When you cheat on your bank by withdrawing cash from a competitor’s ATM, a warning message on the screen makes it clear customers will likely face various fees. But analysts say banks are still far less forthcoming when it comes to fees tied to checking accounts.
The average checking account has around 30 fees and some banks have up to 50 individual charges, according to a 2013 survey by financial website WalletHub.com — and 20 percent of U.S. banks don’t even provide a list of these charges before a customer submits an online application. In fact, Capital One and Fifth Third Bank, a regional bank based in Cincinnati, were the only two banks to earn perfect scores in transparency in WalletHub’s survey, and less than half (48 percent) of major banks had well-marked, direct links from their checking account product pages to a full summary of fees. (On the upside, this still pales in comparison to other industries, particularly airlines, which have around 150 different optional or “ancillary” fees, says Joe Rubin, a lawyer and transportation expert.)
Banks require average daily balances to qualify for free checking, impose charges for printing checks and — in some rare cases — even closing accounts, says Ben Woolsey, president of consumer advice site CreditCardForum.com. But consumers need to do more to keep abreast of their checking account fees. Only one in three consumers perform an annual financial assessment of their checking accounts and 15 percent have never looked over the fees, according to a recent survey of 1,000 adults carried out by Kasasa, which offers checking and saving accounts at community banks and credit unions. “The Internet has democratized information, which makes it less valid to plead ignorance,” says Greg McBride, a senior financial analyst at Bankrate.com, a personal-finance research and publishing company.
To be fair, fee disclosures have become more transparent in recent years. However, at the same time the number of fees has increased. The percentage of checking accounts that were free declined from 76 percent in 2009 to 39 percent in 2013, according to a survey by Bankrate.com. The median length of disclosure for checking account agreements and fee schedules is 44 pages, which doesn’t include all addenda to these agreements or other extraneous documents, according to Pew. (On the upside, the disclosures had a median length of 111 pages in 2011.)
But while they’ve clearly made efforts to increase transparency in recent years, experts say that financial institutions still don’t always make the task of tracking charges easy. Here are five things customers should be aware of to avoid extra charges.
Small Bills, Big Charges
Banks are still allowed to reorder the processing of checks and electronic transfers, putting through the highest bill first. Why? “It maximizes overdraft fees,” says Susan Weinstock, director of safe checking research at The Pew Charitable Trusts.
In other words, a $1 cup of coffee purchased with sufficient funds followed by a $50 purchase that pushes the account into the red could result in two separate overdraft charges, she says. The situation is slowly improving, however. Some 49 percent of banks reorder bills in this way versus 51 percent last year, according to a survey last month by Pew. Around 22 of the nation’s largest banks have stopped this practice entirely, including Citibank, Charles Schwab Bank, First Republic Bank, M&T Bank and Huntington Bank. What’s more, since 2010 federal regulation has required banks to get customers to opt in to overdraft fees.
Electronic transfers from a customer’s bank account to a utility service take several days, says Bartlett Naylor, financial policy advocate at Public Citizen, a non-profit group. “Banks don’t mind holding your money a little longer especially when there’s interest to be made off it,” Naylor says.
It may cost one customer a few cents, but it can mean more to banks dealing with millions of customers. “Banks have been circumspect in hastening that process. I can buy a stock online and become the owner of it within minutes through a small brokerage firm, and yet it can take days to pay a utility bill for far less money,” Naylor says.There are currently no federal regulations about how quickly a bank must actually send or initiate a transfer on behalf of its customer to a domestic or international recipient.
It’s cheaper for the banks’ money-moving system, the somewhat antiquated Automated Clearing House, to process bank transfers as a batch, which is done at the end of each business day and not on weekends, says Nessa Feddis, senior vice-president with the American Bankers Association.
Confusing Labeling of Fees
More banks have adopted a standard disclosure box outlining terms and conditions for checking accounts and now issue a one-page explanation and receive written confirmation once they opt into overdraft protection, ABA’s Feddis says. But Weinstock says there’s vast room for improvement in shopping for checking accounts. “Checking account disclosures are long, opaque and difficult to read,” she says. “It’s hard to make an apples-to-apples comparison between banks.” Unlike food labeling, there’s no federal requirement for banks to adopt a consistent format, she says. On the plus side, 56 percent of major banks have adopted Pew’s “Model Disclosure Box,” making it easier for consumers to compare checking account fees. While the Consumer Financial Protection Bureau has not announced plans to regulate such disclosures for checking accounts, the bureau is considering mandating some form of disclosures for prepaid cards in connection with its prepaid card rulemaking.
Overdraft Protection Rises
Overdrafts remain one the banking industry’s biggest money makers, despite 2010 rules requiring that customers must opt in, a recent report by the Consumer Financial Protection Bureau found. Consumers have three choices when they have insufficient funds to cover a debit card transaction or ATM withdrawal: Incur an overdraft penalty fee for a short-term advance, pay an overdraft transfer fee when the bank transfers funds from a linked account, or have the transaction denied and pay no extra charge. Despite this, overdraft charges make up 60 percent of checking account fees, according to the CFPB, and involuntary closure rates of customers’ accounts were 2.5 times higher for account holders with overdraft coverage. One theory: 54 percent of debit card holders were not sure whether they had overdraft protections, according to one Pew survey. Consumers can opt out anytime and receive written confirmation of their choice, ABA’s Feddis says.
ATM and Point-of-Payment Charges
Over three-quarters of banks allow consumers to go into overdraft at ATMs and at the point-of-sale with their debit cards, according to Pew. For each such transaction that pushes the checking account into the negative, the bank charges a fee, Weinstock says; the fee and the amount covered are usually paid by pulling funds out of the customer’s next deposit. Charles Schwab Bank, Ally Bank, OneWest Bank and City National Bank are among those that recently ended ATM and point-of-sale overdraft charges. Overdraft fees have also been creeping steadily upward since the 2010 opt-in rule. Most banks charge between $35 and $37 for a standard overdraft penalty, up from $30 to $40 last year; the median fee for a bank transfer between customer accounts to cover an overdraft is only $10.
Quentin Fottrell is a personal finance reporter for MarketWatch. You can follow him on Twitter @quantanamo. This article originally appeared on MarketWatch.com and is reprinted by permission from Marketwatch.com, ©2014 Dow Jones & Co. Inc. All rights reserved.