Ditching Bank Fees
We are going to dig into talking about fees that you are going to experience with financial products. At this point, we really are focused more on banking accounts, so savings accounts, checking accounts, not so much focused on credit cards yet. That is definitely coming. First, who's been hit with an overdraft fee? Show of hands. Those of you tuning in online, feel free to shout it out if you too have been hit with an overdraft fee at some point in your life. It usually happens to all of us and comes to us all at some point. It is the legal way that banks suck you dry. If you're not familiar with the term overdraft fee, I'm gonna break down for you how exactly it works. Let's say you woke up this morning with $100 left in your checking account. You know tomorrow is pay day, so you're like, okay, cannot exceed that $100 amount. This is all I have left to spend today. You go and buy your morning coffee and it cost you $5. Then you went and grabbed your groceries for the week and that pu...
t you back $70. And then you needed gas, you had to fill up your tank, it cost you $25. But you're okay, you're still under you $100. You get paid tomorrow, it's all good. Except you forgot about your monthly gym membership payment of $ and that hit your account and has made you go overdraft. Now, most of the time, overdraft fees are somewhere between about $25-$35 for one hit. The thing is, banks can charge you more than one time in a single day. They can also do something else called transaction reordering. What this is, is they, at the end of the day essentially, analyze the order in which you made your transactions and reformat the way that you did it in a way that's most lucrative for them. Using the scenario I just talked through, it would look something like this. First, they would have had you gone and purchased the groceries for $ and then your gym membership hit for $50. You've already gone overdraft once now. Then again, your gas, second overdraft hit. Third, your latte, that $5 latte ended up costing you about $35. Thing is you went from paying $35 to $ in fees in a single day. This actually is still totally legal. There have been class action lawsuits against major banks for doing this, so some of them have paid out for customers for participating in transaction reordering but the thing is they still can legally do it. There's still no law against this. You need to know if something that your bank does. One horrible way to find out is if it happens to you directly. Another way is to just do some research online and see if other customers are talking about this happening to them. This particular thing really riles me up because if we're thinking about people who are at a point in time where their bank's about to go overdrawn, are probably people that are not necessarily flushed with cash. These are people where $105, $35 certainly, and $105 makes a big difference in their monthly budget. This could be the difference of paying rent, lights staying on, food being on the table, childcare being covered. The fact that they are then milking every single penny out of you is problematic. If you personally have never experienced an overdraft fee, you've always stayed perfectly on budget, never accidentally overdrawn your account, that's great. If your bank is doing this to other people, other customers, that's something that should offend you personally and that's why I don't think you should be banking with an institution that does this to its customers 'cause it's about respect. I'm gonna keep coming back to this idea because even if you personally do not have an issue with this because you're so good with your money, I still think you should be upset that they're doing this to other folks. Especially, often, this usually hits people at the lower end of the socioeconomic totem pole as well as college students who usually do not have the money. Then, on top of that, there's typically another fee that if you can't pay those fees back within typically 5 business days, they hit you again with an overdrawn fee for perhaps a fourth time. Another thing to know about overdrafts and transaction reordering is a lot of banks do allow you to have three to four overdraft fees in a single day. That's why you could be out spending money not realizing you've gone overdrawn in the first place and that's how you can get up to $ in fees in a single day. Sometimes they offer this thing called overdraft protection. How this works is they say, we're gonna link your checking account to your savings account, so if you overdraw, no big deal, we're gonna pull money out of your savings account into your checking account to cover the shortfall. Usually it's in $100 increments but that could vary depending on your bank. All right, that's nice. Some of them will also set up a line of credit option for you so there might be a small interest rate but it's not gonna be as high as the fee. Problem is, it costs them pennies on the dollar to move your own money from savings to checking and a lot of them will charge you $12 to do it. Again, it comes back to these fees. They are charging insane amounts of money. I get that banks are for-profit institutions and they are trying to earn money. I get that. But gouging and earning money are really two separate things. That's something that we're gonna keep coming back to as well. Another term you might hear is non-sufficient fund fee. This is pretty much the same as an overdraft fee. Sometimes, though, instead of allowing you to overdraft and make the transaction, they reject the transaction for you, saying you don't have enough funds, non-sufficient fund, but they still charge you for trying to make the transaction and usually it's the same amount as for an overdraft. Typically $30-$35 depending on the institution. Here are some other common banking fees I'm sure that you have heard of and I guarantee you have experienced at least one. Account minimum fee, this is saying usually you have to have a certain balance in your account every single day of the month in order to avoid this fee. You might hear something like, your checking account balance needs to be $1500 every day, not cumulative across the month. If you dip below that at any point, we will charge you an account minimum fee. Another one is a monthly account maintenance fee. Pretty much the same thing. It might not be a minimum balance requirement but every month for the privilege of having a checking account with this bank, they are gonna charge you something like $10-$12 every single month. ATM fee, I'm betting all of us have paid this at some point or another in our life. The thing is ATM fee can come in two forms, the ATM can first come because your bank is charging you for using another bank's ATM, and then that other bank is charging you for not being their customer. To put it in real terms, I'm gonna use banks that we actually know just so it's not confusing. Hypothetically, if you're a customer with Chase and there's no Chase bank anywhere around you, there's only Bank of America, you go into a Bank of America building, you put your Chase debit card into the ATM, and Bank of America's gonna say, hey, nice to meet you, you're not our customer, we're gonna charge you $2.50 for using our ATM. You say, okay, I get it, I'm not your customer, fine, I'll pay your fee. Then Chase says, hey, you used a non-Chase ATM. We are also gonna charge you $2.50 for using that. So you just had to spend $5, $2.50 at two different banks, to get access to your own money. That's something that really ticks me off, that they double down on these fees. This isn't actually a fee, it just really makes me mad that a lot of banks only give you .01% in interest on your savings account. That is really pitiful.