Checking Account Fees In 2020: Where To Bank To Keep Costs Low – Forbes

If you’re interested in keeping your checking account fees to a minimum, you may want to consider doing your banking at an online bank or credit union, instead of a traditional bank. That’s according to the results of Forbes Advisor’s 2020 checking account fee survey.

We analyzed the overdraft, monthly maintenance and third-party ATM withdrawal fees of a total of 40 non-interest-bearing and interest-bearing checking accounts at 28 financial institutions.

Overall, fees have taken a significant dive in recent months due to the Covid-19 pandemic. According to S&P Global Market Intelligence, overdraft fees declined by 49% in the second quarter of 2020 from the first quarter. This is largely attributed to lower consumer spending activity due to the nationwide stay-at-home orders in response to Covid-19. Monthly fees and ATM fees saw double-digit drops as well.

Banks suggest that these declines were driven largely by government relief efforts and the banks’ having issued fee waivers during the pandemic. However, because such reductions reflect a temporary—though extended—situation, it’s essential to maintain a checking account that won’t surprise you with charges.

In the same way that you seek the highest available interest rate on a savings account, you want a checking account that offers the lowest possible fees, since you’ll use it for your day-to-day transactions. Here, your behavior also matters: It’s important to look at your banking habits to see which of these three fees, if any, matters to you most.

What We Learned

• Overdrawing a checking account is expensive. The average overdraft fee is $24.38.
• Monthly maintenance fees average $4.90 across all institution types. Online banks and credit unions charge the least, if it all.
• The average fee for using an out-of-network ATM is $0.91. However, many online banks and credit unions, and some traditional banks, don’t charge this fee (or reimburse it).

Credit Unions vs. Banks

Due to their member-based focus, it may not come as a surprise that credit unions charge fewer—and often lower—fees overall than banks, both traditional and online. At an average of $2, the monthly maintenance fees at credit unions are nearly $4 less than the average across banks, according to our survey. What’s more, the majority of checking accounts we analyzed from credit unions don’t charge a monthly maintenance fee at all.

Credit unions also tend to charge less than other institutions—or often nothing—for out-of-network ATM fees. Expect to pay an average of just $0.20 per transaction. Banks, on average, charge $1.15 per third-party ATM transaction.

Overdraft fees are a different story. The credit union accounts in our survey charge an average of $29.29 each time you overdraft your account. In fact, this is the one case (among the three fees) where the fee charged by credit unions is higher than the average fee charged.

Online vs. Traditional Banks

It’s far better to do your checking at an online bank—as opposed to a traditional brick-and-mortar bank—if you’re looking to avoid fees. Monthly maintenance fees at online institutions are $7 less on average than those of traditional banks. And, like the credit union accounts in our survey, many online banks don’t charge a monthly fee at all.

Interest-bearing accounts are more likely to charge a monthly fee, but they generally offer opportunities to waive it by maintaining a certain balance or meeting some other obligations.

It’s a similar case for out-of-network ATM fees. Only two online banks in our survey charge third-party ATM fees, which puts the average for online banks at just $0.33. The average at traditional banks is $1.97, with most charging $2.50.

Online banks tend to have better overdraft policies that result in lower fees, averaging $16.33 per overdraft. Traditional banks typically charge around $13 more.

Overdraft Fees

Fees for overdrafts range from $0 to $36 among the accounts we analyzed. The average overdraft fee across all accounts measured is $24.38, with the majority of accounts charging $25 or more. Only one fifth of the institutions in our survey charge a $0 overdraft fee.

Average overdraft fees for non-interest-bearing and interest-bearing checking accounts are fairly close: $25.53 and $23.81, respectively.

Online banks charge much less than credit unions or traditional banks, on average. It may be worth noting that both credit unions and traditional banks charge overdraft fees that are $5 higher than the average.

Avoiding Overdraft Fees

One of the easiest ways to avoid an overdraft fee is to keep close tabs on your account balance. Consider signing up for automatic alerts. Many banks can send you email or text alerts to notify you when your balance drops below a set amount. Another strategy is to link your savings and checking accounts, so that you can quickly transfer funds if your checking balance gets low. Your bank may also offer to transfer funds automatically from your savings to checking in the event of an overdraft—for which you’ll be charged a transfer fee that usually is lower than an overdraft fee.

Monthly Maintenance Fees

According to the Forbes Advisor survey, monthly maintenance fees for checking accounts range from $0 to $25, with the average falling at $4.90. But it’s important to note that more than half of the accounts in our survey don’t charge a monthly maintenance fee at all.

You’ll generally pay less per month if you have a non-interest-bearing checking account: $3.15 on average. Interest-bearing checking accounts charge an average of $5.74.

As mentioned above, monthly fees are the least expensive at credit unions and online banks.

Avoiding Monthly Maintenance Fees

Accounts with monthly maintenance charges typically offer opportunities to waive the fee. For example, you may be able to waive the fee by receiving $500 or more in direct deposits each month or by maintaining a $500 balance. Some accounts allow you to waive or decrease the fee based on a minimum number of ATM transactions per month or if you choose to receive electronic statements.

ATM Fees

Third-party ATM fees in our survey range from $0 to $3, averaging $0.91. These are fees your financial institution charges for using an ATM that’s outside of its network. More than half of the accounts in our survey don’t have third-party ATM fees or they offer reimbursement for those fees up to a threshold. Other banks may allow a set number of free withdrawals per month to start and then charge you a fee.

ATM withdrawal fees are slightly higher for non-interest-bearing checking accounts ($1.46, on average) than for interest-bearing checking accounts ($0.65).

Credit unions offer the most lenient policies for this type of fee, but online banks are a close second.

Avoiding Out-of-Network ATM Withdrawal Fees

The easiest way to avoid this fee is to use your bank’s ATM network to withdraw money. But you may also consider finding a financial institution that simply doesn’t charge this type of fee. Another work-around is to use the cash back option when paying at stores. Also keep in mind that this withdrawal fee is what your bank charges for using an out-of-network ATM—the ATM owner may add a surcharge as well.

Bottom Line

Checking account fees may be common, but they don’t have to be a foregone conclusion—it’s possible to avoid or minimize these expenses. However, only five of the 40 accounts Forbes Advisor surveyed charge $0 for all three fees (overdraft, monthly maintenance and third-party ATM use). So, it’s more likely than not that your checking account will charge at least one of these recurring fees.

While it’s important to look for accounts that provide opportunities to get these fees waived, it’s just as important to consider your banking behavior before opening a checking account.

For example, if you tend to overdraft your account, it may be best to consider banking at an online bank, where overdraft fees are generally less expensive than at credit unions or traditional banks. Or, if frequent out-of-network ATM fees are more of a concern, find an account that doesn’t charge you (or that reimburses you) for that expense.

Remember, these common bank fees are only one part of the equation when choosing a checking account. Make sure to consider the total relationship—from APYs and sign-up bonuses to branch access.

Methodology

Forbes Advisor surveyed 28 financial institutions, including some of the largest national banks (by assets), largest credit unions (by assets) and prominent online banks. Overall, we surveyed 27 interest-bearing checking accounts and 13 non-interest-bearing checking accounts between September 26 and September 28, 2020. We analyzed 15 checking accounts from traditional banks, 15 from online banks and 10 from credit unions.