Are ATM fees picking your pocket?

July 18, 2011

| MoneyRates.com Senior Financial Analyst, CFA

With ATM fees on the rise, now is a good time to take a long hard look at how you use cash machines. If you contribute to the $7.1 billion that banks make from ATMs annually, you may be letting those banks pick your pocket.

The danger of small numbers

If you use an ATM that isn't part of your bank's ATM network, your will probably pay a fee - perhaps to both your bank and to the operator of the ATM. Those fees may seem small, but they can steadily drain your checking account. What harm could a couple of bucks here and there do? The truth is, ATM fees can do a great deal of harm if they become a habit.

Take, for example, a $1 ATM fee. A dollar may seem a reasonable price to pay in exchange for the convenience of using an ATM, but think of that dollar in the context of the money you have in your checking account.

The average interest rate on checking accounts is just 0.09 percent. If you kept $1,000 in your checking account for a full year, that would earn you 90 cents. So, a single $1 ATM fee would be enough to wipe out a year's worth of interest on your checking account.

Of course, the problem is that this isn't a question of a single ATM fee. People tend to incur those fees again and again. If you withdraw $20, then that $1 ATM fee is costing you 5 percent of the transaction. Even with a $100 withdrawal, $1 represents 1 percent - much more than you are likely to earn in interest.

The danger of not-so-small numbers

The real danger is that more and more, you aren't dealing with $1 ATM fees. Banks are raising those fees, so it may cost you $3, $4, or even $5 per transaction.

The message here is clear: one of the most important things to look for when choosing a checking account is not simply the fees on that account, but how extensive the bank's ATM network is, so you can avoid those out-of-network ATM fees.

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