Saturday, April 9, 2011
BANK SERVICE CHARGES
Many Banks charge monthly service charges of $8 to $15. Don't Pay these!
Many folks pay a monthly fee to a bank in order to have a checking account. I know I used to, and didn't think too much about it.
But there are so many Banks and Credit Unions out there that will provide you with a checking account without ANY service charges - so why pay a service charge at all?
Other Banks may charge service charges, but have "backdoor" loopholes that allow you to avoid service charges. And many of these "backdoor" loopholes don't require a minimum balance.
Yes, you can avoid service charges by keeping $5,000 or $10,000 in your savings account, but this represents a horrible bargain. That money, invested, could earn $500 to $1000 a year, as opposed to the $50 to $100 a year you'd get in savings interest.
Bank of America will waive service charges if you transfer at least $25 a month from your checking to your savings account. This requires that you have both types of accounts, of course. It is easy to setup this transfer, automatically, online, so that it happens at the first of every month. And you can take the money and put it right back into checking, if you want. No minimum balance is required.
Why does BOA do this? Hard to say, but I suspect they want to keep good customers - the kind that don't bounce checks all the time and have more than $50 in their checking account. If you constantly have a zero or near-zero balance in your account, don't expect to get these sorts of deals.
And speaking of which, that may be one reason they charge these fees in the first place - and waive them if you make a deposit transfer to checking. You see, that means you have an active account. One PITA for Banks is when accounts go dormant. People move away and leave accounts with $50 in them and don't bother to close them.
The Bank has to keep these on the books and also mail out monthly Statements of Account. Very quickly, the cost of mailing statements and postage exceeds any value to the Bank. And State Abandoned Account Laws make it hard for them to close these dormant accounts.
Monthly fees are the answer - they can quickly drain such dormant accounts within a few billing cycles and thus avoid ANY dormant accounts ever again.
And if you think this is (or was) a trivial problem for Banks, ask any banker - chances are, they have hundreds, if not thousands, of such dormant accounts that they can do little with. They accumulate like dust bunnies under your bed - only you can't vacuum them out!
So that explains one reason many banks have fees - and why BoA has this weird deal where they will waive the fees if you keep your account active by transferring money to Savings every month.
Oh, and by the way, please no "Dagnabbit!" people saying "I don't want to use that newfangled online banking - I don'ts trusts it!". OK? Because online banking is cheaper and easier to use - and safer - for both you and the Bank. And it allows you to monitor your finances far more easily.
If that is your "logic" for making financial decisions - that you like "the feel of a paper check and like to hold bills in your hand" - then I can't help you. You see, that is an emotional reason for making a financial decision - and a rather idiotic emotional reason, too. And yea, I used to think that way, but I sobered up and realized I was leaving money on the table for no logical reason whatsoever.
If you are going to make irrational, illogical decisions in life, then don't bother reading this blog - or any other financial blog. It just won't help. And I see this all the time - people read good financial advice (which is hard to come by) and then try to select, cafeteria-style which things they "like" from the advice. And the result is often spectacularly horrible. You can't follow half the directions when making a cake and expect it to come out as anything other than a gooey burnt mass.
But I digress. Yet once again....
Other Banks have other deals. For example, our local Ameris Bank had several accounts to choose from, some with fees, some without. They had one which required a minimum deposit of $10,000 (!!) but another where, if you were over 50, they would waive the monthly fee. There are advantages to being old.
Credit Unions are another great place to bank - and usually don't have fees for accounts. My old Credit Union started charging a fee if your average monthly balance was under $1000, in an effort to eliminate abandoned dormant accounts. And yes, I spoke with the manager, who said he had thousands of such accounts, and no realistic way to get rid of them (the legal costs of trying to seize them was staggering). So again, their monthly fee was more of a way to get dormant accounts off the books over time (by slowly converting the dormant accounts to income) while still providing free services for customers.
And if it sounds like I am being an apologist for the Banks, in a way I am. You see, if you want to get ahead financially, you have to look at each transaction from the points of view of both parties. People like to go online and rant and rave about how bad their bank is, because they charged them an overdraft fee. But the reality is, they bounced the check, not the bank.
And if you talk to some bankers, you'll realize that the poor-and-stupid contingent of their client base is not all that profitable, even with the staggering fees the banks sock them with, for bounce charges, ATM foreign fees, and the like. If you are going to be a crummy customer who is always on the brink of insolvency, then no, the Bank isn't going to be your friend. But, if you can exert some financial discipline and not be draining your account at a foreign ATM every five minutes to buy Crack, well, then the Bank is going to love you and offer you the best sort of deals - because they know that other Banks will want your business.
And yes, bank fees are a lucrative business for banks - they make a lot of money every month because many folks are too lazy to ask about fee-free accounts or to shop around. So they nick a lot of people for $8 to $15 a month, and that adds up to a lot of money for them - and lot of cost to you, over time.
And yes, I'm embarrassed to say that I have been paying a $12 a month fee to a bank for the last few years. This bank (Access National) is one that I have founding shares in. I invested $10,000 in the bank in founders shares and the stock is now worth $50,000. Of course, over the years, I have sold about $40,000 of it, so I have made out well.
But they charge me $12 a month to have an account there, which I use for my business. That's $144 a year and over five years, $720 which is not an insubstantial amount of money. Again, these bank fees, like subscription services, seem "small" every month, so you don't worry about them too much. But then they add up to a LOT of dough over time, without you realizing it. It is a small leak in the rowboat, but a consistent one, and one worth fixing.
So, my next project is to establish a new, free account with the local Ameris Bank, and use that for my business deposits. Not only will this be more convenient, it will eliminate that $12 drain to my wallet. $12 - enough to buy an inexpensive bottle of champagne, if you think about it.
Now granted, these fees are "deducible" for me as a business expense, as this is a business account. But as I have noted time and again, you can't deduct your way to wealth. Eliminating expenses, particularly in a business, is important, if you want to keep your cost basis down.
And after that, we need to examine the monthly fees we are being charged by our Merchant Account provider! (the company that allows us to accept credit cards).
Plugging leaks in the rowboat isn't sexy or fun. It can be tedious and time-consuming. But once you get these things set-up on "autopilot" it works pretty well.
And by plugging these leaks and realizing how hard it is, you figure out quickly that drilling new holes in your boat makes no sense at all. So you re-think spending ideas entirely. So not only does plugging the leaks make for a tighter ship, it teaches you discipline about spending. Once you realize how hard it is to "fix" the damage caused by spending, you are far less likely to spend.
UPDATE: May 2, 2011
Again, a savings account should NOT be used as a checking account, and whining about fees in a savings account is silly - read the rules and understand them.
For a standard Bank of America account, there is a monthly fee, but that is waived if you auto-transfer $25 from your checking account.
You are allowed three withdrawals per month free in any even.
There is a $3 per withdrawal fee if your balance is below $2500
Above $2500, there are no fees.
Notice that the bank isn't really interested in people who start savings accounts and keep only a few hundred dollars in them, and then try to use them as checking accounts. No bank is! Take your poverty financing elsewhere. Savings are for savings, checking is for checking.
Even the poorest among us can set up a checking account to put a measly $25 a month into savings (which you can take right back out again) and thus get free checking and free savings. And there is no limit on how many checks or ATM withdrawals you make - but hopefully you learn not to make many. You can't spend your way to wealth!
Again, you have to read the rules and understand them. Setting up a savings account and then looting it all the time for Crack money will surely drown you in fees.
And the folks who go online and whine about how "unfair" BoA is, are just being idiots.
UPDATE: April 2015:
Bank of America is announcing new service charges for their accounts. The old trick of moving $25 to your saving account every month no longer seems to apply - you have to have a minimum average balance.
Or a balance in a linked Merrill Edge account. As you can see, the banks want people who have money, not folks with $25 in their account.
One reason for this was explained to me by a banker. Some folks will open an account with a minimum balance ($25) and then come in every Friday and cash their paycheck. They never actually put money into their account.
So banks are now charging teller fees ($8 a month at BoA if you use a teller) or charging monthly account fees (I believe $15 a month at BoA) if you don't keep a minimum balance.
While this may seem "unfair" to some, the bank has no need or desire to keep on clients who are money-losing proposition for them. They don't make money cashing checks or making change.
The alternative, of course, is to start saving money, and/or to use your local Credit Union. But using a bank as just a place to cash checks? Don't expect it to be free.