American Morning

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October 1st, 2009
10:00 AM ET

Romans: Don't give your money away

By Christine Romans

Banks are jumping on every little mistake you make with your bank account, debit card and credit cards, and slapping record fees on your slip-ups. Congress and consumers are howling, but the fact remains bank fees are at record highs and rising.

One quarter of consumers account for most of the tens of billions of dollars of bank fees, according to an FDIC study.

One quarter of consumers account for most of the tens of billions of dollars of bank fees, according to an FDIC study.

A new analysis by Bankrate.com shows these fees are skyrocketing. Bounce a check? Expect an average charge of $29.58. Use your debit card but don't have enough money to draw out of the account? Wham! Bankrate says expect an average overdraft charge of $33.88.

If you are a repeat offender with your debit card, the overdraft charges go up, topping $36. And many banks are shuffling the order of your purchases, so you can get the overdraft charge again and again on the same day. That's the bad news.

Most people pay no fees

The good news – an FDIC study last year found that 75 percent of bank accounts suffer no fees at all. That means most of you out there are balancing your checkbook, not overdrawing your account, and paying your bills on time. The other quarter of consumers account for most of the tens of billions of dollars of bank fees. For them, obviously their finances are tight and they get caught in a vicious cycle.

Consider this: The purchase of a, say, $20 Barbie doll with a debit card puts the consumer over the limit on their account. They are slapped with a $27 overdraft charge. Two weeks later, the consumer pays off the Barbie and the charge in full. The FDIC found the annualized interest rate on that overcharge would be 3,520 percent.

Imagine that same Barbie on a credit card that you've paid late and are carrying a balance. Unless you pay off the card's balance in full right away, Barbie gets more expensive every month when you tack on $39 late penalties and interest rates as high as 30%.

And then there are ATM surcharges. If you use an ATM machine that is not owned by your bank, the fees are rising sharply. Bankrate.com says ATM surcharges rose a whopping 12.6 percent last year to an average $2.22.

Take Back Control

In a way, it feels like the perfect setup: your bank allows you to keep charging even though there isn’t any money in the account, and then they can charge you numerous fees in the same day. They win, you lose. At least two banks have heard the public outcry on this: Bank of America and JP Morgan Chase recently said they will put a cap on overdraft charges.

But Bankrate's senior financial analyst, Greg McBride, says even with regulators and Congress zeroing in on these fees, customers must take control of the situation.

Don't use an out-of-network ATM. It's like throwing money away.

"Note any fees and balance requirements on your account, request a link between your checking and savings accounts, and keep track of the available account balance so that your money stays your own," McBride says.

Bottom line, you can't spend money you don't have. Pay your bills on time, or at least the minimum payment. Do you even know how much money you have in the account? Balance your checkbook like consumers did a generation ago. If you're getting slapped with these fees, better to know to-the-penny how much you have in there, rather than wait for an NSF (non-sufficient funds) alert from the bank.

There are ways you can protect yourself. Many banks automatically enroll you in overdraft protection, so if you spend money you don't have in the account, the bank essentially gives you a short term loan to cover it. In exchange for that emergency loan, they can charge you whatever they want. You can link your savings and checking accounts and pay smaller fees when you bounce a check or overcharge on the debit card. You can also tell your bank to reject any purchases if there isn't money in the account. It's embarrassing, but will save you cash in the end.

And Bankrate says, simply, don't bounce checks. If you have a debit card, don't charge more than you have in the account.

Consumers scream about these huge fees. How can the bailed-out banks justify making so much money by charging us fees on our own money? Screaming isn't going to save you any money. Don't give it to them to take. They are in the business to make money with your money. And they are.


Filed under: Business
soundoff (4 Responses)
  1. Curtis

    Corporate greed is at an all time high, yet this is the primary reason for the current state of the economy. As banks continue to nickel and dime their customers into the poor house, executives take home bigger, more obscene bonuses. It's time for banks to hold themselves accountable before the government does it for them. Overdraft and ATM fees have gotten to the point that it is out of control. There are banks that don't just charge a single overdraft fee, but a daily fee until there is no longer a negative balance in the account. For folks already living paycheck to paycheck it becomes nearly impossible to get their head back above water. Even if the mistake that led to the overdraft isn't the account holder's fault, they are still responsible for paying exorbitant amounts of money to the bank. A great example of this would be an auto insurance company that takes their premium out of a checking account every month on the same day. One month, after already receiving their premium payment they attempted to take another payment, followed by yet another. I still can't get a straight answer out of Geico as to why they would do this, but I'm left holding the bag-and paying the overdraft fees. On a side note, I'm about ready to cancel my policy with Geico unless they reimburse me for the bank fees. My bank wouldn't waive the fees even though I filled out a form to rescind permission for Geico to take automatic payments from my account. I have a young family and often struggle to make ends meet. When situations like I've just described happen, it can be catastrophic and can take months to recover from.

    October 4, 2009 at 7:15 pm |
  2. Donald Redwood

    Please post and email this to your friends and ask them to do the same. We are asking for a CRIME FREE DAY on Saturday October 24, 2009. We believe that people can make a significant difference if they make the right choices. Some people don’t believe they can live a life free of crime and still have the American dream of “PROSPERITY.” Regardless of your circumstances can we turn one day “A CRIME FREE DAY?” One day might make all the difference for us in the world.

    October 4, 2009 at 6:24 pm |
  3. Greg in Arkansas

    VERY very well said!! My only question is when are they gonna split up these mega banks? It is to much of a risk to the macro economy. They are just gonna go back to some different kind of risk this time around. The pressure of "making money" will always be there. Ken Lewis is a living breathing example of how these guys are gonna do business. It is NOT acceptable for the American people to always have to worry bout some major firm going down and taking us with them. Yes, I know there are people who say that is not fair to split them up. That it is not capitalism to split them up. If anyone believes we have been operating under how capitalism is supposed to work, then you been drinking the kool-aid and lots of it!! Remember the Bell system split up? Well, to them I say, our economy is to important to all of us to be left in the hands of greedy bankers!! Or the greedy FED for that matter!!

    October 1, 2009 at 11:28 am |
  4. beth

    oooooo those evil banks! The government is far more corrupt and I don't see Congress doing anything about that. Over 1.5 million people marched in Washington and STILL the government wants to spend money like drunken sailors. Oh, wait. For a second I forgot that I am one of the few remaining financially responsible people left in the US. I only buy what I can afford. Crazy old school concept, huh?

    October 1, 2009 at 10:21 am |