Wednesday, January 16, 2008

I Won't Pay To Use My Own Money

I absolutely hate paying fees to use my own money. A few dollars here and there can add up to lots of money. My preferred approach is to find solutions that require no fee. Here are some of the fees that I like to avoid:

  • Check cashing fee. This is charged to payees who don't have their own bank account and need to cash pay checks or government checks with a third party payer, either a checking cashing business or a bank. Fees for paychecks usually range from 1 to 3% and for personal checks, up to 12%.

    My Solution: Find a bank or credit union with no fee, no minimum balance checking account and use direct deposit. Potential savings: $300 to $500 per year.

  • Overdraft fees. These are the costs for withdrawing more than one has in a checking account. Sometimes the charge happens even when there is enough money but not all the deposits have cleared. People who take routinely have balances close to zero are most susceptible to overdraft charges when the flow of deposits and withdrawals is miscalculated:

    My Solution: Keep a buffer (e.g. 20% of monthly expenses) in our checking account. That way we have to overspend by a lot to deplete our checking account. In the past, I have use overdraft protection from a credit card or savings account. While the credit card may charge interest, it is typically lower than an overdraft fee.

  • ATM fees. Since it is cheaper for a bank to dispense money through an ATM than a teller, I don't understand why fees are charged for using an ATM. A one dollar charge on a 20-30 dollar withdrawal is a hefty fee on a percentage basis.

    My Solution: Find a bank that doesn't charge use fees at their own and other bank's ATMs. Another option is to use an ATM card for grocery or other purchases and withdraw additional cash over the purchase. Typically, there is no fee for an additional withdrawal with a purchase.

  • Foreign currency surcharge. Credit card have started charging 2% fees on transactions made outside the U.S. This is in addition to the spread a bank typically makes on a foreign currency exchange.

    My Solution: Our ATM card can withdraw from foreign machines at the spot exchange rate with no additional fees. I have found that all international airports have ATMs that accept our bank card. And usually, there are ATM machines near the hotel. As a backup, we bring traveler's checks. While the check are usually exchanged with a bank spread, we don't get the additional 2% charge.

  • Fees and interest for loans against tax refund. These are short term loans, from a few days to a couple weeks, that are to be paid back when the refund is received.

    My Solution: Manage our W-4 such that we owe or are refunded only a small amount. That way I have access our "refund" during the previous 12 months. If we have a refund, I choose to wait the 8-15 days to receive a direct deposit to our checking or saving account.

  • Banks can make a lot of money charging people to use their own funds. I try to avoid those fees and use my own money for free :-)

    For more onThe Practice of Personal Finance , check back every Wednesday Thursday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC


    Anonymous said...

    Capital One does not charge any extra fees when you use their credit card in a foreign country. They are not the best company but this is one perk they offer.

    Anonymous said...

    I'm always amazed at the number of banks that charge fees for things like debit card transactions, checks written, etc. I even heard of a bank that charged customers for using it's telephone banking VRU for balance verifications, etc...$0.25 a call. Who do they think they are, directory assistance?