Eliminating Fees

Your neighborhood branch is making $1 million a year in hidden fees

Nick Clements July 25, 2014

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Last week, the Wall Street Journal showed us that banks at Wal-Mart are some of America’s top fee collectors. They looked at fee income as a percentage of deposits and found some staggering results.

Fort Sill National Bank, the worst of the Wal-Mart banks, generated $20 of fee income for every $100 of deposits last year. And most of those fees come from overdrafts. The story described a woman who needed to borrow $300 for 12 days. At Fort Sill National Bank, that would cost her $19.50.

The data introduced us to banks whose sole purpose is charging overdraft fees on people with little money. The Journal says that “banks inside its outlets are among America’s highest payers of bank fees – a large chunk of which come from overdraft charges.”

But, are customers at Fort Sill National Bank really paying more in fees than customers of Bank of America, or other mainstream banks? These banks may not be in the Wal-Mart store, but they can often be found in the same shopping center.

We went to the same FDIC dataset used in the WSJ article. We looked at how much an average branch charged its customers for checking and savings accounts.  The fees included monthly account fees, ATM fees, overdraft and NSF fees.

Fort Sill is still high on the list (#16 in the country). It generated $632,630 in deposit account fees per branch last year.

But Bank of America (#4 on the list) generated nearly $1 million ($986,652) in fees per branch last year. And, unlike Fort Sill Bank (which charges $19.50 for a 30 day overdraft), Bank of America’s overdraft policy would charge $35 at the time of the overdraft, and then another $35 every 5 business days that your account has a negative balance. The same $300 overdraft would cost $70 at Bank of America, compared to $19.50 at Fort Sill National Bank.

And who were the Top 3, ahead of Bank of America?

  • Fort Hood National Bank, which offers military banking, targeting those who serve ($1.3 million per branch)

  • Cole Taylor Bank, whom the Fed just recently concluded “engaged in a deceptive practice relating to the checking account opening process.”  And who did Cole Taylor target? College students on financial aid.

  • The Northern Trust Company, a private bank that charges premium prices for premium service to high net worth individuals.

Use our product comparison tools for checking and savings accounts to ensure you aren’t losing too much to the banks in hidden fees. 

Below are the results of the MagnifyMoney analysis of the data:

Views from Former Insider

It is important to understand how banks make money on their retail banking business. Fees in banking (checking and savings accounts) are usually reserved for the very poor and the very rich.

  • If you keep very little money in the bank, then banks look to make money by charging monthly maintenance fees and overdraft fees (with overdraft being the most lucrative)

  • If you have $1,500 or more in deposits (minimum balance, every day), you will pay very few fees.  And if you have $20,000 or more – you will pay virtually no fees (and banks will be happy to reverse fees when they are charged).  Why?  You are providing cheap deposits that can be used for lending.

  • If you have a high net worth / private banking relationship (assets in the millions), then you often pay for high-touch service.

#1 on the list is Fort Hood Bank, targeting the people who serve our country in the armed forces.  Their customers will likely have limited assets, and the fee revenue will likely be dominated by overdraft and NSF fees.

#2 on the list is Cole Taylor Bank, which has made news targeting college students on financial aid, who also have limited assets.

#3 on the list is The Northern Trust Company, a private bank.  The average account generated $477 in fees last year. They have 77 offices.

#4 is Bank of America, with 5,319 branches. BofA looks particularly bad when compared to the other big 4 banks:

  • Bank of America charges, by far, the most fees per branch.  23% more than Wells Fargo and 27% more than Chase.

  • Citibank only generates $278,210 per branch, 72% less than Bank of America.  Citi does not have an extended overdraft fee.

I believe that the overdraft market is ripe for disruption. The revenue generated from the activity bear no relation to the cost of providing the service. My thoughts on how we can make the system better are here.

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Eliminating Fees

You’ll Be Shocked Where We Found The Best Savings Accounts

Nick Clements July 25, 2014

 

Male hand putting coin into a piggy bank

Interest rates are low, but just because they are doesn’t mean you can’t shop around for a much better savings rate.

If you’re keeping your savings at your local bank branch you’re missing out on the best rates. In fact, there are safe online-only alternatives that pay 100 times more interest than the 0.01% rate you’re probably getting at your local bank.

On $25,000 in savings, that can mean an extra $247 a year in interest. And unlike CDs there are no early withdrawal penalties. Your deposits are also fully FDIC insured.

Here are some of the best rates available right now from nationwide online banks as of September 15, 2014:

1. Salem Five Direct (1.00%)

Salem Five Direct offers 1.00% on all balances up to $500,000 with no fees or other restrictions. Salem Five Direct is the online subsidiary of Salem Five bank in Massachusetts, founded in 1855.

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> Learn more here

2. Synchrony Bank (0.95%)

Formerly GE Bank, the Synchrony Optimizer Plus High Yield Savings offers 0.95% on all balances. There is a $5 per month fee if you let your balance fall below $50. You can withdraw over the phone, with an ATM card, or by online transfer.

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> Learn more here

3. CIT Bank (0.95%)

If you hold a daily balance of $25,000 or more, CIT will offer a 0.95% rate. Otherwise you will earn a lower 0.90% rate. This is less generous than Synchrony, which has no daily balance requirement to earn the highest rate. CIT has been in business for over 100 years as a commercial bank.

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> Learn more here

4. Ally Bank (0.90%)

Ally is a great simple bank that is well known for its customer service standards, winning Best Online Bank three years in a row. Ally offers 0.90% with no minimum deposit or maintenance fees of any kind. When you want to withdraw funds, you can do it over the phone, online, or do a check request or wire transfer. Just note that wire transfers have a $20 fee.

Many people with an Ally Savings account have a checking account with them, and enjoy no ATM fees of any kind. Ally reimburses any ATM fees other banks may charge at the end of the month, so you’re free to access your money anywhere.

> Learn more here

Be sure to use our customizable comparison table to find the best savings account for you.

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Eliminating Fees

Shockingly, Bank of America Is Actually a Good Option for Someone

Nick Clements July 25, 2014

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This week, two new products have been announced that specifically target the un-banked:

  • Citibank Access Account
  • GoBank, in partnership with Wal-Mart

Nearly 10 percent of Americans do not have bank accounts, and these new products promise to make it easier and cheaper for people to enter the banking system. These accounts come after the introduction of Bluebird (by American Express), Liquid (by Chase), Safe Balance (by Bank of America) and Opportunity (by Wells Fargo).

If you need access to a basic account, but have difficulties opening an account (because of bad previous history that is now reported on your Chexx Report), or you want to avoid the high overdraft fees, these accounts could be for you.

None of the accounts offer the ability to borrow money. So, you should only view these as low-cost transaction accounts, and will need a separate strategy (like a credit card from your local credit union) for any borrowing needs you might have.

We have reviewed the products to see which offers the best deal.

No account is perfect. In summary:

  • If you need to write personal checks, and you don’t mind a six day hold on check deposits, then BlueBird is for you
  • If you don’t need to write checks, then:
    • Citi is best if you have a monthly direct deposit, or you can keep at least $1,500 in your account
    • Bank of America is best if you don’t have a direct deposit or high level of funds to keep in the account

And the cheapest account is….

Bluebird by American Express is the cheapest account:

  • $0 monthly fee, with no direct deposit requirement and no minimum balance requirement
  • No overdraft and NSF fees
  • MoneyPass ATMs are free; $2.50 at other ATMs

If you have a monthly direct deposit, you can have a fee-free account at GoBank, Wells Fargo or Citi. However, GoBank has long check hold times, and Wells Fargo still has expensive overdraft fees.

If you do not have a direct deposit, then the cheapest accounts are Chase and Bank of America (both at $4.95 per month). However, Chase does not offer BillPay, whereas Bank of America does.

The most services are offered by….

Bluebird by American Express enables BillPay and the ability to write checks. None of the other accounts offer check writing.

If writing checks is not important, you still have access to BillPay at Bank of America, Citi, Wells Fargo and Go Bank.

Ability to Deposit Funds

The banks (Chase, Bank of America, Citi and Wells Fargo) enable access to their branch and ATM network. In addition, for any deposited check, $200 would be made available on the next business day.

However, Bluebird and GoBank have very long hold times (they do not promise less than six days).

In Conclusion

None of these products are perfect, but they could be useful if you need access to a bank account.

If you don’t deposit checks, than BlueBird could be a great option. The Wal-Mart cash register becomes your branch, and you can keep this account completely free. However, the long hold time may make this account impossible to use.

If you do need to deposit checks, and don’t have a direct deposit, than Bank of America has the best offer. You will need to pay $4.95 per month, but you get access to the entire Bank of America network.

Unfortunately, none of these products offer overdraft protection at reasonable prices. If you need to borrow money, you will need to find other options.

 

 

Do you have experience with being “unbanked” you’d like to share? Get in touch withus on Twitter, Facebook, email (info@magnifymoney.com) or in the comment section below.

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Eliminating Fees

When Free Actually Means Free: Shockingly Good Checking Accounts

Nick Clements July 25, 2014

Pretty Young Multiethnic Woman Holding Phone and Credit Card Using Laptop.

People hate paying fees. And there is nothing worse than hidden fees, ridiculously expensive fees, or both.

Checking accounts have been around a long time. In all of that time, banks have found lots of ways to charge annoying, expensive fees. And, the big banks (Citi, Chase, Wells Fargo and Bank of America) are the worst. With checking accounts, banks make their money in four ways:

  1. Monthly account fees
  2. ATM fees
  3. Overdraft / NSF fees
  4. Big balances (with no interest)

We have reviewed thousands of bank accounts. And here we introduce you to the best. There is a theme: if you want an amazing account, you have to give up branch banking. You are paying far too much for the “convenience” of branches. And we will show you why.

The Best No-Fee Checking Account (without the ability to go overdraft)


NO monthly fee, with no minimum balance or direct deposit requirement

NO ATM fees,including reimbursement of fees charged by other banks. You can use any ATM in the country for free

NO Overdraft or NSF fees, ever. If you make a mistake, the transaction will be declined and you will not be charged a fee.

In addition, they have great online and mobile functionality, as well as an onshore call center that can help you with your customer service needs.

In addition, you do have the opportunity to earn interest on your checking account. You can earn a total of 1.25%. Each of the following items helps you to earn 0.42%:

  • 0.42% for a direct deposit of at least $1,000
  • 0.42% if you use your debit card 10 times a month

Another 0.42% if you use your debit card 15 times

So, if you have direct deposit and use your debit card 15 times, then you earn 1.25% (0.42% + 0.42% + 0.42%)

If you often go overdraft, then this is not the account for you. However, there is an account made just for your needs.

The Best Checking Account for Overdraft (you need short-term borrowing)


If you find that you regularly go overdraft and need the option for short term borrowing, then there is no better option than Capital One 360.

NO monthly fee, with no minimum balance or direct deposit requirement.

NO ATM fees. However, you will not be reimbursed for other bank ATM fees. To avoid ATM fees, you have to use Allpoint ATMs

To sign up for overdraft protection, you have to apply for a line of credit. Once that line of credit is set up, then Capital One does not charge a fee for transferring money from the line of credit to the checking account. You are only charged interest for the days that you borrow the money.

For example, if you borrow $100 for 10 days, then you would be charged:

  • $70 at Bank of America
  • $0.31 at CapitalOne 360

But, don’t I need a branch?

Both of the accounts that we highlight in this article are internet-only banks. That means they do not have branches. (At CapitalOne 360, you do not have access to the Capital One branch network).

For most people, branches are truly a thing of the past. However, you may still need a branch if:

  • You handle a lot of cash, including the need to make frequent cash deposits
  • You need to generate cashier’s checks on a moment’s notice. (That may only happen once a year, when you sign a lease)

To get access to a branch network, without getting stuck into their fee structure, we recommend that you:

  • Choose the internet-only bank account that makes the most sense for you, and then
  • Put the minimum amount required into a traditional checking account so that you have access to their branches.

To find a traditional branch where you can open a bank account, you can use the MagnifyMoney checking account tool. Input your zip code, a very small amount of money that you would keep in the account (for example $215) and look for the first cheap option near you.

 

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In this zip code, you find M&T Bank with no charge. It is completely free checking. (The other fees are very high, so you don’t want to use it for everyday banking. But, you can open an account so that you can use the branch if you ever need to deposit cash, get a cashier’s check, or do any other branch-based banking).

 

 

Conclusion

Branch-free banks are great. You can get an account with no monthly fees, free use of any ATM (of any bank) and no overdraft fees. Checking accounts are old and boring. You shouldn’t have to pay for them.

 

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Eliminating Fees

Banks That Will Pay For Your Broken iPhone

Nick Clements July 25, 2014

Pretty Young Multiethnic Woman Holding Phone and Credit Card Using Laptop.

Buying a new iPhone 6? You might want to think twice before shelling out $99 for AppleCare protection.

That’s because several banks and credit unions offer credit cards with a little known perk called Cellular Telephone Protection coverage, which will reimburse you if your phone is damaged or even stolen.

It’s a leg up on AppleCare, which won’t cover you for theft. And it’s on top of warranty extensions or purchase protection your card might already offer.

MagnifyMoney.com reviewed the coverage of over 25 banks and credit unions that offer this feature, and here are the findings:

What do you need to do?

Just pay for your monthly cellular plan with the eligible credit card. Each month you do, you’ll be covered. You don’t need to buy your phone with the card, so any phone you have can get coverage as long as you start paying the monthly bill with your card.

How much does it cover?

It varies from $200 to $600 per incident, with Wells Fargo offering the most generous coverage at $600 per incident reimbursement:

Wells Fargo: $600
First Citizens Bank: $500
Credit Union West: $250
Purdue Federal Credit Union: $250
Suntrust (Visa Signature only): $250
Energy Capital Credit Union: $200
Fifth Third: $200
University and Community Credit Union: $200
Aggieland Credit Union: $200
Education Credit Union: $200
Greater Texas Federal Credit Union: $200
IBM Southeast Credit Union: $200
Scott Credit Union: $200
UnitedSA Credit Union: $200

And you can do it for as many years as you’d like, unlike AppleCare which will only cover you for two years and ends completely after two incidents.You can request reimbursement twice per year, so for example with Wells Fargo you could get $1,200 covered each year.

What is the deductible?

It’s better than AppleCare, which charges you $79 per incident for damage.

Wells Fargo charges just $25 per claim. Most other banks and credit unions with the coverage charge $50, still better than AppleCare.

How does replacement work?

If your phone can’t be repaired, the insurance provider will pay for a replacement purchased directly from the store (in person or online) of your wireless carrier.

There is a catch: your phone might be more expensive than $600 when bought brand-new without a contract extension.

New iPhones run $649 to $800+ depending on features.

So, you might be on the hook for an extra $200 or $300 if you badly damage the phone in its early days.

But that’s a reasonable price to pay considering you’re getting the insurance at no upfront cost to you.

Insurance direct from your wireless provider often costs $50 per year or more, and it carries deductibles as high as $150 or more for more expensive phones.

If you’re someone who wants insurance on your phone, it’s probably worth opening up an account with a bank or credit union that offers superior protection.?

Have questions? Get in touch via?Twitter,?Facebook,?email?info@magnifymoney.com?or in the comment section below!

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Eliminating Fees

Personal Finance Education Can Prevent Overdraft Charges

Nick Clements July 25, 2014

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The simple mention of overdraft charges is enough to cause metaphorical steam to start pouring out of people’s ears while their eyes fill with very real rage.

During a financial literacy workshop at Brooklyn College, the MagnifyMoney.com team discovered one simple way to prevent future debt and unnecessary bank charges: education.

Unfortunately, modern collegiate curriculums are woefully lacking in personal finance education. While personal finance is arguably one of the most important skills a person uses throughout his or her life, there is little to no mention of how to handle money during a students’ college career.

The two-hour workshop with Brooklyn College students proved how quickly important financial information can be passed along in a meaningful, understandable way.

MagnifyMoney’s co-founder, Nick Clements, looked around at a group of 40 students and inquired, “how many of you have paid overdraft fees to your bank?”

About five students shot their hands shot into the air, before ten or so more cautiously admitted to a financial fumble.

“And how many of you felt paying $35 to your bank for a potentially small mistake wasn’t a big deal?” Clements pressed?

The anger about being charged an overdraft charge suddenly electrified the room before one student broke the tension.

“I felt duped,” he said. “I didn’t even realize my account was so low and then an unexpected charge came in and caused me to go into overdraft for just a few dollars.”

Another student admitted to being charged about $70 because he ended up with two overdraft charges on the same day.

“Have you ever considered ditching your bank to find one that didn’t slap you with such heavy fees?” Clements asked the group of students.

A pregnant pause followed his question before he continued to explain you don’t have to remain in a bad banking relationship.

In fact, MagnifyMoney.com emphasizes how banks don’t reward loyalty, so customers needn’t give their banks the same kindness.

Banks are focused on acquisition. The way banks can afford to lure in new customers with deals like $250 bonus to open a checking account or $100 cash back after the first $1000 spent on a card, because they increase costs on existing customers.

Overdrafts are just one way that banks rake in massive amounts of money to protect their bottom line while spending the money to court potential customers. In fact, Bank of American annually generates nearly one million dollars per bank branch in hidden fees alone. Hidden fees include overdraft charges, ATM fees, monthly maintenance fees and non-sufficient fund fees. So just one Bank of American on the corner of a city block is bringing in almost a million bucks simply by charging existing customers fees.

The rise of Internet-only banks has made it much easier to get rid of many of these hidden fees. Banks like Ally, Simple, Bank of Internet USA and Charles Schwab reimburse ATM fees, don’t require a minimum deposit or monthly maintenance fee, and provide legitimate overdraft protection or much cheaper fees or even no overdraft fees.

For those ready to take the plunge and leave their bad banking relationships behind, MagnifyMoney.com offers a simple way to evaluate the best bank (or credit union) for you. Simply go to our Checking Accounts comparison table and customize it for your situation. We also recommend doing a separate search for a savings account to ensure you’re getting the highest interest rates available.

Don’t deal with a bank that may slap you with a $35 fine for a $2 mistake. The punishment simply doesn’t fit the crime. Switch to a financial institution that will treat you with respect and save you money in the process.

If you find yourself consistently slipping into overdraft, then please reach out to us for help.  You can reach the MagnifyMoney team at info@magnifymoney.com or on Twitter @Magnify_Money or Facebook.

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Eliminating Fees

New Study: Overdrafts confuse, extract and exploit

Nick Clements July 25, 2014

review-full

 

The Pew Charitable Trust has just released a report on bank overdrafts. Not surprisingly, the report shows that consumers are confused, unhappy and willing to take action. The report also shows that, although the median overdraft fee is $35, people paid an average of $69 for their most recent overdraft. In the majority of overdrafts people borrow less than $50 for fewer than 4 days.

So, people spend, on average, $69 to borrow $50 for 4 days. No wonder they are confused, unhappy and willing to take action. Overdrafts in the US are often more expensive than payday lending. And their structure makes them one of the most expensive forms of short-term borrowing in the world, as I have previously outlined here.

Unfortunately, the complexity of the system makes it difficult for people to understand the true cost of overdrafts, compare options and – when they do take action – switch to a bank that is actually better. At MagnifyMoney, we are trying to help people compare, switch and save.

Confused

52% of overdrafters do not believe they have opted into overdraft coverage.

One of the biggest myths out there today is that you can opt out of overdraft protection entirely. You can not.  Regulation E only allows you to opt out of overdraft (and avoid fees) for any ATM or debit card transaction. So, even if you opt out of overdraft coverage, you could still be paying overdraft fees on checks and electronic payments (like your car insurance that is debited monthly, or billpay that you complete online).

No wonder people are confused. They are told they can opt out of overdraft coverage, and they think they have. But then the car payment is automatically debited and they are hit with a fee.

Unhappy

Most overdrafters paid 3 or more penalty fees

An overdraft is simply a short-term loan. But, rather than charging interest on money borrowed, banks charge fees per incident. You make one mistake and get charged $35 (the famous $40 latte).

Even worse, many banks levy extended overdraft fees. Every day that you are overdraft could result in more fees being charged. At Bank of America, for example, you will be charged another $35 if you do not pay back your overdraft in 5 days. So, you could be charged $70 to borrow $5 for 5 days.

The report shows that 58% of people learn about their overdraft via the monthly statement or the mail. Given the time lag, that increases the chance that people will pay an extended overdraft fee. And it is not surprising that the average incident costs $69 in the study, compared to an average $35 fee.

This adds up to a lot of money. We looked at fee income by branch, and every single Bank of America branch is making nearly $1 million every year.

Willing to Take Action

28% of overdrafters say they closed a checking account in the past because of overdrafts. 19% wanted to discontinue the service.

Overdraft policy at traditional branch-based banks is like the song lyrics of Hotel California: you can check out, but you can never leave.

People trying to opt out need to recognize that they can not. They will only be able to opt out of debit and credit overdraft coverage. But checks and electronic payments will still continue to hit them.

Comparing overdraft policy between traditional branch-based bank accounts can be very difficult, and banks make it difficult on purpose. But, if your goal is to avoid the risk of either a $35 overdraft fee or a $35 NSF fee, it will be almost impossible to find a traditional bank that does not charge fees that high.

Only banks without branches (internet banks) are truly revolutionizing the way that overdraft fees are being charged. For example:

  • Ally Bank only charges $9 per day that you go overdraft.  And, if you have money in a linked savings account, they will transfer the money at no cost.
  • Bank of Internet USA has no overdraft fees and no NSF fees
  • Capital One 360, the internet-only bank of Capital One, will transfer money from a line of credit for free and will only charge interest for the days that you borrow the money. They treat an overdraft like the loan that it is, and dramatically reduce the costs as a result.

We find it interesting that Capital One has re-written the rules on overdrafts for their online bank, but have kept the old system in place for their branches.

People are angry and unhappy. But, switching from one traditional bank to another will not solve the problem. And opting out will not provide complete protection. For people looking to eliminate overdraft fees entirely, they will need to consider branch-free banking.  You can compare bank accounts here.  And we have put together some educational material (including video) on overdrafts as well.

Banks will continue to charge overdraft fees as long as they can get away with it.  The fees are completely out of proportion relative to the service provided.  I encourage you to consider ditching your traditional bank completely.  I switched to Ally, and haven’t looked back. With overdraft fees, you are paying a lot for the convenience of a bank, and you have to ask if it is worth it.

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Eliminating Fees

The Cost of an Overdraft in Chattanooga

Nick Clements July 25, 2014

review-full

 

If you go overdraft, banking fees can be very expensive. And the rules are not always clear or easy to understand.

MagnifyMoney.com went on the road last week, and spent 3 days in Chattanooga, working with people and helping them save money.  We met a lot of people who have been hit with overdraft fees.

We have reviewed the FDIC regulated banks serving Chattnooga in Hamilton County.  There are $6 billion of deposits sitting in 14 banks, with 104 branches.

The average overdraft fee in Chattanooga is $33 per incident, with a range of $24 (Citizens Tri-County Bank) to $36 (SunTrust, Regions Bank, FSG, BB&T, Synovus, First Citizens Bank & Trust).

But beware the extended overdraft fee.  If you account remains negative, 43% of Chattanooga banks will continue to charge you fees.  That is why the actual cost of $100 overdraft for 15 days can range from $29 to $77.  Choose your local bank wisely if overdrafts are an issue.

We also think you should consider an online bank (like Bank of Internet), which charge no overdraft fees and no NSF fees.  I switched to an online bank, and haven’t looked back.  You can look at the options on our checking account comparison page.

Here is the result of our survey:

 

 

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Eliminating Fees

Do You Have the Right Overdraft Protection?

Nick Clements July 25, 2014

doineedoverdraftprotection-lg

Unless you keep your money in a tin can underneath your bed – which we don’t advise – you’re subjected to the fine print policies of whatever financial institution you trust with your assets. Unfortunately, the banks sometimes come off as something more akin to Tony Soprano than a knight guarding your wealth.

The restructuring of transactions (or “high to low processing” as the banks call it) is one way to force you into paying more fees if and when you go overdraft.

Be sure to read What are Overdraft Fees?

I thought the government passed a law to protect me?

Yes, the government did pass Regulation E, but most of the old tricks remain in place and high to low ordering is legal. Some of the biggest banks stopped the practice in an attempt to appease regulators, but ironically smaller banks are the ones most likely to still be reordering your transactions.

The protection of Regulation E is related to debit and ATM transactions.  You have the right to opt out of overdraft for debit and ATM.  If you opt out, then your transaction would be declined and you would not be paying the overdraft fee for going into negative numbers. But remember that some banks still charge you a NSF (non-sufficient fund) fee. But for checks, electronic transactions (which include using your debit card as a credit card) and bank fees, the practice remains exactly as it was.

Can I enroll in protection?

Yes, you can.

Protection means that you link an account (usually a savings account, credit card or line of credit).  If your checking account does not have enough money, then money is transferred from your savings, credit card or line of credit.

This doesn’t save you from fees though. Banks will typically charge a transfer fee to the checking account. The fee is usually somewhere between $10 to $12 per day that you have an overdraft.

If you link your savings account, then it is very straightforward. You pay the bank to transfer money from your savings account to your checking account. You’re still forking over $10 to $12 for something that costs the bank fractions of a cent.

If you link a credit card, the story is more complex. Most credit cards will charge you a cash advance fee, and will start charging interest at the cash advance rate from Day 1. That rate is usually close to 30%.

Linking a line of credit is usually the cheapest way to borrow. Typically there is no fee on the line of credit, and the interest rates tend to be lower. Not surprisingly, lots of credit unions offer a line of credit. Of the Big 4 banks (Bank of America, Chase, Citi and Wells Fargo), only Citibank offer a line of credit.

Overdraft protection doesn’t protect from fees

Back to the Tony Soprano reference, buying protection doesn’t entirely protect you. Even if you enroll in overdraft protection, you can still be charged an Overdraft or NSF fee. If you link your savings account, and there is not enough money in the savings account, then you would be charged an NSF or Overdraft fee.

Is this fair?

We don’t think so. But our job is to help you understand the rules and find the best way to avoid fees.

Find out how certain banks are starting help consumers

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Eliminating Fees

How Overdraft Fees Silently Rip You Off

Nick Clements July 25, 2014

overdraft-fees-lg

It’s Thursday, the day before payday. You only have $50 left in checking and have forgotten that your gym membership of $70 will be automatically debited from your account today. Normally, you’d transfer a little bit out of savings to cover the cost if you needed to, but you didn’t do it in time. The bank approved your gym’s charge and now your balance is negative $20.

Whoops, you’ve gone overdraft.

33% of Americans have gone overdraft in the last year

In a recent survey, MagnifyMoney discovered 33% of Americans have gone overdraft in the last year. If you haven’t yet, it is bound to happen at some point. Either we make a mistake, or we actually run out of money.

Going overdraft in the United States – even accidentally – is one of the most expensive ways to borrow money in the world.

  • Banks charge effective APRs > 1,000% – making them worse than payday lenders

  • Banks have purposefully made the system obscenely complex.

  • Banks regularly re-order transactions in the background, increasing the fees you pay and stacking the deck against you

The U.S. always wants to be #1…

Unfortunately, overdrafts in the US are the most expensive form of short-term borrowing I have seen in the world.  Yes – it is more expensive to borrow here than in the UK, Russia or Mexico! Banks made $32 billion last year in overdraft fees alone.  And, in our survey, borrowing $100 for 7 days could cost up to $300 in fees!

How do fees work?

In the example of the gym membership, the bank has 2 choices: approve the transaction or decline the transaction.

If they approve the transaction, then you go overdraft and will be charged an overdraft fee. The average fee is about $35 per incident.  You can be charged multiple times a day.  One of the worst examples is Citizens Bank, which charges $37 per incident, up to a shocking 7 incidents per day. I’ll save you whipping out the calculator, that’s $259 in fees for a single day!

When your account is overdrawn, the balance is negative. You have to bring the balance positive (by putting money into the account), or else you will be charged an extended overdraft fee.

At Bank of America, you would be charged another $35 if the account is negative for 5 days. And remember: you have to cover both the amount you borrowed and the fee.  In the case of the gym membership – you would have to pay the $20 you borrowed and the $35 fee in 5 days, otherwise you are charged another $35!

If the bank decides to decline the transaction, you still get charged a fee.  This fee is called an NSF fee aka non-sufficient-funds fee.  And, guess what?  The fee is still a shocking $35 per incident.

So: you are charged $35 if it is approved or declined.

Doesn’t the bank also mess with how my transactions are posted?

In a normal world, transactions that take place at 8AM will be deducted from your checking account at 8AM.  Unfortunately, the rules are stacked against you.  Rather than posting the transactions when they actually happened, a lot of banks post transactions when they wish they would have happened.

Nearly 50% of banks use what is called “high to low processing.”  They take all of your transactions from the day, and deduct them from your account from highest amount to lowest amount (and they do this at the end of the day).  That means you will go overdraft sooner, and you will pay more fees.

Imagine you have a balance of $50.  You have 2 transactions: a morning trip to Starbucks for $5, and then dinner for $55.  If the transactions were posted in order, then you would only have one overdraft transaction: the dinner for $55.

If the transactions were posted from high to low (and not in the order they happen), then you would have 2 overdraft transactions!  At an average bank, that would increase the fee from $35 to $70!

And that is perfectly legal.

Tell us about your worst overdraft fee and then read on about overdraft protection.

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Eliminating Fees

Calling Out the Banks: Fix the Overdraft Market

Nick Clements July 25, 2014

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Overdraft protection sounds like a program that would, I don’t know, protect you? Instead it helps lessen the fees but still gives banks the opportunity to charge you $10 to $12 (if not more) for transferring your money to cover an overdraft.

Understand what you’re up against

When I worked in banking, we would look at certain warning signals.  If a product is excessively complex and extracts revenue that is exponentially higher than the cost of providing the service, then something is wrong.

I believe the overdraft market in the US is fundamentally broken, and has morphed into the worst type of predatory lending.

I have a really simple solution, and banks all over the world are already doing this.

  • Declining a transaction costs banks fractions of a cent, so charging consumers a $35 decline fee is obscene.  The most they should charge is a few dollars. Some new entrants charge nothing at all – and they are right to do so.

  • An overdraft is a short-term loan.  Lets stop talking about fees, and start talking about interest rates

    • Checking accounts should have a disclosed overdraft limit.  In other words, you should know that you can go up to $500 overdraft

    • The bank should charge a fair interest rate for the money you borrow – and only for the days that you borrow the money

Some banks are reasonable when it comes to overdraft

First Direct, one of the most popular banks in the UK, offers the following:

  • Free overdraft protection up to $250

  • A line of credit above $250 (the better your credit score, the higher the available line).  The interest rate is about 15%.  You don’t pay a fee-only interest for the days that you use the credit line.  So, if you borrow $100 for 7 days, you would pay about $0.29.

  • If you use your entire overdraft line, and the bank declines additional transaction, you pay nothing.

Banks should make money.  This is not a charity.  But they should offer transparent pricing that is easy to understand and compare.  And the profit should be in line with the cost of providing the service.

Consumers should be able to compare and choose the best option – just like any other consumer product. Fortunately, we’re helping you do just that.

Banks that respect you and your money

Consider switching to an internet-only bank. I have made the switch.

If you have a few instances of going overdraft because of a simple mistake, then consider Ally Bank.  You get one of the best interest rates on the market for your savings account. And, if you go overdraft, Ally DOES NOT CHARGE YOU for transferring money from your savings account to your checking account.  Why you ask? Because, it doesn’t cost them anything to do it!

If you go overdraft because you need the money, then Capital One 360 might be right for you. This is the old ING Direct.  They act a lot like First Direct of the UK: no overdraft transfer fee, a line of credit, and you only pay interest for the days that you are overdraft.

If you never want to go overdraft again – and wish the bank would just decline your transaction and not charge you a fee, then look into Bluebird or Serve (both from Amex). Bluebird is in partnership with Wal-Mart.  You can never go overdraft, and you will never be charged an NSF fee.

Even if you love brick-and-mortar bank branches, do the math to see if switching to an internet-only bank could save you a substantial amount of money in fees – and don’t forget the cost of gas!

Want to know more about Internet banking? Check out this article.

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