Checking account fees: What are they and how to avoid them

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Checking account fees are amounts banks charge customers for certain transactions or for failing to maintain a specified balance. Checking account fees can add up but most are also avoidable.

Here are the three checking account fees to watch out for:

  • Overdraft fees
  • ATM fees
  • Monthly service fees

Overdraft fees

Overdraft fees, also known as nonsufficient funds (NSF) fees, can be some of the most expensive bank fees.

A common overdraft fee is $35. But the average fee is $33.47, according to Bankrate’s 2020 checking account and ATM fee study.

Here are some ways to avoid overdraft fees:

  • Many banks allow account holders to set up text alerts to let them know when their balance falls below a certain amount. Getting a low-balance text may be enough to help you stop swiping your debit card in time to avoid overdrafting your account.
  • Check your app before you use your card. Seeing the balance may help you avoid overdrafting your account. However, be aware of transactions that aren’t yet pending, such as an upcoming subscription charge. Once they post, these transactions could cause an overdraft.
  • Get a checking account from a challenger bank that doesn’t charge you for overdrawing your account.
  • Try linking a line of credit or a savings account to your checking account to cover overdrafts. You may pay a fee for the service, but it would be cheaper than paying an overdraft fee.

Federal regulations require banks to let customers opt out of overdraft on debit cards. For many people, having their debit card declined when they don’t have the money to cover a purchase is preferable to incurring a string of overdraft fees.

ATM fees

Using an ATM outside of your bank’s network could cost you both a surcharge from the owner of the ATM and a fee from your financial institution. The total combined fee was an average of $4.64 in Bankrate’s latest study.

To avoid ATM fees, here are some steps you can take:

  • Before you use an out-of-network ATM, check your mobile banking app. Many apps have ATM locators that can help you find a nearby fee-free ATM.
  • Instead of going to an ATM, head to a drugstore, grocery store or other retailer that gives cash back for debit transactions and make a small purchase.
  • Skip overdraft protection. Opting in for debit card/ATM overdraft protection may cause your transaction to be declined if you don’t have the balance to cover the transaction, which may be preferable to letting you take money out in exchange for a fee.

Monthly service fees

Service fees, or maintenance fees, are usually billed on a monthly basis. Generally, keeping a certain balance in your account can help you avoid these fees.

To avoid monthly service fees, here are some steps you can take:

  • Find a bank that doesn’t charge these fees. Online banks are a good place to start looking for accounts that don’t have a monthly service fee.
  • Some banks might allow you to waive the fee with a direct deposit into your account every monthly statement cycle. The direct deposit may have to meet or exceed a certain amount for the statement cycle.
  • You might be able to waive the monthly maintenance fee by using your debit cards a certain number of times during the monthly statement cycle.

Why are checking account fees rising?

Fees tend to rise just like the cost of other goods and services. Like any business, a bank may try to generate revenue through fee increases — especially in the current low-rate environment.

“Lower interest rates squeeze bank margins and often lead to a greater reliance on fee income,” says Greg McBride, CFA, Bankrate chief financial analyst. “Consumers see this through higher account monthly service fees, overdraft fees and ATM fees.”

Lower rates also affect lending.

“As banks have seen low interest rates reduce the difference between what they earn on loans and pay on deposits, they’ve diversified the revenue stream into more fee-based activity,” McBride says. “Businesses like wealth management are one way, but account fees or other punitive fees are another.”

The best checking accounts don’t charge maintenance fees and or require a minimum balance. Nearly 90 percent of non-interest checking accounts are free or don’t charge a fee if a monthly direct deposit is made, according to Bankrate’s study.

Bottom line

Checking account fees are avoidable. Look for an account that doesn’t charge a monthly fee or makes it easy to avoid by requiring a minimum number of direct deposits or debit-card transactions. Some banks might offer options to help you avoid overdraft fees, too.

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Written by
Matthew Goldberg
Consumer banking reporter
Matthew Goldberg is a consumer banking reporter at Bankrate. Matthew has been in financial services for more than a decade, in banking and insurance.
Edited by
Wealth editor
Reviewed by
Professor of finance, Creighton University