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Eliminating Fees

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

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Banks make a lot of money from basic checking and savings accounts. It may seem surprising that boring, basic accounts remain such big money-makers for the banks, but banks are making billions every year, largely because we stay with large traditional banks for no apparent reason. Banks call it “inertia,” and they profit from it.

promo-savings-halfOn savings accounts, banks make money by paying depositors virtually no interest. Most major banks pay an interest rate of only 0.01% on their savings accounts. And then they use the money customers deposit to make loans at much higher rates. So, we are basically giving interest-free loans to banks.

There is good news: we no longer have to settle with 0.01%.

Branch-free banks are challenging traditional banks by paying interest rates of 1% or more. That may not seem like a big number, but it can be. If you have a $20,000 savings account, that is the difference between earning $2 or $200 of interest a year. We have compiled a list of the highest interest rate savings accounts, which we update daily. The banks do not pay us, so our recommendations are completely unbiased.

After raking in money on savings accounts, Banks turn their attention to checking accounts. Banks make most of their money by charging the following fees:

  • Overdraft fees: which represent approximately 60% of the fees charged by banks. Only 10% of the population pays 75% of the fees, and they tend to be the most economically vulnerable, including our troops.
  • ATM fees: which can add up quickly. If you go out of network, you pay ATM fees to two banks: your bank, and the bank that owes the ATM
  • Monthly fees: which most people get waived. A direct deposit or minimum balance usually takes care of this fee.

And these numbers add up quickly. We have used FDIC data to see which banks charged the most per branch in fees on checking and savings accounts. Although we expected big numbers, even we were surprised at how much fee income was generated. Bank of America was the worst offender of the big banks, generating nearly $1 million per year per branch in fees. Every time you drive by a Bank of America branch, remember that the bank is earning $1 million in annoying fees alone.

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We list the fees per branch below. But, just like with savings accounts, there are new alternatives out there. You can now get a bank account with no monthly fee (and no direct deposit requirement), no ATM fees (including reimbursement of other bank ATM fees) and no overdraft fees. Some of our favorite options include Bank of the Internet and Ally Bank. But you can compare all of the account on our checking account page.

If you are drowning in overdraft fees, or travel and are tired of ATM fees, then switching is a no-brainer. But, you may be thinking that you never pay any fees and don’t really have any problems with your bank. I was in that camp. But then I decided that I didn’t want to stay with an organization that just waits for me to make a mistake, and then charges an outsized fees. Like any other industry, I want to reward better organizations with my business, and I switched to Ally.

Stay Up to Date

price checker thumbnailAt MagnifyMoney, we want people to get in the habit of comparing, ditching and switching. If you find a gas station with cheaper gas, you switch. But, most Americans just stay with their bank. We want people to pay attention to the rate, tricks and traps and be ready to switch when a better deal is out there.

To keep you informed, we created our PriceChecker email, which goes out twice a month. With a quick glance, you can see if you have the best rate on your savings account. We also show the best mortgage rates, credit card deals and cashback rewards. And, whenever we find a fine print trap, we let you know about it. You can sign up for our email list here.

Comparision most fees per branch

#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.

At MagnifyMoney, we 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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Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Eliminating Fees

New Study: Overdrafts confuse, extract and exploit

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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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.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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The Cost of an Overdraft in Chattanooga

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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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:

Bank

# of
Offices

Deposits

Offer Free
Checking?

Overdraft
Fee

Max
Overdraft
Fees per Day

Extended
Overdraft
Fees?


How Much?


Example: $100
How Much? overdraft for
15 days costs:

First Tennessee Bank

19

$2,033,410

No

$35

$140

Yes

$25 on days
15 and 25

$60

SunTrust

25

$1,538,699

No

$36

$216

Yes

$36 on day 7

$72

Regions Bank

21

$1,076,325

No

$36

$216

No

N/A

$36

Cornerstone Community Bank

5

$340,126

Yes

$29

Unlimited

No

N/A

$29

FSG Bank

8

$280,391

Yes

$35

Unlimited

No

N/A

$35

Bank of America

4

$211,729

No

$35

$140

Yes

$35 after 5
business days

$70

First Volunteer Bank

5

$153,894

No

$32

Unlimited

No

N/A

$32

BB&T

4

$85,355

No

$36

$216

No

N/A

$36

Northwest Georgia Bank

4

$69,020

Yes

$31

$186

No

N/A

$31

Citizens TriCounty Bank

2

$66,064

No

$24

$144

Yes

$3 per day
starting on day 4

$60

Synovus

3

$52,020

No

$36

Unlimited

Yes

$35 after 7 days

$71

First Bank

2

$51,884

Yes

$32

Unlimited

Yes

$5 every day,
starting on day 7

$77

First Citizens Bank & Trust

1

$29,703

Yes

$36

$144

No

N/A

$36

SouthEast Bank

1

$18,525

Yes

$30

Unlimited

No

N/A

$30

Source: FDIC,bank websites and call to bank call centers

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Eliminating Fees

Do You Have the Right Overdraft Protection?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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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, 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

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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How Overdraft Fees Silently Rip You Off

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

How Overdraft Fees Silently Rip You Off

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.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Eliminating Fees

Calling Out the Banks: Fix the Overdraft Market

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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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.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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