Consumers are having difficulty avoiding rising checking account fees unless they make regular direct deposit of wages, their pension or Social Security benefits, according to a new report by the Consumer Federation of America, or CFA, in Washington, D.C.
The difficulty arises, in part, because many banking customers can't maintain the average or minimum balance of $1,500 or more that banks typically require to avoid bank fees of as much as $300 annually, the CFA said.
Jean Ann Fox, senior adviser for financial services at CFA, said in a statement that institutions are increasing bank fees and balance requirements to avoid those fees, and that those trends are especially challenging for people who maintain low balances and are most likely to overdraw their checking account.
CFA Executive Director Stephen Brobeck noted that the people who most need free or low-cost checking are also the least likely to be paid by direct deposit because their employers don't offer it. They have short-term jobs or they're unemployed.
"Consumers who cannot waive fees through direct deposit and don't have a comfortable cushion in their accounts at the end of the month pay the full freight for checking accounts," Brobeck said.
One positive finding was that nearly all bank websites included useful summaries of checking accounts, including monthly bank fees, though details about overdraft fees and practices were sometimes more difficult to find online.
Making mistakes with payments or deposits incurred a steep cost as the survey found just one overdraft, nonsufficient funds payment or returned-deposit fee could add $91 to the annual cost of a checking account.
"Bank penalty fees ratchet up the cost of bank account ownership for consumers who overdraw their accounts or deposit someone else's check drawn on insufficient funds," Fox said. "These overdraft and NSF fees are especially risky for consumers who keep a low balance in their accounts."
Consumers should know how much they're paying for a checking account and understand how they can avoid unnecessary bank fees.
"By switching to lower-cost accounts, directly depositing payroll or benefits checks or utilizing the account differently, consumers may be able to substantially lower the cost of checking with their current or a new bank or credit union," the CFA said. "Consumers should avoid most interest-bearing checking accounts, unless they plan to maintain a large combined deposit at the bank or meet other conditions to avoid monthly fees, such as having a mortgage with the bank. Just one monthly fee will wipe out interest earned for the year."
Do you have one of these accounts? Have you been levied bank fees because you couldn't meet a high minimum balance during a period?
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