=Intro bookend= Hi. In this video, we will talk in greater detail about the fees that banks charge, and how to be smart about minimizing their impact on you as the customer. =Learning objectives= After this lesson, I hope you will be able to do the following: * List major types of fees charged by banks on checking accounts and how to avoid them. and * Explain why a banking relationship is often adversarial in nature, and what that means for your daily monetary operations. =Banks= Previously, we have discussed the transactional services banks provide as financial intermediaries. Now, let's put together an overview of the fees you may be charged. =Bank fees= The dollar estimates here are current as of the year 2015. Overall, the banking industry makes billions and billions of dollars a year in fees on consumer accounts. These average around 100 dollars per year per account. While regulations stipulate that all fees must be disclosed to account holders, and they are, it is still non-trivial to avoid them, because there are so many different things that can be subject to fees. Your best protection is knowledge, so let's look at the banking fee landscape. Monthly account maintenance fees are about 5 to 15 dollars a month. You really should look into avoiding this if at all possible, because these will add up over the course of the year, and it doesn't take much to avoid them. If you shop around, you should be able to find a bank that waives the monthly maintenance fee if you keep only 100 bucks or so as average daily balance. Online banks often have no account maintenance fees at all. We have already talked about ATM fees. Paying 3 bucks to the ATM operator and another 3 bucks to your bank every time you need some cash on the go can add up pretty fast. One way to avoid these is to plan ahead, and make sure to have enough cash on hand, by withdrawing from your bank in person or via a bank-owned ATM. If you go with an online bank, you will often find that not only do they not charge you for transactions at third party ATMs, they even reimburse you for fees that ATM operators may charge. In fact, it may be worth it to have an online bank account with a couple hundred bucks in it just for this - for the freedom of being able to use any ATM at any time without worrying about fees. We have already discussed check bounce and non-sufficient funds fees. If you write a check that bounces, you'll be charged about 35 dollars. You definitely want to avoid writing unfunded checks - it is a very expensive hobby. If you deposit a check that bounces, you'll often get charged around 10 bucks, as unfair as it may seem, considering that it's not your fault. So you also want to avoid depositing other people's rubber checks. If you are worried, you can call the issuing bank and ask about the status of the account, or just refuse to accept the check. Even online banks will be charging you these fees, so your only defense here is to be prudent. Wire transfers, as we have discussed, are a pretty specialized tool, and are quite expensive to boot. There are fees to both receive and send them, and they get more expensive if you send internationally. Good news: you generally don't need to use a bank wire. If you lose your ATM or debit card, prepare to pay about 5 bucks for the replacement card. Depending on the bank, sometimes it's free. Online bill pay service is almost always free at banks these days. If you plan on using bill pay, and you should, look for an account which doesn't charge a fee for this service. Most of the time you can get away without using actual paper checks, using bill pay instead. But if you do end up using checks and run out of the initial stash that comes with your account, it'll cost you about 15 bucks to get another batch, if you order directly through your bank. You can often shave this down if you order your checks from third party vendors on the internet. If you have sent out a check or bill payment, and it has not cleared to the receiving party yet, it is possible to cancel the payment. This so called "stop payment" operation will cost you about 30 dollars, though, so it's often better to just contact the receiver and ask for the money back. If you don't think the receiver will give it back, and if your payment is for less than 30 bucks... it's cheaper to just swallow the cost. Because spending 30 bucks to stop payment on a 20 dollar check would just be silly. In an effort to reduce costs, many banks now will charge you for paper statements, instead preferring that you just get them from the bank's website. If you do want a paper statement, or a copy of a previous statement, they'll charge you a few bucks for the privilege. It's much cheaper to just go to the website and print it out yourself. The overdraft fee is very related to the non-sufficient funds fees, and since about half of all consumer fee revenue comes from overdraft fees, it deserves a whole slide just by itself. =Overdraft protection= Remember our earlier discussion, when we said that if someone writes a check for 500 bucks but they only have 400 in the account, the check bounces, and both the receiver and the sender get smacked with fees? If you bounce a check, in addition to paying the fee, you also annoy the receiver of your payment. If the receiver is your electric company, or your internet provider, or some such party, they will likely do two things: one, charge you their own fee for bouncing the payment, and two, possibly cut off your service until you make good on the payment. This is obviously undesirable, so the bank has invented a new service, called "overdraft protection". With overdraft protection, if you try to make a 500 dollar payment while you only have 400 in your account, the bank will automatically loan you the extra 100 bucks, so the check doesn't bounce, and your payees are happy. Sounds like a pretty good deal, right? The problem is, that the bank will charge you a pretty hefty fee for each overdraft - somewhere on the order of 30 to 35 dollars. If you fail to put more money into your account and it stays negative for 5 business days, the bank can hit you with another 35 dollar fee. Or it will hit you up for 5 bucks for every business day you're in the red, or something to that effect. Whatever fee scheme the bank uses, it'll add up pretty quickly. If you have another account at the bank, like a savings account or some line of credit, you can connect that to serve as your source of overdraft funds. Then you'll get charged a smaller fee on each overdraft, something on the order of 10 dollars, plus there won't be the ongoing fee for having a negative balance. Even so, an overdraft is pretty expensive, and you definitely don't want to get into the habit of doing this. Once your account is at a negative balance, and you try to make more transactions, every transaction will hit you up for another 35 bucks of overdraft. This adds up REALLY fast. So, the easiest thing I can recommend is to just keep an extra couple hundred dollars in your checking account as a buffer, so you don't have to think about whether your account balance will cover your outgoing bills before your next deposit comes through. If you think you can't afford to keep an extra couple hundred in your checking account, then you Definitely can't afford to shell out 35 bucks for an overdraft or NSF fee every time your account balance hits bottom. =Quiz 1= So here's a question for you. Imagine you have 100 dollars in your account, and at the end of the day four transactions are posting to your account, in the amount of 10, 5, 50, and 60 dollars. How much in overdraft fees will the bank charge you, assuming their standard overdraft fee is 35 dollars? =Overdraft fees= The answer is, one hundred and five dollars. Ordering of transactions posting during the day is up to the bank's discretion. The bank will act in its own best intrest, and its interest is to maximize revenues. So they'll post transactions in order from largest to smallest, in order to maximize the number of times they can hit you with an overdraft fee. So in this case, we start with a balance of 100, subtract the amount of the first transaction, 60 bucks, and the account balance is now 40. Then we count the second transaction, for 50 bucks, and oops, we don't have enough money in our account, but the bank will be nice enough and loan us an extra 10 bucks, for a juicy fee of 35 dollars. Now our account balance is at minus 10. Well, really at minus 45, because we also owe them the fee, but who's counting. Then the third transaction posts, for 10 dollars. But what's this, our account is already in the red, so the bank again will generously loan us another 10 bucks, for another fee of 35 bucks. Finally, the same thing happens with the fourth transaction. At the end of the day, the bank ended up spotting us 25 extra bucks, and charged us 105 bucks (three times 35), for the service. If you know what's good for you, you'll avoid overdrawing your account. As a bonus exercise - think how much you'd have paid in overdraft fees, if the bank ordered the transactions from smallest to largest? =Additional reading= This covers the really important things you have to know about bank fees. As you can see, while a bank provides valuable services, it is in the bank's interest to generate as much fee income as possible while doing it, and it is in your opposing interest to pay as little in fees as possible. These opposing interests are the essence of an adversarial relationship - it's like you're playing chess with the bank, and the winner gets to walk away with extra money in the pocket. For some more detailed information, I suggest you check out this publication from the federal reserve, which gives you some more valuable tips on protecting yourself from bank fees. See you in the next video! =Attributions=