A checking account with annual fees as high as $750?
It happens, according to WalletHub’s 2013 Checking Account Cost Comparison Report, which compares fees at the nation’s 25 biggest financial institutions.
The report, released this week, includes fees associated with checking accounts cost favored by five types of consumers, from basic users to mobile bankers.
Some of the report’s findings:
>> The less money you have, the more a checking account costs – Banks only waive monthly maintenance fees when users meet certain direct deposit and/or minimum balance requirements. Overdraft and insufficient fund-related fees also add up quickly for consumers who allow their account balances to fall below $0.
>> Prepaid cards may be cheaper than traditional checking accounts for certain consumer segments – For cash-strapped consumers in particular, the discipline that prepaid cards provide in terms of preventing account overdrafts can lead to significant cost reductions relative to traditional checking accounts, according to data from CardHub’s 2013 Prepaid Cards Report.
>> USAA Federal currently dominates the checking account space – While there is little overall correlation in the rankings of individual banks for different types of consumers, USAA’s checking account is one of the least costly offerings available to each consumer segment that WalletHub examined.
>> Overdraft fees complicate product comparison efforts – Not only do banks charge a number of different overdraft-related fees – including standard overdraft fees, extended overdraft fees, overdraft protection lines of credit, and fees for having insufficient funds – but they also apply these charges differently, depending on the type of transaction that triggers the fee, the value of this transaction, and how long the account balance remains below $0. It’s therefore no surprise that the consumer segment most at risk of incurring overdraft fees (i.e. “cash-strapped” consumers) will spend over $500 more, on average, for their checking accounts than the cohort that is least likely to incur such fees (i.e. “old school” consumers).
>> International banking carries a hefty price tag – Currency conversion costs and international transaction fees make it very expensive to either access cash while traveling abroad or to send money to people outside the country.
Five Tips for Finding the Best Checking Account
1. Evaluate Your Practical Needs: As evidenced by the number of fees that checking accounts charge, they offer a plethora of services ranging from straightforward ATM withdrawals to international wire transfers. You must therefore consider what exactly 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.
2. 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.
3. Forget About Debit Card Rewards: You shouldn’t let debit card rewards bias your search for a checking account. Not only are debit card rewards far less common than they were before the Durbin Amendment took effect, but credit card rewards are also up to 8X more lucrative. So, if you really want spending-based rewards, get a rewards credit card with a high earning rate on your biggest everyday expenses.
4. Carefully Review Account Terms: Once you have selected the account that you feel will best suit your needs (or have even narrowed down your options to a few finalists), pour through the account agreement(s) with a fine-tooth comb. This is tedious work, but it can pay huge dividends by revealing restrictions and fees that you might otherwise be unaware of prior to experiencing them directly.
5. Supplement with Other Accounts: A checking account will enable you to receive direct deposit of your monthly checking account, automatically pay monthly bills, and benefit from ad hoc access to cash. You can’t use a checking account for everything, though. You might therefore want to strategically supplement your checking account with an attractive savings account and/or credit card offer in order to make your financial management as efficient and rewarding as possible.