Are These 3 Banking Fees Costing You Money?

There's an expression in the U.K. that goes, "Look after the pennies and the pounds will look after themselves." Times have changed, and I don't think a penny (or a cent) will even buy you a piece of candy these days. Still, the logic is sound. It's all too easy to spend $0.50 here and $1 there, but before you know it, you'll have spent $50 with little to show for it.

This year, looking after the pennies has been one of my money mantras -- which, in part, means watching out for banking fees and other sneaky charges. Here are three ways banks get you to part with your money, and how to avoid them.

1. Monthly service fees

Many banks charge monthly service fees on their checking and savings accounts. In fairness, banks have to cover costs like staff, rent, and other overheads. But they also use the money you deposit with them to generate revenue. This makes the fee feel less justified -- you're essentially paying for the privilege of letting the bank use your money.

There are a few specific situations where the fee is worth it. For example, years ago, I paid a monthly fee for a checking account that gave me free foreign transactions, travel insurance, and several other benefits. I was working abroad and didn't have a credit card with those perks. The fee more than paid for itself.

However, in most cases, if you're paying a monthly fee, it might be time to look for an alternative.

Potential cost:

Fees vary from bank to bank, but a recent MoneyRates survey put the average monthly checking account fee at $13.95. Savings accounts come in at around $5 a month. If you pay for both, you could be looking at over $200 a year.

How you can avoid this fee:

Open a free checking account that doesn't charge monthly fees, period. Alternatively, you can opt for an account with a waivable fee. Just make sure you understand the requirements and are able to meet them.

To avoid checking account fees, you might need to:

• Keep a certain amount of money in your account: If your balance slips below the minimum you may have to pay the fee.
• Get your paycheck or Social Security deposited into your account: There may be a minimum amount you need to deposit each month to avoid the fee.
• Hold multiple accounts with the same bank or credit union: In some cases, you wouldn't need to pay the fee if you have a savings or investment account with that institution.

2. ATM fees

The world may have become increasingly cashless, but we've all been in situations where we need ready money and there's no in-network ATMs nearby. The trouble is that you'll get charged for being caught short. In a lot of circumstances, you'll have to pay an out-of-network fee to your bank as well as an additional fee to the ATM operator.

To give you an idea, here are the fees a handful of top banks charge on their basic checking accounts. If you have a premium account or meet certain criteria, several of the banks below will waive the fee and even cover the charge from the ATM owner.

Potential cost:

According to MoneyRates, on average, using an out-of-network ATM will cost $4.55. If you do this twice a month, that will come to around $110 a year.

How you can avoid this fee:

There are a few ways to avoid ATM fees. One is to pick a bank that won't charge extra for going out of network. Or even better, one that will also reimburse the ATM operator charge. Another is to only use ATMs that are part of your bank's network. If you withdraw cash often, look for a bank that has a wide network of ATMs, particularly in your area. You might also be able to avoid multiple fees by making larger withdrawals.

ATMs are not the only source of ready dollars. I sometimes deliberately pay for my groceries with a debit card so I can get cash back. I lose out on credit card rewards, but it's a convenient way to get money. You may also be able to skip physical dollars altogether in many circumstances by using a digital wallet or payment app.

3. Overdraft and non-sufficient fund (NSF) fees

If there's not enough money in your account to cover a transaction, you might get hit with an overdraft or NSF fee. With an overdraft fee, the bank will allow the payment to go through and charge you. You have to opt in for this service. If your account doesn't have overdraft protection, the payment will be declined and you may have to pay an NSF fee.

These fees have received a lot of criticism, particularly from the Consumer Financial Protection Bureau (CFPB). One issue is that the fees disproportionately penalize low-income groups. Sadly, repeated fees can cause people who are struggling financially to opt out of the banking system altogether.

As a result, some big banks have significantly reduced their overdraft and NSF fees in recent years. They've also introduced more buffers to protect consumers. For example, many banks now limit the number of overdraft/NSF fees you can incur in one day or give you a grace period to get your balance out of the red.

Potential cost:

According to the latest CFPB data, overdraft and NSF fees can range from $10 to $37 depending on the bank. Bank of America is leading the way with no NSF fees and a low $10 overdraft fee. (The CFPB also fined Bank of America earlier this year for overcharging customers with insufficient fund fees.)

Overdraft transfer fees -- the charge for automatically transferring money from a linked account -- can be as much as $12.50 per transfer. A lot of the top banks have done away with another sneaky fee called an "extended" or "sustained" overdraft fee. But some still charge as much as $25 if your account is overdrawn for five or seven days.

The real sting with these fees is how quickly they can add up. Let's say there's an automatic bill payment that overdraws your account. You don't realize it, and you make two more payments that day. If you're paying $35 each time, that's $105 in bank fees in one day. It isn't hard to see how overdraft and NSF fees generated $7.7 billion for banks in 2022, per the CFPB.

How you can avoid this fee:

Having to pay an overdraft fee when you are already struggling is a bit like rubbing salt in a wound. If you are at risk of overdrawing your account, look for a bank that won't make matters worse. At the minimum, prioritize banks that don't charge NSF fees. Beyond that, some banks go further by, say, giving you a grace period to bring your balance back up. Here are some other ways to avoid overdraft fees:

• Don't opt into overdraft protection unless you really need it. If you aren't sure, or have already opted in, speak to your bank. Many banks have eliminated NSF fees. If you don't have overdraft protection that means payments that would take you into the red will be declined but wouldn't rack up charges.
• Understand your bank's overdraft/NSF charges. Find out how many times you could be charged an overdraft fee in a single day, whether there is any kind of cushion, and how much you'll pay if you overdraw your account. You may also be able to link your checking account to another account to automatically cover charges. If you do, find out how much this would cost.
• Pay attention to your balance. When you're living paycheck to paycheck, it can be all too easy to accidentally overdraw your account. Use mobile banking to track your balance, and see if you can set up an alert so you know when your balance drops below a certain amount.
• Build an emergency fund. It's all very well telling you to transfer money if your checking account is running low, but some of us may not have any funds in reserve. Try to put even a small amount into a savings account each month. Those emergency savings could help you avoid overdraft fees.

Many bank fees are avoidable

Bank fees can cost us hundreds of dollars a year, and in a lot of cases, you don't have to pay them. That's money that you could be investing for your retirement or saving for a rainy day. To put that into a very hypothetical and simplified perspective, let's say you found ways to save $20 a month on bank fees. If you invested that money for 10 years and earned 8% interest, it could add up to around $3,500. My Grandmother was right, those pennies really can add up.