Understanding and avoiding banking fees

The cost of a bank or credit account

Having money in the bank can come with multiple expenses, like ATM fees, overdraft fees, service fees, late fees and more. While each one on their own might not seem like much, they add up over time. But managing your account well and choosing your financial institutions carefully can help you avoid many bank fees.

Why banks charge monthly and annual fees

Some banks and credit card companies charge service fees to cover the cost of maintaining your account. They may also charge fees to offset the costs of account perks like cash back on spending or to cover the cost of fees charged when you use ATMs outside the bank's network.

Fees for checking or savings accounts tend to be monthly, while credit cards sometimes charge yearly fees. Weighing the perks of a particular account against any fees associated with it can help you decide if the account is right for you.

Overdraft and NSF fees explained

If you make a purchase, payment or withdrawal from your checking or savings account that’s more than the balance in your account, the bank may cover the transaction for you. But you'll have a negative account balance resulting in an overdraft. When that happens, your bank may charge you an overdraft fee for covering the amount.

If the bank rejects your transaction because you don't have enough money in the account to cover it, you may be charged a non-sufficient funds, or NSF, fee.

How credit card fees are different

Credit cards may charge yearly fees, but there are also other costs you might end up paying. For example, carrying a balance on your credit card past the grace period accrues interest at your credit card's interest rate, which can vary by type of card and provider. And missing a payment could result in a late fee.

If you use your credit card for a balance transfer or cash advance, you could accrue immediate finance charges without a grace period or pay fees, sometimes around 3% to 5% of the amount of each transaction. Refer to your credit card's terms and conditions to determine what fees you might pay.

Other deposit account fees

In addition to monthly, yearly and overdraft fees, your checking and savings accounts might accrue other charges. Here are a few common ones:

• Minimum account balance fees: Some bank accounts require customers to maintain a minimum balance each month. If the balance drops below that amount — in some cases, even just for a day — the customer may pay a fee.
• ATM fees: Using an ATM outside your bank's network could result in an ATM fee. You might even be faced with two ATM charges per transaction, one from your bank and one from the owner of the ATM you used.
• Fees for bounced or stopped checks: If you write a check and there isn't enough money in your account to cover it, you might be charged a bounced check or NSF fee. To stop payment on a check or other transaction, such as a recurring ACH debit, before it's processed, you might have to pay a stop payment fee.

How to avoid bank fees

You can usually find checking accounts that don't charge annual or monthly fees. Some banks might have a requirement to waive the monthly fee for checking accounts if you make at least one direct deposit per month. Most institutions will charge some type of fee for things like overdraft or NSF even if they don't charge you a monthly fee for having the account.

You may also find credit cards that don’t charge annual fees.

ATM fees can also be an account drainer depending on how many times you withdraw cash. But you can usually minimize that fees by using in-network ATMs. Often, the savings is worth a little extra effort or travel time.

All financial institutions are required to disclose any fees they may charge. Be sure to read any disclosure statements on your bank statements or account pamphlets to avoid any surprise fees. While you can take steps to minimize fees, only careful managing of your account will help avoid fees.