In the world of banking, supplemental bank revenue is generated by fees. A bank makes its money by charging interest on loans and credit cards, collecting monthly service fees for credit and loan accounts and from the interest charged on installment loans. Another direct method that a bank has for raising revenue is by charging account usage fees. But some people would argue whether or not account usage fees are legitimate ways for banks to make money.
In some cases, the mistake that causes an overdraft fee is not made by the consumer. People that use their debit cards to buy products from retailers will watch their accounts closely to make sure they do not overdraft the account. But if the bank waits five or more days to apply the payment, then the consumer may use the funds in the account thinking that the payment had already cleared. The payment hits a week later, the funds are not there and the bank has collected another overdraft fee.
One of the more contentious kinds of bank fees is known as a non-sufficient funds, or NSF, fee. This fee is applied by your bank if you bounce a check or withdraw funds from your account that causes your account to be short. The problem is that the retailer bank also applies a fee and it can get quite expensive. Understanding the legal robbery that is going on can help you avoid expensive bank fees.
The limit for bank fees is set by the individual state banking commissions. For example, in Texas there is no limit to how much a bank can charge for an NSF. On average, NSF fees range anywhere from $25 to $40 per transaction. If a consumer is not careful, she could be hit with repeated NSF fees before she even gets the bill.
It can be difficult for consumers to keep track of checks and debits taken from active checking accounts. If a bank waits four or five days to post a payment to an account, then the consumer can lose track of her spending. That is where the vicious cycle comes into play.
Payments are posted and NSF fees hit almost simultaneously. Unless a consumer is watching her account 24-hours a day, a NSF fee can hit without warning. A $40 fee from the host bank and then a $40 fee from the retailer’s bank turns a $5.00 scarf into an $85 purchase.
The longer the consumer waits to check her account to see what has gone through, the worse it can get. Once the late fees hit, the consumer is forced to deposit more money just to cover late fees. As payments continue to hit the account, late fees continue to pile up. It is a vicious cycle that can cost the consumer hundreds of dollars in a short period of time.
Check Cashing Fees
The bank fees do not stop at NSF fees for overdrawn accounts. Many banks charge a fee to cash checks for non-customers. Even though the check is drawn on that bank, if the person cashing the check does not have an account with the bank, then the bank is legally allowed to charge a fee to cash that check. The fees for non-customer check cashing can run as high as $30 to $40 per check.
What angers some consumers is that the process of checking the availability of funds and cashing a check drawn on a bank is a very simple one. The teller verifies that the account the check is drawn on has sufficient funds and then authorizes the check to be cashed. But to do this, the bank will charge $30 or $40. It can seem like legal robbery to many customers.
Banks are starting to charge fees for what appear to be random and arbitrary reasons. One banking company charges a fee to change an account address to the state of Arizona.
Another fee that is upsetting customers is a monthly fee charged to accounts that do not maintain a certain minimum balance at the end of each month. The cost for the bank to administer a savings account is the same whether the account has $0 in it or $2,000. But banks are allowed to charge fees to certain accounts if the balance falls below a pre-determined level. It allows banks the power to dictate how consumers use their money and when consumers can make withdraws.
People who are on the go are used to getting their cash from an ATM machine. If you use an ATM machine that is not owned by your bank, then you will wind up paying a fee. Those ATM fees are getting larger and they are also getting more pervasive.
It used to be that the ATM machines would charge a single fee for the use of the machine. If your bank owned the ATM, then you did not have to pay the fee. But bank fees have become such a source of revenue that ATM transactions are getting charged twice. You get charged once by the bank that owns the ATM, and then you get charged again by your bank for using another bank’s ATM machine.
Some banks offer only a limited amount of free ATM transactions to customers before they start charging to withdraw money. For example, if your savings account offers only 10 ATM withdraws per month, then you will pay for that 11th withdraw regardless as to whether or not you bank owns the ATM machine you used.
Bank fees are getting out of hand and it is becoming a form of legal robbery. Banks and other financial institutions are finding new ways to bill clients for access to their own money, while the banks are earning interest off of investing clients’ funds. It is something that needs to be addressed before it becomes too expensive for the average person to have and use a bank account.