Although your bank is there to look after your money, it is still a for-profit business. To stay in business, it must have money-making tactics. Unfortunately, these tactics often do not work out in your favor
What most banks do not tell you is that the ways that they make money could be having a direct impact on your finances. Many bank customers wonder about hidden fees that might be lurking around the corner.
Read on to learn more about the ways that banks take your money, and get tips to help you make the right choices when it comes to your bank account.
When you open a “free” bank account, you are likely under the impression that you will be able to store your money without paying for the privilege. However, you may not realize that the account has a minimum monthly deposit requirement. This means that if you do not deposit or keep a set amount into the account each month, you will be charged a fee.
The best way to avoid these types of fees is to read every word of the fine print before you agree to open the account. While the bank may not directly tell you about these fees, they are legally required to include this information in print (even if it is in very small print). Additionally, you can simply ask about the bank’s minimum activity requirements when discussing your options with a bank representative.
Paying Off Debts
In some circumstances, a bank may have the right to take money from your current account as a way of clearing debts you have on other accounts that you hold with them. It is important to keep in mind that your bank is unlikely to use this as the first step to address your debt. However, if you do not pay your debts and have money in an account, a bank will take this measure, known as the “right of offset.”
If you do find yourself in a difficult financial situation and are concerned that your bank may take money from your account, go and speak to a representative to set up an agreed payment plan.
Banks love to charge fees. Fees are, quite simply, one of the easiest and most lucrative ways that banks can make money. You may get a fee for using an ATM that does not belong to your bank. A fee may appear for a credit card payment that was technically late, if only by a few minutes. Or, you might be given a fee for simply having the account in the first place.
Examples of common bank fees include:
- Account maintenance fees: Banks may charge a “maintenance fee” on checking accounts, credit card accounts and investment accounts, even though it does not cost the bank all that much to maintain the accounts.
- Application fees: You may have to pay an application fee when you apply for a loan through your bank.
- ATM fees: If you need to use an ATM that does not belong to your bank, you may have to pay as much as a $3 fee each time. You are essentially paying to get access to your own money.
- Overdraft fees: If you make a transaction that exceeds your account balance, you may have to pay an average of $33 in fees. If the account remains overdrawn for a certain amount of time, you may have to pay additional fees.
Additionally, even the fees you already know about may increase without you noticing.
If a fee penalty is written in the small print and your signature is on the contract, there is not much you can do. However, banks may refund fees, especially during difficult financial times.
The only way to access this privilege is to ask for it. Contacting your bank and requesting a fee refund may be effective, since many banks will do this as a gesture of goodwill, especially for loyal customers. This is even more likely if you can prove to the bank that paying the fees is causing your financial hardship. It is best to do this with evidence to back up your claims.
You may be able to avoid overdraft fees by changing your account settings to avoid overdrafts
Luring You In With APY Rates
It is not uncommon to see banks advertising accounts that look too good to be true. For example, a bank may offer a super-high annual percentage yield (APY) on a savings account. The APY is the amount of interest you will earn over each year that your money sits in the account – the higher the percentage, the more you will earn. Many customers will be drawn to this rate like a moth to the flame, which is what the banks want. However, after an initial introductory period, this APY may drop without notice.
The bad news is that your bank is allowed to decrease and increase the APY on your savings account without notice. Many banks will offer an initial rate to appeal to customers. Somewhere in the small print, the bank may announce that this rate will decrease after a pre-determined time. The rate may also vary depending on the current national interest rate.
To avoid your APY going down, reading the small print is essential. Additionally, due to the fluctuations that are linked to the economy, it can be helpful to stay up to date with financial news so that you can be prepared for any decreases in your interest rate. This may not stop it from happening, but you will benefit from a better knowledge of your money and how it is growing.
Banking is not simply the process of keeping your money with the bank and using it as you see fit. More often than not, you will be met with charges, decreasing interest rates and surprises when using your account. That being said, understanding how banks operate and what ways they may take your money gives you a greater opportunity to stay financially savvy.
Whether you opt to learn the ins and outs of basic financial conduct or you reach out to your bank to recover fees, there are many ways to stay ahead of the game and avoid losing money on your account.
While choosing a bank account and navigating your way through the financial battlefield may feel intimidating, one of the best ways to avoid hidden charges and fluctuating rates is to always read through the contract in full before signing.