The Best Answer to Rising Bank Fees

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Many people never start investing because they have trouble coming up with any money to save. But the real challenge comes after you start saving, because you'll always find financial institutions trying to take their cut of your money.

Chief among the casualties of the financial crisis were the reputations of banks, especially big Wall Street institutions. After getting taxpayer-funded bailouts, banks have repaid their customers by making a host of customer-unfriendly moves, including tightening loan requirements and boosting fees. And as banks work increasingly hard to try to lock in profits, those anti-customer measures are just getting worse.

The long and the short of bank fees
A recent survey from provides some hard numbers behind the trend toward higher fees. The average cost of monthly fees that banks impose rose above $12, jumping more than 7% just since the end of 2011. ATM fees have also risen, while the average fee for overdrafts is rapidly approaching the $30 mark.

Traditionally, customers with a bit more money could expect to get preferential treatment, including waivers of certain fees. Yet it's getting more costly to earn those perks as well, with the average amount you need to keep on balance to avoid monthly fees rising more than $850 to almost $4,450. Just over 35% of all accounts qualified for free checking, down from almost 39% six months ago.

Even opening an account in the first place is getting harder for many cash-strapped customers. Minimum opening balances rose by more than 4% since the end of 2011, jumping above the $400 level on average.

Haves and have-nots
The key to navigating the bank-fee environment is to realize that not all banks are created equal. Depending on where you live and what types of banks are available to serve you, you can often find a good deal.

One big distinction comes from big banks versus smaller rivals. According to the survey, average monthly fees were more than 40% higher at big banks than at small ones, and small banks had more than twice the percentage of free checking accounts that big banks had.

When you consider the relative financial hits that different parts of the banking industry took during the financial crisis, that bias toward higher fees at big banks makes plenty of sense. Many of the surviving small banks from the financial crisis got through the mortgage meltdown in a lot better shape than Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) did with their much larger loan portfolios. Moreover, many big banks, including B of A, Wells Fargo (NYSE: WFC  ) , and JPMorgan Chase (NYSE: JPM  ) , ended up acquiring other troubled financial institutions during the crisis, inheriting or adding to their own woes.

Those big hits left those big banks under far more pressure to shore up their finances and start generating profits. Although smaller banks certainly have a profit motive, they also understand that since they can't offer the reach of their larger counterparts, they have to compete on more subjective factors like customer service and providing a more comfortable experience for their account holders. For instance, Huntington Bancshares (Nasdaq: HBAN  ) has done a good job of recovering from the financial crisis by focusing on the Midwest, devoting substantial resources toward small businesses and avoiding landmines like European sovereign bonds.

Credit unions have even less incentive to charge big fees, as they're owned by their members. For the most part, fees at credit unions are geared toward treating customers fairly rather than as profit centers, properly accounting for the actual costs that things like overdrafts can impose on a financial institution.

Give it a try
From a customer perspective, the big question remains whether the value you get from a bank with a nationwide footprint justifies what you pay to be a customer there. Fees aren't automatically bad if you get good value from them. But with the rise of electronic banking and with many banks offering fee rebates on out-of-network ATMs, there are fewer reasons to feel tied to a big Wall Street bank if you're not satisfied.

If you're paying a fee at your bank, take a few minutes and scope out the competition. The money you save could make you glad you did.

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Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter @DanCaplinger.

Fool contributor Dan Caplinger likes simple answers. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Citigroup, Wells Fargo, Huntington Bancshares, Bank of America, and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Wells Fargo and formerly recommended JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy is fee-free.

Read/Post Comments (6) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 14, 2012, at 1:06 PM, BeEasy007 wrote:

    Are there any negatives associated with credit unions (aside from perhaps membership criteria)? I can't see any good reason to switch to a traditional bank.

    My credit union not only doesn't charge a fee for ATMs, but refunds fees that other banks charge me. Depository and borrowing rates have always seemed as good, if not better, than traditional banks. Free checking and no minimum account balances. I can even deposit checks via my mobile device, so there's little need to visit a physical location. The only reason I use a traditional bank is to rent a safe deposit box.

  • Report this Comment On August 14, 2012, at 5:49 PM, richie54 wrote:

    In order to hurt the big, bad banks where it hurts--in the pocketbook--it's important for Fools everywhere to join a credit union and start gettting low or no monthly fees on their checking and savings accounts, low interest rates on their mortgages and other loans as well as better customer service.

  • Report this Comment On August 14, 2012, at 6:11 PM, makast63 wrote:

    My local bank offers 3.25% interest on checking as well as free ATMs anywhere, as long as I use my debit card as a credit card at least 15 times a month and get estatements. And that 3.25% is good up to a balance of $25,000!

  • Report this Comment On August 14, 2012, at 8:49 PM, TMFGalagan wrote:

    @BeEasy007 -

    Some credit unions don't have the same benefits as yours, with limited ATM networks making it hard for some people who travel a lot. But it sounds like your credit union has all the services you need, and insurance through the NCUA is equivalent to FDIC insurance levels.


    dan (TMF Galagan)

  • Report this Comment On August 15, 2012, at 7:44 AM, wjcoffman wrote:

    I've always associated FEE with PENALTY, a term used to exact more of my money. When I see "fee" I start looking for alternatives, ways to avoid the fee - switching banks, shopping somewhere else, not buying whatever it was that had the fee. So, when I read "Fees aren't automatically bad if you get good value from them." it just didn't make any sense. Value from fee is just not in my limited associative reasoning I guess.

  • Report this Comment On August 15, 2012, at 11:34 AM, TMFGalagan wrote:

    @wjcoffman - I certainly understand what you mean. Credit cards may be better examples; there are some cards where you can pay no annual fee and get reduced benefits or a modest annual fee and get heightened rewards. In those cases, it's a pure cost-benefit analysis: do the extra rewards outweigh the fee?

    Most bank services aren't the same, but if one bank charges a fee but offers more of what you want, you have to weigh the value and make the best choice. Sure, it'd be nice if you could get all the services you want without paying a fee, but if that's not available, you still have to decide.


    dan (TMF Galagan)

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