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Bank Fees Survey EOY 2013: Big banks equal big fees

MoneyRates.com Senior Financial Analyst, CFA
February 24, 2014

Bank fees were on the rise in the second half of 2013, according to new MoneyRates.com research, and the nation's largest banks were the primary culprits.

The latest MoneyRates.com Bank Fees Survey found that checking account charges rose in the second half of last year, and that free checking accounts continued to grow scarcer. However, the survey also revealed some exceptions to these trends, which may suggest techniques that consumers can use to reduce the fees they pay.

Free checking hits a new low

The survey is based on the MoneyRates Index, a cross-section of 100 banks that includes the 50 largest U.S. retail banks as ranked by deposits plus 50 smaller banks. According to a number of factors measured by the survey, checking accounts got more expensive in the second half of 2013. Monthly service fees, overdraft fees and ATM fees all climbed during that period. In addition, the proportion of free checking accounts dropped below 30 percent for the first time in the survey's history.

Among checking accounts that charge a monthly maintenance fee, the average of those fees rose by 11 cents in the last six months of 2013, to $12.54. Over the course of a year then, these monthly fees would add up to $150.48.

The average overdraft fee rose by 43 cents, to $32.03. Customers who use an ATM outside their own bank's network can get hit by two fees: one from their own bank, and one from the bank that owns the ATM. Both of these types of fees climbed in the latter half of 2013, with the out-of-network fees banks charge their own customers rising by 8 cents to $1.45, while the average fee banks charge for non-customers using their ATMs rose by 7 cents, to $2.55.

There are still some checking accounts that do not charge a monthly fee, but these are something of a vanishing breed. These vehicles now represent just 29 percent of all checking accounts, down from 30 percent six months ago.

Big banks flex their muscle

Large banks have advantages in reaching customers because of their name recognition and extensive branch and ATM networks. As a result, they don't necessarily have to be as competitive on fees to attract business, and the survey results appear to reflect this.

At large banks (those with more than $20 billion in deposits), average monthly maintenance fees are $14.49, or nearly $2 more per month than the average of all banks. What makes this even worse is that free checking accounts are rare at big banks -- only 20 percent of big-bank checking accounts are free of monthly fees. ATM fees are also higher at large banks, though overdraft fees are lower.

The online advantage

Since large banks often tend to charge higher fees, one way consumers can find less expensive checking accounts is by thinking small and banking at local or regional banks rather than at one of the national giants. The real price advantage, though, comes from doing your banking with an online-based account.

Sixty-three percent of the online checking accounts included in the survey have no monthly maintenance fee -- more than twice the percentage of free checking you would find among accounts overall. Overdraft fees on online checking accounts are also significantly cheaper, at $24.39 per occurrence. This is more than $8 cheaper than the average overdraft fee on traditional checking accounts. Also, most of the online accounts surveyed do not charge their customers for using out-of-network ATMs.

"Just right" banking

One way consumers can beat the trend toward higher bank fees is to follow the example of Goldilocks and choose a bank that is "just right."

This means finding a bank that is well-suited toward your banking habits. After all, there are several different types of fees, and some banks offer better deals on some fees than on others. For example, one bank might have no monthly fees but exceptionally high overdraft fees. Another bank might have an above-average monthly fee, but extremely cheap ATM fees.

Because of these differences, one bank might be the cheapest for one customer, but not necessarily for another customer with different banking habits. So, when you compare fees, focus on the fees that apply to how you use your checking account. If you tend to maintain a large balance, the monthly fee is less relevant because you will probably qualify for a fee waiver (though you should make sure of this).

If you overdraft your account periodically, overdraft fees should be an area of emphasis. If you travel a great deal, look for a bank with an extensive ATM network. If you are comfortable with online banking and willing to opt out of overdraft protection, you have a big head start in finding cheap checking. In any case though, you should let your banking habits determine how you measure a bank's costs.

Finally, whether you prefer your banks large or small, or like to do your banking in person or online, the most important factor in reducing the cost of a checking account is information. Do not make any assumptions about fees based on the type of bank, and ask for a written disclosure of all applicable account fees before signing up. Using the available information to your advantage could save you hundreds in checking account fees every year.

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Rates / APY terms above are current as of the date indicated. These quotes are from banks, credit unions and thrifts, some of which have paid for a link to their website. Bank, thrift and credit union deposits are insured by the FDIC or NCUA. Contact the bank for the terms and conditions that may apply to you. Rates are subject to change without notice and may not be the same at all branches.

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