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The Cost of Sloppy Banking Habits

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Give much thought to your banking habits?

Many don't. When you think about the habits you cultivate in life -- good manners, healthy eating, regular exercise -- your banking habits may not top the list. However, they shouldn't be neglected.

The fact is that maintaining good banking habits can really help improve your financial picture -- but sloppy banking habits can be very costly.

The type of banking habits that millions of Americans routinely follow can cost you a meaningful sum of money over time. MoneyRates.com looked at some fairly common, sloppy banking habits and determined that they could easily cost bank customers in excess of $700 a year. This doesn't even count the potential cost of truly damaging mistakes such as lax security habits or working outside the banking system.

We identified the following bad banking habits and their potential cost to consumers:

1. Overpaying for checking

Average monthly maintenance fee: $13.58

Are you paying a monthly maintenance fee on your checking accounts? If so, you are overpaying for checking.

The latest MoneyRates.com checking account fee survey found that the average monthly maintenance fee was $13.58, which adds up to $162.96 a year. And yet, roughly 30 percent of banks offer checking accounts without a monthly fee. That means that free checking is in the minority; but with a little effort, a routine search can easily uncover a bank that offers it. Even more banks offer to waive monthly maintenance fees if you meet certain requirements like keeping a specified minimum balance or setting up direct deposit.

How to avoid monthly maintenance fees

It's not hard to eliminate these fees: Search for a bank with free checking, or see if you can meet your bank's requirements for a fee waiver.

2. Relying on overdraft protection

Average cost per instance: $32.53

Banks pitch overdraft protection as a benefit to customers, but it actually enables a very expensive bad habit.

New checking accounts are supposed to default to opting out of overdraft protection, but banks put a fair amount of effort into convincing people to opt in. Why are they so keen to cover your overdrafts? It's because they charge an average of $32.53 per occurrence.

Since each transaction counts as an individual occurrence, you could end up with several such charges if you had multiple transactions when your account was overdrafted. Just ten of these charges a year would add up to $325.30.

How to avoid overdraft fees

If your account currently has overdraft protection, opt out. If you are opening a new account, be sure not to opt in. There may be other charges associated with having a transaction declined, but they are generally less than overdraft fees, and they will force you to keep closer track of your account balance to make sure your transactions go through.

3. Using the wrong ATM

Average cost per instance: $4.66

Do you tend to use whichever ATM machine happens to be close at hand? This is another costly banking habit.

If you use a machine that is not owned by your bank or part of its ATM network, you will probably be charged two fees -- one by your bank and one by the owner of the machine. MoneyRates found that banks charge their own customers an average of $1.76 for using out-of-network machines, and banks charge non-customers an average of $2.90 for using their machines. This adds up to a total of $4.66 every time you use the wrong ATM. Do that just once a month, and you'll be blowing $55.92 a year on this sloppy banking habit.

How to avoid ATM fees

A little planning can help you reduce ATM fees. Look for a bank with branch or ATM locations convenient to your regular travels, and plan your ATM transactions so you don't find it necessary to use an out-of-network machine.

4. Short-changing yourself on interest

Unrealized interest on $10,000 savings/year: $193

According to the FDIC, the average interest rate banks pay on savings account balances is just 0.07 percent. Yet the most recent MoneyRates America's Best Rates survey found that all of the top ten savings account rates were above 2.0 percent as of April 2019.

That means if you accept an average savings account rate from your bank, you are short-changing yourself by 1.93 percent. That may not sound like a big deal, but when applied to a $10,000 savings account balance, the difference could be earning $193 more in interest per year.

How to earn more interest on savings

Why miss out on the precious dollars that are available by accepting an average savings account interest rate rather than choosing one of the best?

Shop around for a bank that offers one of the best savings account interest rates, which today could be around 2.0 percent or better. Then, compare your rates at least once a year against the top rates listed on MoneyRates.com to make sure yours is still competitive.

Potential loss and even bigger mistakes

Add up all of the above examples -- excessive maintenance fees, overdraft fees, unnecessary ATM charges, and less-than-competitive interest rates -- and these fairly common, sloppy banking habits would cost you $737.18 a year.

  • $162.96/year - excessive maintenance fees
  • $325.30/year - overdraft fees
  • $ 55.92/year - unnecessary ATM fees
  • $193.00/year - unrealized interest on $10,000 savings

That would be bad enough, but there are bad banking habits that can be even more costly. Using expensive alternatives to banks such as local check-cashing services, leaving yourself open to fraud through careless security procedures, or failing to make sure your deposits are fully insured could run those costs from the hundreds to the thousands.

Given the cost of sloppy banking habits, it is clear that developing better habits could pay off quite easily.

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