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To make banking cheaper, get free of the fees

A new study shows just how much banks make when you slip up. But there are ways to protect yourself from them.

By HELEN HUNTLEY
Published April 19, 2006

Smart shoppers and careful check writers can find plenty of good deals on checking accounts, but banks are getting ever-higher fees out of the rest of us.

A checking account survey released Tuesday by Bankrate.com shows the typical interest-bearing account is a lousy deal. The minimum balance to avoid fees is now a record $2,465 and the average monthly fee if you fall short has hit $10.85. In return, the average account pays a miserly 0.32 percent interest.

WHAT YOU CAN DO ABOUT IT: Sign up for free checking in a non-interest bearing account and keep most of your extra cash in a high-yield account. The best money market accounts and money market funds now pay between 4 and 5 percent interest.

BOUNCING CHECKS: Bankrate.com's survey also found bouncing a check costs an average of $27.04, and many banks are adopting tiered charges that penalize repeat offenders more heavily.

"It's the punitive fees that are escalating so quickly," said Greg McBride, senior financial analyst at Bankrate.com. "What some banks are doing now is cutting the cost of the first bounced check so the guy who bounces a check once in a while catches a break."

However, a single checking mistake - a deposit that doesn't get posted when you think it will - often causes several checks to bounce, he noted. That's when the bigger penalties kick in. Tiered charges are based on the number of bad checks in the previous 12 months.

McBride said Bankrate's survey found Wachovia charges $25 for the first bad check, $30 each for the next three and $35 for each additional, while Bank of America charges $19 for the first bad check, $31 each for the next three and $34 for each additional.

Combined, those two banks control nearly 40 percent of the Florida banking market.

WHAT YOU CAN DO ABOUT IT: Sign up for overdraft protection linked to a savings account (the best option) or a credit card.

ATM FEES: ATM fees are another area where banks are raking in the fees. Bankrate.com estimates consumers will pay $4.2-billion in ATM charges this year. Nearly every bank - 98 percent - has a surcharge for nonaccount holders who use their ATMs. That charge is now a record $1.60, a whopping 21 percent more than it was two years ago.

The good news is that banks have cut their own account holders a little slack. Nineteen percent don't have a fee for using another bank's ATM and the average fee for those that do has declined to $1.29.

WHAT YOU CAN DO ABOUT IT: Stick to your own bank's ATMs or get cash back from debit card purchases instead of using an ATM.

BANK REVENUE: While all these fees are a bad deal for consumers, they are great for banks. Wachovia Corp. said Tuesday that for the first time ever, fees generated more than half the company's revenue last quarter.

"The key driver in our revenue growth for the quarter was fee income with growth in nearly every category," chairman and chief executive Ken Thompson said on a conference call with investors.

Some of the best deals in banking continue to be found at Internet-only banks. Bankrate.com said its survey showed they require much smaller minimum balances, charge lower fees and pay substantially higher interest rates than traditional banks. Some reimburse account holders a limited number of ATM fees each month since the banks do not have their own ATMs.

WHAT TO DO ABOUT IT: If you are willing to give up in-person banking and are not a frequent ATM user, consider an Internet bank.

Information about high-yield accounts is available at Web sites such as bankrate.com and moneycentral.msn.com and in the St. Petersburg Times business section Sundays and Tuesdays. The banks themselves - and their advertising - are the best sources for information about free checking accounts and account fees.

Information from the Associated Press was used in this report.

[Last modified April 19, 2006, 01:59:13]