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5 Most Annoying Banking Fees

This article was written by in Frugality. 13 comments.

Fees and surcharges seem to be an unavoidable part of living in a world where banking is big business. If you keep your financial situation simple, diligently shop around, and keep an eye on your money, you can avoid may of the more common fees. In theory, you could increase your fee-avoidance ability by keeping your money outside of the banking and investing system, but that’s an extreme approach that just isn’t feasible for modern life in the United States.

Even the most diligent savers and frugal minds can find themselves faced with fees. They tend to lurk behind corners, waiting in the fine print, for the right time to strike, taking consumers by surprise. Other times, the fees present themselves up front but seem unavoidable.

Grabbing moneyThe fees banks charge their consumers serve several purposes. The first purpose is simply to increase revenue. The second purpose is to modify their customers’ behavior. Well-publicized fees can dissuade customers from partaking in an activity the bank would like to avoid, while the purpose of carefully hidden fees is generally to increase profit. Rationalizations for fees fall into these two categories.

The reason banks charge a variety of fees is simple. They do it because they can. Customers like to complain about paying more money than necessary for the services banks provide, but unless they’re willing to close accounts and find alternatives, banks can continue to operate as they are. And don’t worry; if you want to vote with your feet, there’s probably a fee for that.

That happens to be the first fee I’ll discuss in this compilation of the five most annoying banking fees. These are all fees that I’ve experienced, even after I was more attuned to my personal finance situation. The fees I’ve included in this list are pervasive; many, but not all, institutions may assess these charges. In addition to their pervasiveness, these fees are unnecessary from the customer’s perspective. They are usually avoidable with some research or planning, but once you find yourself faced with a fee, there is often little you can do to avoid it.

1. Account termination or closing fees.

Account closing fees are prevalent with investment accounts, although some savings banks will also charge account closing fees if you don’t maintain your account for a minimum period of time. I experienced this unfortunate event when I came to the realization that I was paying too much for my weekly investments with Wachovia’s discount brokerage. At the time, Wachovia announced a $50 annual fee, making the account too expensive for my tastes, especially when there were free options available.

I had been progressing on a path towards making better financial decisions, and I wanted to transfer my relatively small investment out to a better discount brokerage. I selected Scottrade. Wachovia was also planning to increase their account termination fee from $75 to $95, creating more of an incentive for investors to keep their accounts open and pay the $50 annual fee. I transferred my money out of Wachovia as soon as possible, and I sent a sharply-worded but ultimately ineffectual letter to the CEO.

Account termination fees aren’t limited to just banking. Cell phone and cable television operators use these in their long-term contracts. The rationalization is that mobile phone companies sell phones at a loss (or at least less than market price) with the intent of earning a profit on the monthly service plans for a predefined amount of time. But like in banking, these fees serve mostly as loyalty-enforcers, preventing customers from deserting one brand for the competition in a highly competitive marketplace.

2. Savings account monthly maintenance fees.

Banking is an interesting concept, and since the growth of major national banks and especially during and after the recent recession, we’ve forgotten why banks exist. It may not be apparent since the credit crunch, but the purpose of banks is to lend money. When you open a savings or checking account, you are doing the bank a favor. You are increasing the bank’s ability to give out loans. The loans, in turn, help businesses thrive, moving the economy forward. At the same time, banks in theory earn revenue from these loans, which they can, relatively easily, turn into profit.

The bank should be thanking you, not charging you for your money. And they often do thank customers in the form of interest. In return for your generous deposit, the bank offers an interest rate. With the Federal Reserve still looking to influence the economy, banks can borrow from the central banking system and pay less than if they had to pay interest to depositors. As a result, customers face lower interest rates.

Combine this with the fact that banks have not been lending as openly as they have in the past, their profits are down. In the end, these banks, especially the largest national banks, replace the lost loan income with fees for their depositors, with the rationalization that they are providing a service that customers should pay for.

3. Convenience fees for online payments.

Put yourself in the position as the individual in charge of collecting vehicle registration fees, insurance premiums, or business taxes. Would you rather pay the salaries of a team of employees to go through payments sent through the mail or pay to establish an online presence and payment capability? The latter in many cases is going to be much more affordable. In reality, it’s rarely a choice of extremes, but a combination. Nevertheless, the more you can encourage people to pay online, the less manual labor is necessary.

This is surely a convenience and money-saving endeavor for businesses and the government in the long run. Yet when citizens attempt to pay for these services online, they are often faced with an online convenience fee. Merchant services enabling businesses to accept credit cards can be expensive, and some entities did not accept credit cards at all until they began accepting payments online.

That, plus the IT costs of building an online system, is the rationalization for these fees. When businesses can’t increase the cost of your services to compensate, they try to recover these costs through fees, conveniently ignoring the long-term savings benefits of accepting online payments. And when you’re a government entity and have a monopoly on vehicle registrations, for example, you don’t have to worry about competition driving your costs down.

4. Fees for using coins.

When is a dollar not worth a dollar? When one of those dollars is in coin form. The tried-and-true method of daily saving, the coin jar, has taken a hit. There was a time you could take the jar to the teller in your local bank and they would deposit the money dollar for dollar into your account. You probably still can, but not without nasty looks from the tellers who don’t want to count your change.

In the United States, coins are considered inconvenient. People would rather walk around with bills neatly folded in wallets than with change jingling in their pockets. When faced with a collection of change, people are interested in exchanging their coins for dollar bills. Bank tellers don’t want to deal with this, so in many circumstances, they’ll take a fee out of the exchange, usually only if you don’t have an account at that particular bank. Coin exchange machines in stores, like CoinStar, take a cut from the exchange as well.

If I give someone $30 in change, I expect to receive $30 back. Coins are not worth less than bills.

5. Account inactivity fees.

Investment banks are going to earn money off you in whatever method they can. Brokers love active traders; for the most part, the brokers earn money with every transaction. Transaction fees are expected and even tolerated. Many discount brokerages offer plans that offer a monthly fee in exchange for leniency with transaction fees, but for the most part, profits are derived from those who buy and sell often. It’s no surprise that most investment advice agrees that investors should not trade often, as fees and bad timing hurt your long-term investment returns more than anything else.

You have to be careful when you buy and hold in certain investment accounts, however, due to inactivity fees. If you aren’t adding to your balance or making any number of other changes to your account, some brokers will charge you an inactivity fee. This fee could appear on a monthly, quarterly, or annual basis.

When investment accounts are able to change their account terms on a whim, an account you’ve had for years, just sitting and growing in value over time, could begin to leak its value. This is the primary reason it’s worthwhile to read every notice you receive from your banking institutions, regardless of how unimportant the envelopes might appear. It’s also a good reminder to keep your address current with all of your accounts, reducing the chance you’d inadvertently miss a notification.

What banking and investment fees do you find the most annoying? How do you avoid fees?

Photo: CarbonNYC

Published or updated October 10, 2012.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 13 comments… read them below or add one }

avatar 1 Anonymous

I can’t stand paying for checkbooks. My credit union doesn’t charge you for them if you have at least $2,500 in your accounts (a “premium” account holder). Check processing fees are annoying, too. Again, if you’re a premium customer at my credit union, you’re not charged when somebody cashes your check.

Otherwise, I’ve been pretty good at steering clear of excess fees.

-Christian L. @ Smart Military Money

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avatar 2 Anonymous

Two words: corporate greed. You’re right, they should be rewarding us, not charging us fees…geez!

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avatar 3 Anonymous

I managed to avoid fees by using my relationship. I look for reasons for the institution to treat me differently. It is no different from negotiating. I managed to be successful about 99% of the time.

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avatar 4 Anonymous

I hate fees to take your 401(k) out of your old employer. Those definitely suck but at that point there is nothing you can do about it :(

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avatar 5 Anonymous

Fees are the worst, in general. But I haven’t heard of some of these fees, besides the inactive account fees and maintenance fees. And really, how hard is it to “maintain” my account? It’s not. I try to avoid banks that have fees.

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avatar 6 Anonymous

When your account is active, they charge you for the activities. When your account is dormant, you still have to pay for inactivity. What are we going to do? Confusing, isn’t it?

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avatar 7 Ceecee

My bank keeps charging me an inactivity fee on a savings account despite the fact that I have made deposits within the six-month period. Whenever it happens, I go down to the bank and get a credit. Even the branch manager can’t explain to me why a deposit is not activity…..? If I didn’t check my statements, I’d be paying this every six months, taking away all the interest earned plus some…

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avatar 8 Anonymous

I am always perplexed when people complain about bank fees. Maybe I’m doing something wrong (that is to say, right), but in 10 years of having bank accounts, I don’t believe I have ever been assessed a fee of any kind*. My wife and I have 3 checking accounts and an ING account. All of the accounts are free to use, and with the exception of ING these days, we use them all actively. One account is with a credit union, one with a local community bank, and one with a national chain bank. We don’t use debit cards and we have never overdrawn the accounts, but we do write checks, use the ATMs, do electronic transfers and bill payments, direct deposit, get loans, etc. What gives?

* We pay to buy checks, there is a small fee when wiring money which we do once or twice a year, and we’ve paid various kinds of fees associated with originating loans and mortgages. I don’t feel like these fall into the category of “onerous bank fees”

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avatar 9 Anonymous

Coinstar machines will give you a dollar-for-dollar valuation (ie: no fee) if you redeem for a gift card (instead of cash) valued at $5 or more. The two gift card options that I exchange for are typically and/or Lowe’s. It’s a great way to get rid of excess change on stuff that you will buy anyway!

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avatar 10 Anonymous

Nobody likes to have to pay fees. With a big bank, customers are often required to submit to transaction fees when they use their debit cards or write a check. Often, these additional service fees do not apply to customers who hold accounts with a community bank. Since these smaller banks must compete with larger institutions, they have to offer their customers some great deals in order to earn their business. By shopping around and opening an account with a local bank, many people are able to save all of that money that would normally go to hidden fees.

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avatar 11 Anonymous

I was very frustrated when PerkStreet charged me an inactivity fee and took the last of my money (a bit over $2) out of the account and called in an inactivity fee. WHY? What was it costing them for that little bit of money to sit in there? I planned to using it again but it’s my “fun” account and I haven’t been having much fun lately. Very frustrating.

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avatar 12 qixx

I find the worst one is the one that randomly shows up on your statement and when you call to see what you were charged a fee for the banker on the phone can’t tell you what the fee is for. Since they can’t see why you were charged a fee they “gladly” reverse the fee. Makes you wonder how many people don’t get those fees reversed.

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avatar 13 Anonymous

I used to use CoinStar for my spare change until I realized I was simply getting ripped off. Now, when making retail purchases, I feed an eternally patient self checkout machine a whole cup of dimes and nickels, one by one. It takes time but at least I get my dollar’s worth.

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