want your business if you are not going to deposit any money with them. Bounced checks, bad deposits, and other quasi-fraudulent and fraudulent transactions do cost them money. Yes, they make money on overdraft fees. But there are real costs associated with overdrafts - returning checks, re-processing checks, notifying the customer, and also the risk the customer will write dozens of bad checks and then leave town.

You see, bouncing a check is not one of those 'Whoops! Silly Me!' kind of things. It actually can be a crime. You should be rarely bouncing a check or having an overdraft. And by rarely, I don't mean once a month, or even once a year. Like once a decade.

When I was young and poor and working in a factory and cashing my paycheck in bars, yea, I did stupid things like bouncing checks. The poor do stupid things like that - that's why they are poor. You make bad financial decisions, and what little you have, you squander. I did it. All poor folks do it. Middle class people do it, but since they make more money, it is not as noticeable.

Banks don't want your business if all you are going to do is keep $50 in your checking account and keep writing bad checks. There is little profit in it for them. This is why many banks, and even Credit Unions charge monthly fees to maintain an account. The cost of maintaining such accounts far exceeds any interest they may earn on your meager deposits.

If you are really that thinly financed, see if you can join a Credit Union. Credit Unions are great for people just starting out or folks who do not have a lot of money. But beware - they will not take any more kindly to you bouncing checks or overdrawing your account. They will charge you overdraft fees like the rest.

Most banks offer a service, for free, where money from your savings account will automatically be used to cover overdrafts on your checking account. There is nothing wrong with this idea, except that many folks end up draining their savings account regularly, so it doesn't help.

Some banks are offering "overdraft protection", which, for a fee, will honor overdraft checks, but charge you a horrible service fee.

The best solution is not to write checks for more than is in your account. This is not hard to do in this day and age, when you can check your bank balance on a minute-by-minute basis online, using the Bank's website. Accounting software on your computer can keep track of every charge and check, so there should be no reason for an overdraft.

Being financially lazy is a very expensive proposition. When I was young, I used to think the ultimate luxury was being able to have enough money so I would not have to keep track of it. I thought that once I graduated from Engineering School, I'd be making over $20,000 a year and would be "rich" and could just spend money as I pleased.

Then I thought that once I graduated from law school, and made over $50,000, I'd be "rich" and would not even have to balance my checkbook. And then I thought that maybe one day, when I made $100,000, I'd be so rich that I could just buy whatever I wanted.

But, funny thing, it never worked out that way. In fact, the more I made, the more carefully I had to keep track of my spending. But the better I kept track of my spending, the more money I made.

Once you stop bouncing checks and have at least a small bank balance, the bankers get a lot more friendly towards you. Until that happens, though, you are at their mercy, and they call the tune, and you have to dance.

And since bouncing checks and creating overdrafts is entirely your fault, there is no horrible injustice here. You can blame the bank all you want, but it was you that bounced the check, not them.

We've had an account with BoA now for several years, and have never been charged any bounce fees or other charges.  We stopped paying service charges when a friendly teller pointed out that if we deposited $25 a month to savings, the checking fee would be waived (and I set that up for auto-pay).  Their online services are great and they have ATMs and branches everywhere.  Their ATMS will even scan checks for deposit.  If you think BoA is " unfair"  to you as a consumer, I have news for you - no other bank is going to be " nicer"  to you when you bounce a check, period.

1 comment:

  1. Note that Banks have their own form of Credit Score for clients - that is not available to you like your regular credit report is.

    If you bounce a lot of checks and are a deadbeat, they don't want your business - or will not offer you the best deals.

    Of course, banks do make some money on bounce fees and overdraft fees. So maybe, like the buy-here-pay-here used car people, they find poor financial risks better than good ones.

    That is the deal today: You make more money RUINING someone than having a constructive business relationship with them.

    Caveat Emptor.


Sorry, Comments have been disabled due to the large amount of SPAM and TROLLING as well as GROOMING comments. Thanks for reading, though.

NOTE: Blogger says below that "only members may comment" - however comments have been disabled and I have no idea how to make someone a "member". Sorry!

Note: Only a member of this blog may post a comment.