Bank fees may seem small, but they can quickly add up.
A $3 ATM fee a few times a month is money that could have taken you and your sweetie out to the movies. Your monthly maintenance fee could be earning interest in a high APY savings account instead of being eaten by the bank. And if you make a cash-flow error and get hit with an overdraft fee, you can lose the cost of a dinner out.
Since bank fees happen invisibly, it can be easy to overlook them. Savvy bank customers don't just avoid fees, they become downright allergic to them.
Having a no-fee banking experience is possible with a little work.
Choose a free checking account
Most banks offer some form of free checking account these days. The trick is to read the fine print and make sure your account is genuinely free. You don't want to pay any monthly or yearly account maintenance fees. Even if your account is interest bearing, these fees will typically drown out any interest you earn. You're giving the bank your money for their use when you deposit it with them; you don't also need to pay them for the privilege.
Ideally, you'll find a rewards checking account that not only comes with no fees attached, but actually pays you a decent interest rate. Some of these accounts can have interest rates as high as 6%.
To qualify for the high interest rate and free services on a rewards checking account, you will have to jump through some hoops for the bank. These include things like using direct deposit. maintaining a minimum balance and using your debit card a minimum number of times per month. Most of these are easy conditions for a typical bank customer to meet. You'll want to be familiar with the particulars of your bank's agreement. It would be a shame to get hit with a $20 account maintenance fee because you used your debit card 11 times one month instead of the required 12.
Don't pay ATM fees
Avoiding ATM fees is a two-step process. First, you want to choose a bank that has a liberal ATM policy. Some banks cheerfully charge you a fee for using other banks' ATMs. This means you get hit with fees twice: once with a fee from the ATM you're using, and once by your own bank for using a foreign ATM.
To avoid this fate, try to find a bank that doesn't charge you for foreign ATM transactions. Online banks often have great policies about this, since they don't have many of their own ATMs around. ING not only lets you use other banks' ATMs for free, they'll refund the fees those banks charge you, making it free to you to use any ATM. Some credit unions do this as well.
Choosing the right bank account can spare you most ATM charges.
Your other step is to plan carefully and minimize your need to use foreign ATMs. Going on a road trip? Withdraw your cash at your bank branch before you leave, and you won't be stuck paying exorbitant ATM fees at your vacation spot. This also protects you from ATM skimmers (devices that thieves attach to the ATM to get your bank information). ATMs in banks are much less likely to be targeted by criminals than those in heavily trafficked tourist areas.
Avoid penalty fees
Account fees and ATM fees can add up, but they're small change compared to the penalty fees that come with an overdraft or bounced check.
Again, carefully choosing a bank account can help insulate you against these charges. Many banks offer an overdraft protection program that either draws funds from your savings automatically or links to an overdraft line of credit. Some online banks, like ING, don't charge overdraft fees.
Good account stewardship will spare you these penalty fees no matter what your bank's policies are. It's a good rule of thumb to keep a cushion in your checking account. You can decide how much is comfortable for you: some people never want to let their account balance fall below $1,000, while others are fine with half that amount.
By carefully tracking your spending, you can be sure never to dip below your comfort zone. Keeping a cushion in your account will cover you in emergency situations and absorb the occasional accounting error.
Choosing a bank with good fee policies and taking care with your own banking behavior can save you hundreds of dollars over the course of the year. Each individual bank fee may seem small, but taken together they add up. Putting those dollars into a high interest savings or money market account instead could pay for a small vacation or a great holiday splurge.