How a Free Checking Account Can Cost You $500
NEW YORK ( MainStreet) Once upon a time, people would pay for things by filling out a little piece of paper and signing it. It was called a "check." No, I'm serious. Of course, this was "back in the day" like, when phones had cords.
But for those of you who like to kick it old school, it's going to cost you. A checking account can cost you up to $750 a year, with fees varying as much as 350% across financial institutions, according to a report issued by WalletHub.
"The dramatic price disparity between different types of checking accounts underscores the importance of consumer product comparison efforts and should provide a stark wake-up call to the 39% of people who, according to a recent TD Bank survey, aren't likely to switch banks due to their checking account's fees -- as well as the 10% of folks who believe all checking accounts are the same," WalletHub founder and CEO Odysseas Papadimitriou said. "Few people can afford to spend hundreds of dollars on everyday banking tools, especially in the current economic climate, but it can be difficult to determine exactly how much a particular checking account will cost given the lack of transparency and standardization among term disclosures as well as the plethora of different fees that can be assessed."
Counterintuitively, the less money you have, the more a checking account can cost, according to the study. Banks are most likely to waive monthly maintenance fees when users meet certain direct deposit or minimum balance requirements. And overdraft and insufficient funds fees also add up for consumers who aren't adept at balancing a checkbook.
Overdraft fees in particular really complicate product comparison efforts. These fees come in many flavors: standard overdraft fees, extended overdraft fees, overdraft protection lines of credit and fees for having insufficient funds. And financial institutions can trigger these fees in a multitude of ways for example, it may depend on the value of the transaction, or how long the account balance remains below $0.
In fact, due to these fees, cash-strapped consumers pay an annual average of $500 more for a checking account than traditional account holders.
"The checking account market has undergone significant changes in recent years, as new regulations have forced issuers to compensate for lost revenue by eliminating rewards programs and/or implementing new fees, while a wave of new prepaid cards has provided consumers with additional everyday banking options," says Papadimitriou.
WalletHub offers these 5 tips for finding the best checking account:
- Evaluate Your Practical Needs: Consider exactly what you'll need from your checking account, in practical terms. For instance, how much money will you hold in your account at any given time? Do you need a debit card, a physical checkbook or an accessible local branch? How many ATM withdrawals will you make each month? The answers to such questions will eliminate certain checking account offers from contention and will dictate which fees you should focus on minimizing.
- Cast a Wide Net: When you begin your search for a new checking account, start broad and refine as you go. That means you should avoid entering the search process with any preconceived notions, such as the particular institution you'll get your account from, how large of a bank you wish to do business with, the necessity of in-person banking, etc.
- Forget About Debit Card Rewards: You shouldn't let debit card rewards programs bias your search for a checking account. Moreover, debit card rewards are far less common than they were before the Durbin Amendment took effect.
- Carefully Review Account Terms: Once you have selected the account that you feel will best suit your needs, read the account agreement carefully. It can reveal restrictions and fees that might not have been discussed.
- Supplement with Other Accounts: A checking account will enable you to receive direct deposits, automatically pay monthly bills, and provide access to cash. You can't use a checking account for everything, though. You might want to supplement your checking account with a savings account or credit card.
--Written by Hal M. Bundrick for MainStreet