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Avoiding ATM surcharges

Surcharge-free ATMs dwindle
When it comes to avoiding ATM surcharges, your options are growing, but they're fragmented. The old network of surcharge-free ATMs is drawing its last breaths. If you want to avoid surcharges, you'll have to do some research before sliding your card into the machine.

The national ATM networks lifted the self-imposed ban on surcharges in 1996. There were far fewer ATMs back then, but when you found one, you didn't get charged for withdrawing your own money no matter where you banked.

Professor David Sorkin of the John Marshall Law School in Chicago says less than 5 percent of today's ATMs are truly surcharge-free.

"The number of surcharge-free ATMs will gradually decline further," says Sorkin.

ATM surcharges, usually about $1.50 per transaction, are a cash cow for banks and other ATM owners. Finding the no-surcharge machines and keeping that money in your pocket isn't easy.

"It's a wild, wild west of consumer information in the ATM market," according to Mark Ferrulo of the Public Interest Research Group. "Every community is different."

Don't confuse the surcharge with the interchange fee. The interchange fee is what banks pay to each other to compensate for the costs involved in operating an ATM.

The surcharge is the extra fee you pay for not having an account with the bank that owns the ATM you're using.

Most people who have a bank account can access their bank's ATMs for free. The American Bankers Association says 90 percent of all banks offer free use to their own customers. That's fine if you do business with Bank of America or some other giant that has a zillion ATMs, but what if you bank at Podunk Savings Bank which owns one or two ATMs?

You hope that they've joined one of the half-dozen "selective-surcharge" ATM networks that stretch across the country.

Selective-surcharge means you can use that network's ATMs surcharge-free if you have an account with one of the banks in the network. If you don't, you'll be selected for a surcharge.

The smaller banks strike back
"I think it's basically the community banks, credit unions and independent banks are retaliating against ATM monopoly networks being set up by the huge mega-banks, especially in light of recent mergers," says Ferrulo of the Public Interest Research Group.

"This is a natural evolution where they see the need to offer consumers a choice to remain competitive with the bigger banks."

Will Pierce represents NYCE, an ATM network that has a no-surcharge program called SUM Alliance. SUM allows financial institutions within the NYCE network to offer their ATMs to other banks' customers for free. He thinks the system works.

"Now even a small bank with one ATM can offer its customers 150,000 machines they can access."

But Sorkin says the selective surcharge system is not about giving people a choice.

"If the selective surcharge networks were really the preferred choice, we'd see larger banks join them. The argument in favor of selective surcharge is they're accomplishing the same thing as no surcharge. But it's not true -- it's highly inefficient."

Don't count on legislation making surcharges disappear. Attempts to give states and localities the power to ban surcharges have failed, and Sorkin says he's not very optimistic right now.

"It's a difficult and complex argument because it relies on antitrust. It's not that it's unfair to charge consumers but that the effect on competition is harmful."

Your best option is to be a savvy consumer -- avoid fees when possible. If your financial institution doesn't give you enough options, consider taking your business elsewhere.

Here are some tips for avoiding surcharges.

  • Use ATMs owned by your bank, thrift or credit union. Bankrate.com's research shows banks offer free ATM use to their own customers. Include this in your research when shopping for a bank.
  • Ask if your financial institution belongs to a selective surcharge network. If it doesn't, talk to a manager about joining.
  • Many online banks and brokerage firms offer surcharge-free ATM access.
  • Try to take out enough money from your paycheck or checking account to cover your cash needs until your next paycheck.
  • Get cash back when using a debit card at a supermarket or store.
Bankrate.com's corrections policy
-- Posted: July 16, 2004
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