Checking Account Fees Reach Record Highs

Checking account fees for overdrafts and ATM charges reached new highs this year. But savvy consumers don't have to pay any of them. The majority of bank customers—56 percent—pay nothing for banking services each month, according to a recent telephone survey by the American Bankers Association (ABA) and market research firm Ipsos-Reid. And most of the people who do pay checking accounts fees are charged only small amounts. Just 13 percent of bank customers pay fees of $10 or more each month, ABA found. Here are some of the heftiest checking account fees and how to avoid them.

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Bounced-check fees. Bounced-check fees increased 2.1 percent this year to a record high of an average $29.58, according to Bankrate.com. Closely monitoring your account balance online is your best line of defense against overdrawing your account. Some financial institutions allow you to set up E-mail or text-message alerts that notify you when your account balance drops below a certain amount. Other services allow consumers to link their checking account to a savings account or credit card that will cover overdrafts without a fee. Some spenders can even argue their way out of an overdraft charge. "If there is an overdraft, call the bank. In many cases, if it is a first offense or you are a good customer, they will waive the fees," says Nessa Feddis, senior federal counsel for the ABA.

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Overdraft arithmetic. Overdraft fees aren't always simply a charge for each time your account is overdrawn. Just over a quarter of the banks surveyed (26 percent) charge more for repeat overdrafts in a given 12-month period—averaging $33.88. And 17 percent of checking accounts further ratchet up fees after the fifth overdraft to an average of $36.19. The order in which debit-card transactions are deducted from your account can also differ. Some banks process transactions in chronological order while others deduct the largest purchase from your account first, which can contribute to more overdraft changes if a cardholder makes several purchases on an overdrawn account in rapid succession. A few institutions, including Bank of America and Wells Fargo, recently began allowing customers to opt out of overdraft coverage. In this case, the debit card will simply be declined if there are insufficient funds to cover the purchase. And Chase now requires debit-card users to sign up for overdraft services. Consumer advocates say account holders should still vigilantly monitor spending to avoid fees. "What they're doing is reducing the probability of incurring the fee, not the fee itself," says Greg McBride, a senior financial analyst with Bankrate.com. "There will be fewer speed traps, but the fine for speeding remains the same."

ATM fees. It can be time consuming to find an ATM that belongs to your bank when you're traveling, but the effort can be worth it, especially for small withdrawals. ATM surcharges rose 12.6 percent this year to an average of $2.22, Bankrate.com found, and they can be as high as $5 per transaction. In some cases, account holders are charged two fees for a single ATM withdrawal: one from the owner of the ATM and one by their own bank for using an out-of-network ATM. Debit-card users who can't find a free ATM should try to avoid ATMs altogether: "If you are really in a pinch for cash, getting cash back with a debit-card purchase is a really easy way to avoid ATM fees," says McBride.

Low-balance charges. At first, it sounds great to earn a bit of interest on money that sits in your checking account until you spend it. But interest-bearing checking accounts tend to come with monthly service fees, which increased 5 percent this year to an average of $12.55, Bankrate.com found. These charges are sometimes waived if customers maintain a minimum balance in the account. "Most interest-bearing accounts tend to be a 'heads I win, tails you lose' for the bank because they require the consumer to strand a large balance in order to avoid fees but pay a pittance in interest earnings," says McBride. "A free checking account is going to be the best choice for most people because you are not hemmed in by large balance requirements or having to worry about monthly fees draining money out of your account." For non-interest-bearing accounts, monthly service fees hit a new low, averaging just $1.77 a month. But bank customers should strive to avoid all service fees. About 76 percent of non-interest accounts now have no fees and no minimum balance requirements, up from 73 percent last year. If your current checking account isn't fee free, a nearby competing bank probably is.