How to avoid the 12 most common bank fees

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.

  • Many banks charge monthly service fees, overdraft fees, and out-of-network ATM fees.
  • You may pay for closing your account soon after opening it, or for keeping your account inactive.
  • You can avoid most bank fees by planning ahead or choosing a bank that doesn't charge certain fees at all.
  • See Insider's picks for the best no-fee checking accounts »

Keeping your money in a bank can be expensive. Banks charge fees on everything from ATM transactions, to overdrafts, to paper statements. 

The good news? There's a way to avoid paying most bank fees. The first step is to be aware of what these fees are. The next step is to either be strategic or choose a bank that doesn't charge a certain fee.

1. Monthly service fees

Many banks, especially brick-and-mortar institutions, charge monthly service fees on accounts. These are just fees you'll pay every month, and the bank usually automatically withdraws the money from your account.

The fee could be as little as $5. Sometimes banks charge higher fees on bank accounts that pay higher rates or come with more perks.

With some banks, monthly service fees are nonnegotiable. Others won't make you pay if you meet certain criteria. Maybe the bank will waive your monthly fee if you make at least 10 debit card transactions per month, or if you maintain a minimum $500 daily balance.

How to avoid monthly service fees

Does your bank charge monthly service fees? Check what the requirements are to waive them. If you pay a fee every month unless you keep a $500 balance, try to keep at least $500 in your account at all times. The rules should be listed on the bank's website, or you can call to speak with a customer service representative. 

Another option is to choose a bank that simply doesn't charge monthly service fees. This is often the case with online banks — Discover, Ally, or American Express, to name a few. By banking with a company that doesn't charge monthly fees, you don't have to worry about whether or not you're meeting the requirements each month.

2. Overdraft fees

Most banks charge you a fee if your checking account balance goes below zero dollars. A bank imposes an overdraft fee if a purchase would overdraw your account, and the company covers your overdraft so the transaction goes through. This is typically the process when you swipe your debit card but don't have enough money in your checking account to cover the purchase.

Overdraft fees vary by bank, but they usually come to $30 or $35 each time you overdraw. Banks also have a limit on how many times you can be charged each day. Maybe you don't realize you've overdrawn your account, so you swipe your debit card three times in one day. You could end up paying around $100 in overdraft fees that day.

How to avoid overdraft fees

Your bank should have an overdraft protection option, but you'll likely have to set it up yourself rather than be enrolled automatically.

With overdraft protection, you typically link your checking account to a savings account. If you overdraw, money moves from savings into your checking account so your balance stays above zero dollars.

Other banks have an overdraft line of credit option. When you overdraw, you automatically borrow money from a line of credit. You'll have to pay the money back, sometimes with interest. It's a similar setup as a credit card.

Some companies, such as Chime and Wealthfront, don't have overdraft fees at all. If a purchase would overdraw your account, they just deny your transaction.

3. Overdraft protection fees

Yes, you can use overdraft protection to avoid paying an overdraft fee. But some large banks charge a smaller fee for tapping into overdraft protection. 

The banks that charge overdraft protection fees are usually large, national banks. For example, Bank of America charges a $35 overdraft fee, or a $12 fee when you tap into overdraft protection.

How to avoid overdraft protection fees

The easiest way to avoid paying overdraft protection fees is to make sure your balance never drops below zero dollars. You can track your balance online or via the bank's mobile app. Ask your bank about balance alerts, which are text messages or emails once your balance hits a certain dollar amount to let you know you're close to overdrawing.

You can also choose a bank that doesn't charge overdraft protection fees. There are plenty of institutions with free overdraft protection services, including Chase, Capital One, and Varo.

4. Insufficient funds fees

An insufficient funds fee is similar to an overdraft fee, but it's a little different. You'll pay a insufficient funds fee if a purchase would overdraw your account, and the bank denies your transaction.

A bank charges an insufficient funds fee when a check bounces or you don't have enough money in your account to cover an automatic payment. The fee amount and daily limits are usually the same as its overdraft fees.

How to avoid insufficient funds fees

Because these fees are similar to overdraft fees, enrolling in overdraft protection could help you out. You may also bank with a company that doesn't charge overdraft or insufficient funds fees.

5. Out-of-network ATM fees

Banks typically have ATM networks. Use an in-network ATM to check your balance or withdraw money for free.

But the bank may charge you for using an ATM outside of that network, usually $2 or $3. Additionally, the ATM provider will probably charge you a few more dollars.

How to avoid out-of-network ATM fees

Choose a bank that a) has a large ATM network, and b) has a machine close to your home or office.

You could bank with an institution that doesn't charge out-of-network fees. Some banks will also reimburse you if an ATM provider charges you. For instance, Alliant Credit Union won't charge you for using an out-of-network ATM, and it reimburses up to $20 per month for any fees charged by ATM providers.

6. Foreign transaction fees

A foreign transaction fee is a charge for using your debit card outside the US.

There are two main types of foreign transaction fees: one for buying something with your debit card, and one for using an ATM abroad.

Debit card issuers Visa and Mastercard both charge a 1% foreign transaction fee. Many institutions require you to cover this fee, and some charge an extra percentage on top of that.

For an ATM transaction, some banks charge the fee they'd normally impose for using an out-of-network ATM fee on top of the normal percentage they charge for foreign transactions. For example, TD Bank charges a 3% foreign transaction fee, plus an additional $3 for using an out-of-network ATM.

How to avoid foreign transaction fees

Foreign transaction fees are typically unavoidable if you want to use your debit card abroad. But to pay less in foreign transaction fees, you can withdraw more money at once so you don't have to return to the ATM later. You should also consider whether you feel safe carrying a large sum of cash, though.

Not all banks charge foreign transaction fees. If you travel regularly, you may want to choose a bank like Capital One, Charles Schwab, or Discover.

7. Excess transaction fees

Legally, you're restricted from withdrawing money from a savings account more than six times per month. Most banks charge a fee if you make more than six monthly transactions, usually around $10.

How to avoid excess transaction fees

During the coronavirus pandemic, banks are no longer legally required to penalize you for exceeding six monthly transactions. Some banks have waived their fees all together, others have increased the number of times you can withdraw. Check with your bank about its new excess transaction policy.

But how can you avoid these fees even after the law is reinstated? You may want to keep more money in your checking account as a buffer so you don't consistently need to use money from savings.

You could also open a savings account with a bank that doesn't charge excess transaction fees. The law is that banks must penalize you, not that they must charge a fee. Some institutions, like Synchrony and Discover, let you exceed six transactions a certain number of times, then close your account if you go over the limit too often.

8. Wire transfer fees

A wire transfer is a tool for moving money electronically from your bank to a friend or family member's bank. It can be especially useful if you don't have access to the recipient's bank. For instance, maybe you bank with a national bank but your friend banks with a local institution across the country.

You can send wire transfers within the US or internationally, and international transfer fees are more expensive. You can expect to spend $10 to $50 on a wire transfer.

How to avoid wire transfer fees

There are multiple ways to deposit money into someone else's account. Find out if there's a more affordable way to send money to a friend or family member.

You could send money electronically through an app like Venmo or Zelle. Or if you have easy access to the person's bank, walk in and ask to deposit cash or a check into their account. You will need their bank account information, though.

9. Paper statement fees

Most banks provide you with digital bank statements for free. Each month, you can log into your online account and check your most recent statement.

But if you want paper statements mailed to your home, you'll probably pay a fee of around $3 per month.

How to avoid paper statement fees

The only way to get out of this fee is to stop receiving paper statements.

Not sure if you're enrolled in paper bank statements? If you've received a statement in the mail, you are enrolled. If you still aren't sure, contact your bank to ask.

10. Lost debit card fees

Have you lost your debit card? Some banks charge you for ordering a replacement, and you might pay extra if you need an express delivery. You could end up paying between $5 and $30 to get a new card.

How to avoid lost debit card fees

The good news is that not every bank charges a fee for replacing your card, so if you've lost your debit card, don't freak out just yet. Some will only charge you for a rush order.

Otherwise, the best way to avoid this fee is just to hang onto your debit card. (If you tend to lose things, this is easier said than done!) It could be helpful to buy a wallet or purse to keep all your important items in one place.

11. Inactivity fees

Banks may charge a monthly inactivity fee if you don't use your account for a while, typically six months. You could pay up to $20 per month, which is a lot for a bank account you aren't even using.

How to avoid inactivity fees

If you aren't using this bank account anymore, consider closing it and moving all the money to a new account you'll actually utilize.

Do you have a reason for wanting to keep this account open, even though you don't tap into it much? To avoid an inactivity fee, make an occasional purchase with your debit card so the account stays active.

12. Account closing fees

You won't always pay a fee for closing your bank account. But you may be charged for closing it within, say, three to six months of opening it. You could pay around $25.

How to avoid account closing fees

First, ask yourself how long you expect to use a bank account before opening it. If you plan to open an account to receive a cash bonus, then close it immediately, it could backfire.

If you're considering closing an existing account, look up your bank's closing fee policy online. You may find out you only need to keep the account open for another month or two to avoid paying a fee. 

You may decide it's still worth it to close your account early, though. For instance, if you're paying a $25 monthly service fee, it would be financially prudent to pay $25 once to close your account a few months early.

There are multiple ways to cut down on common banking fees. But the easiest way is probably to work with a bank that charges low fees overall — especially monthly service, ATM, and foreign transaction fees.

Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews. She is also a Certified Educator in Personal Finance (CEPF). Over her four years of covering personal finance, she has written extensively about ways to save, invest, and navigate loans.

Get the latest Bank of America stock price here.

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.

Source: Read Full Article