Tue, August 10, 2010
New rules taking effect August 15th mean two things if you have a checking account: (1) you must make explicitly authorize your bank to enroll you in their overdraft plan if you wish to make debit card overdrafts, and (2) expect changes in your bank’s fees and checking account rules in the near future.
In the past, when you opened a checking account, many banks automatically enrolled you in some sort of overdraft plan. If you made a debit card purchase or ATM withdrawal and your account was short of cash, the bank would automatically cover your overdraft – for a fee, of course. This practice generated $18 billion in fee income for banks last year.
As of August 15th, under new Federal Reserve rules, banks must receive your explicit permission to charge an overdraft fee. If you decline, in most cases your bank will simply refuse an overdraft debit transaction. In practice, the old fee system meant that many people didn’t understand their account’s overdraft fee schedule until after they got a bill for their first overdraft.
It’s expected that under the new system, banks will pull in less overdraft fee income. The rule change does not apply to regularly-scheduled bill payments or checks.
Of course, banks don’t like receiving less income. The average checking account costs a bank about $250 to maintain; by some estimates fewer than 50% of checking accounts generate enough in fees to pay for themselves. If fee income declines in the aggregate, banks will just create new fee sources. Ideally, they’d prefer to find methods that consumer’s won’t notice easily.
Already, some banks have announced plans to eliminate free checking accounts. Fees for overdrafts, cashier’s checks, and other bank services are likely to rise. You should pay attention to any bank notices you receive, as these are likely to contain fee information that you would otherwise miss.
If your bank has made changes that will result in an increase in your monthly fees, with a little effort you may be able to find a way to avoid the increase. Here are some possibilities:
Examine the bank’s account fee options to find a fee break
Some banks will waive checking fees for customers who hold their mortgage with the bank, or who have other kinds of accounts with them. For years, I had free checking just by keeping a reasonably small minimum balance. Then for some reason my bank began imposing a fee for checking. I discovered that the fee could be waived if I set up a small automatic monthly transfer from my checking account to my savings account, which I did. I’m still not sure why this is enough to produce a fee break, but it works.
Maintain a higher minimum balance
It’s a bit bothersome to have to keep a minimum balance on a no-interest checking account, but given the painfully low savings account interest rates currently available, it could easily be cheaper to forgo some savings interest than to pay checking fees of $15-25 a month.
Have your paycheck deposited directly
Many banks still offer free checking for customers who have paychecks deposited directly; more automatic transactions means banks don’t have to pay as many live tellers.
Banks have just begun this latest round of fee changes, and in many cases customers will accept the new fees with no argument. But some banks may be willing to waive the new fee if you call their customer service department and politely complain, especially if you’re a long-time customer who’s considering moving to a different bank.
If all else fails, do consider changing banks. You may find a local community bank with lower fees and services that suit all your needs. Several online banks offer inexpensive checking accounts with ATM access, automatic bill paying, and all the bells and whistles you may be getting now.
Changing banks is a pain, but eliminating a recurring monthly fee may make the effort worthwhile. One useful resource that allows you to compare different banks is Find A Better Bank. The site takes you through a series of search criteria that allow you to define which bank services and account features are most important to you.