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It can feel like the ultimate Gotcha. You give a bank your money for safe-keeping, and seemingly just because it’s sitting there, your bank helps itself to a handful of your cash. Your balance dips below $5,000 for one day? That’ll cost $25. You buy a hamburger at the wrong time with your debit card? That’ll be $35! You grab cash instead at a nearby ATM: Better leave a $4 tip for the two banks involved.

The fees add up fast.  The Consumer Financial Protection Bureau found this year that a consumer who overdraws an account pays an average of $225 in fees annually.  That’ll eat up any measly interest you might earn on a checking account, and eat substantially into your deposits, too.

Some consumers who don’t want to play financial games opt out of credit cards so they don’t have to worry about interest charges and late fees. It’s nearly impossible to do the same with checking accounts — it’s very hard to participate in our economy without access to tools like direct deposit, ATMs and online bill-pay. So to be a sophisticated consumer in the 21st century, you have to know how to play checking account roulette.

There are three parts to this game: the fees you’ll face; the hurdles of switching; and the success of complaining.

The Gotcha Fees

No one opens a checking account and plans to overdraft, or to fall below the minimum balance required to avoid fees. So that means very few consumers compare fees when picking banks. Most are tempted by spiffy advertisements, or proximity of ATMs, ease of online bill-pay, or a snazzy-looking interest rate. That’s a huge mistake. One in five Americans overdraft every year, according to the Pew charitable trusts. Everyone makes mistakes. Plan for that. A single overdraft fee event once every three or four years can wipe out any perceived benefit of this bank over that, so plan wisely.

As we discuss fees, we’ll move from low to high.

1. ATM fees

Paying money to get your money always ranks highest among consumer frustrations, and it should.  ATM fees creep up every year, and can now hit $6 or more when both the “foreign bank” and your bank grab their money as you withdraw. The average fee is a little more than $4. Do that twice a month and you’ll fork over almost $100 every year to the banking industry.

That’s a silly mistake, however. Plenty of banks — particularly small banks and credit unions — offer free ATM withdrawals and refunds of “foreign” bank fees. Even if you don’t want to give up your mega-bank account, it may be worth opening a second account at a small bank nearby just for ATM withdrawals. I do this and place a monthly allowance into bank No.2. This has the added benefit of helping me track my spending.

Checking accounts that have constant small withdrawals, large check payments, direct deposits and other kinds of transactions are called “high velocity” accounts in the industry. They are ripe for a small error that costs a lot. Separate out all those $50 and $100 withdrawals into a separate account, and your banking life will be a lot simpler. And, you’ll save about $100 a year.

2. Maintenance

The least talked about but most frustrating fee in banking today, maintenance fees are monthly fees that banks charge if you fall below a minimum balance or otherwise fail to meet some specified criteria, such as a direct deposit. These fees can be substantial. For example, Bank of America charges $25 for its interest checking account, and $12 or $14 for its standard checking accounts.

And they can be a surprise. I know a teacher who was paid on a 10-month schedule and was surprised to find a maintenance fee was assessed to her account during the summer months, when her paycheck wasn’t being direct deposited to her account.

Maintenance fees have soared, and the number of people who successfully manage to avoid them and enjoy free checking has sunk by about half, since passage of the Dodd-Frank financial reform legislation.

These fees are tricky because the rules can change. The minimum balance can be raised from $1,500 to $2,000, for example, with little notice. This is why I reluctantly give this advice to account holders: always leave a buffer of at least $500 in your checking account, and preferably, $1,000. With savings rates so low, the cash won’t do you any good in savings anyway, so just put $2,500 in that $1,500 minimum balance account and pretend it’s not there. You are buying insurance against the occasional fee (and against overdrafts). If it saves you one fee, you will have “earned” more than anything else you could have done with that money. Smaller banks sometimes have less strict requirements than large banks, so it’s worth investigating their minimum requirements.

(Oh, and if you are lucky enough to have more than $1,000 as a buffer, it may be tempting to put it into an interest-bearing checking account with a high minimum balance. Instead, consider putting the cash into a high-yielding Internet savings account. Rates are still low, around 1%, but far superior to any checking account rate you’ll find. And hey, 1% is something.)

Consumers who struggle to keep $1,500 or $2,000 balances, who don’t have direct deposit paychecks, or otherwise can’t meet minimum requirements may want to shop around for smaller banks with lower barriers. No one ever expects to get laid off, but one of the surprise punishments of that ordeal is the lack of a paycheck often means fees kick in to their checking accounts. Planning ahead for such an event — knowing how you can meet your bank’s minimum requirement if you aren’t getting a direct deposit — is always smart. Finally, prepaid cards designed for consumers who don’t have a lot of cash have become competitive enough that fees are more reasonable, and many work like checking accounts. They offer online bill-pay, for example. Consumers who find their checking accounts are too expensive might want to consider a prepaid card instead. Just be aware that prepaid cards typically don’t have some of the protections that a checking account offers, like FDIC insurance or fraud protection. Read the fine print before you move your money.

3. Overdrafts

Financial reform was supposed to take the biggest bite out of banks’ controversial overdraft policies, which grabbed a stunning $37 billion from consumers in 2009, some $30 or $35 at a time. When Dodd-Frank was passed, banks said the sky would fall on their business, and free checking accounts would be a thing of the past. Neither has proven true. Banks still collected $32 billion last year in overdraft fees last year, slightly more than the previous year. And fees continue to climb, even among credit unions and small banks, which now charge an average of $28 according to Moebs Services.

Overdraft fees that result from debit purchases — the well-told story of the $5 burger than cost $40 — were the most controversial type of overdraft, and financial reform has curbed this practice. Consumers now must opt in for this kind of coverage, and many banks have dropped fees to low-dollar overdrafts. Still, the CFPB says a remarkable 40% of consumers have opted in to this very expensive checking account add-on at some banks, where it costs them hundreds of dollars annually.

In a bit of a surprise, there are growing regional differences in overdraft fees. In places like Kansas and California, average fees are lower, while the highest in the country are in banking-friendly Delaware, according to Moebs.

Consumers can protect themselves by enrolling in what some banks call “overdraft protection.” In case of an overdraft, money is automatically transferred from a savings account or a credit card to cover the cost. If that sounds a lot like an overdraft fee, distinction between the two products is confusing. To keep it simple: it’s a lot cheaper to borrow your own money than the bank’s money if you overdraw. The key is to tell the bank to “link” your accounts before an overdraft event. There’s still a fee — often around $10 — but it’s much better than the $30 an overdraft can cost. You can link your accounts, or just allow the transaction to be denied.

Switching Banks

To borrow a weather-beaten phrase, it seems like everyone complains about banks but no one does anything about them. Consumers who feel like their bank is helping itself to too much of their money do have a lot of choice in the marketplace. So why isn’t there more switching going on?

The answer was offered in a well-researched paper published by the Federal Reserve back in 2008, and is well-known to economists. Switching costs.

You can’t press a button and suddenly be working with a new bank. Moving money takes time, as does moving direct deposits and payments. Economists call these hassles “switching costs.” As banking instruments become more complex, switching costs continue to rise. Online banking has only made things much worse. What if you miss a mortgage payment, or overdraw an account while the money is in limbo between banks? The costs can be quite real. Last year, Consumers Union released research saying 1 in 5 consumers wanted to switch banks, but 63% said they didn’t because of the hassle involved.

Switching costs are the enemy of true competition.

Financial reform in Britain has recognized this problem and new rules have led to creation of a banking industry alliance that recently released a “7-Day Switch” program. It puts the onus on financial institutions to make sure consumers don’t pay extra fees when switching, and promises swift transfers. American banking regulators should pay close attention.

Switching in the U.S. is still a pain, but it’s far from impossible. One way to rationally switch banks is to open the new account well in advance of closing the old one, and move critical transactions over slowly — even one month at a time. The last time I switched banks, I took essentially an entire year to do so.

Switching banks became a little easier in 2011, when the Occupy Wall Street movement was linked to “Bank Transfer Day” — Nov. 5, 2011.  Javelin Research says that, in response to that day, 600,000 people moved their money in the last quarter of 2011 from large to small banks, aided by various social switching tools, such as this site that makes it easier to find a credit union.

Getting a Refund

Before choosing divorce for you and your bank, however, it’s certainly possible that there’s just been a misunderstanding. It’s worth giving your bank a chance to make it up to you by employing the simplest, most effective tool consumers have.

Ask for a refund.

Credit.com ran a survey this summer and found that roughly one in two consumers who asked their bank to reverse a fee succeeded. Those are pretty good odds. Better than one-third of consumers said they’d managed to get an overdraft fee overturned.

How can you increase your odds of success? All the obvious advice applies. Don’t ask often, because you’ll wear out the bank’s largesse. Be polite, but firm. But here’s some unusual advice: To whatever degree possible, don’t be a stranger. Make it personal. Some banks charge a fee to talk to a teller, and in that case, this advice doesn’t apply. But if you work with a smaller bank, or there is a branch of your bank nearby, drop in every once in a while when making a deposit or a withdrawal. Smile at the bank manager and tellers. You’ll be much more likely to catch a break if you can make your appeal in person, and someone at the bank recognizes your face.

Image: Jack Hollingsworth

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