Recently, I was going over the details of my budget with a friend. When I got to the estimated expenses, he seemed to have a puzzled look on his face and asked me if I had forgotten to include banking costs. I was surprised by this question, but not as surprised as he was by my answer: “I don’t really have any banking expenses.”
“What about service charges, accidental overdrafts, minimum account balances etc.?” he asked. I shrugged. I don’t pay my bank to hold my money, they pay me for the privilege. Here’s how:
1. Set up overdraft protection … now!
Accidents happen. No one usually intends to overdraw their bank account, but sometimes a debit transaction comes through before a check clears and there you are with one or several charges applied to your already hurting bank account.
The first thing you should do after setting up a bank account is inquire about available overdraft protection. Sometimes referred to as cash reserve checking, this is a line of credit that the bank extends to its customers that kicks in when your debits exceed the balance in your account. Basically, you are pre-approved for a loan that is used to cover your negative balance.
While this protection virtually eliminates overdraft fees, there are two small caveats. Firstly, you must be approved for such a line of credit, which is dependent on several factors including your credit score and history with the bank. Secondly, banks are not in the business of loaning out money for free, you will be charged interest on the overdrawn amount, though this is almost always going to be less than the fees that would be applied without overdraft protection.
2. Establish a good relationship with the tellers at your bank.
We often tend to view banks as large, faceless megacorporations, and save for the local credit unions, most of them are. That said, the people who work at your local branch are just that, people, and they often possess more power to help you out than you may realize. Knowing your teller by name, asking them about their family and what they are doing this weekend are, other than being generally polite things to do, great ways to ensure that you are treated fairly by your bank. I cannot tell you how many times my teller has pushed a deposit through to clear immediately or removed a fee for me: services that I doubt would have ever been extended to someone they didn’t know.
3. Prepare ahead for traveling abroad.
Oftentimes travelers run into additional banking fees and inconveniences, simply because they didn’t plan ahead. Be sure to tell your bank that you are traveling. Will you need to use ATMs while you are abroad? Check to see if your bank has any arrangements with banks in the countries to which you are traveling. If they do, using these banks can significantly cut down on fees and you can be assured that your money will be readily available when away from home. If you travel frequently, consider opening a Schwab Bank High Yield Investor Checking Account, which automatically reimburses all foreign ATM fees.
4. Use online banking but don’t rely on it.
Online banking is a godsend for most people. It allows you to keep an eye on your balance, transfer money from one account to another, and more. Many banks allow you configure alerts so that you are notified via email or text message when your balance drops below a certain threshold. Get to know what your online banking offers and leverage these tools to stay in control of your account. While this can be an extremely useful tool, bear in mind that it does not replace the need to balance your checkbook.
5. Balance your check book.
Every time you swipe your debit card or write out a check, add the transaction to your ledger immediately. For all intents and purposes, view that money as no longer being in your account. If you get into this habit and quit relying on the available balance reported by your online banking, you will save yourself a lot of trouble, fees and embarrassment.
Remember that transactions can often take days to show up on your online ledger. Always know what it really in your account. Maintaining a balanced check book will also enable you to more easily spot potential bank errors, such as double charges. While there are a wide variety of apps available to make this age-old act easier, I personally prefer Toshl, which is available on all the major mobile platforms and can also be used to set up budgets and generate helpful graphs about your spending habits.
6. Shop around for better accounts.
Before looking elsewhere, go into your bank and ask to talk to someone about your account. Let them know that you are concerned about avoiding fees and would like to know what types of accounts are available. Answer any questions they ask you with complete honesty. Do not say that you can maintain a higher minimum balance than you realistically can. Oftentimes, you can forgo interest (which is often quite meager to begin with) for a totally free account with no restrictions. After a simple five-minute conversation with my banker, I was switched into an account that is typically just for college students (which I am not) that offered some built-in overdraft forgiveness with no fees and no minimum balance. While your mileage may vary, it never hurts to see what is available. If it seems that your bank has nothing to offer, look elsewhere.
7. Be careful when writing checks.
Checks can be tricky as you never know when their recipient will cash them and if there isn’t enough money in our account when they do, they will bounce, which is costly and very embarrassing. Bounce enough checks around town and you might even find yourself in jail. If we are following tip #5 and balancing our check book, this should never happen. That said, sometimes we make mistakes. So, if you do bounce a check, and you happen to catch it right away (it shows up in your online banking, but the transaction is still “pending”), then immediately deposit enough funds in your account to cover the check and call your bank. There is a chance that they might be willing to manually approve the transaction and prevent the check from bouncing.
8. Read every notice that your bank mails you.
Regulations require that your bank notify you of any new fees. Be sure to open and read every piece of mail that your bank sends you. If they are introducing a new fee of some type, contact them immediately and see what can be done to avoid being charged. Often they are just hoping that you won’t notice. Stay on top of things and you could avoid increasing fees.
9. Consider switching to a credit union.
If you are unable to get your banking costs under control with a typical bank, try a credit union. Credit unions are member owned and operated and as such, are service-driven as opposed to profit-driven organizations, and because of this they tend to offer more favorable rates and additional services.
10. Don’t be afraid to mix and match your banks.
If one bank offers a great free checking account and another has really useful features for its business accounts, don’t be afraid to mix and match. Find the accounts that suit your needs, regardless of where they are offered.
With a little effort, it is possible to mitigate most banking costs, even those associated with mistakes made on your own part. For a look into some more money mistakes worth avoiding, check out 11 Money Mistakes You Don’t Realize You’re Making.
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