No-Fee Banking: A Crash Course

When you’re investigating banking services, the best place to start is online, where you can compare account options, fees and interest rates nationwide. This is much easier than driving around from branch to branch, and may help you connect with options you wouldn’t otherwise have considered. Be sure to check out credit unions, too. Because credit unions are nonprofits, they often offer higher interest rates and lower fees than banks.

There are also banks that operate online only. These banks don’t have branches with tellers and drive-up windows, but allow customers to access money using mobile apps, the telephone, ATMs and even via snail mail. And, of course, by getting rid of overhead, Internet banks can offer higher interest rates and fewer or no fees. Making smart banking moves helps your credit; find out more in FICO Credit Score: Everything You Need To Know.

According to Bankrate.com, the average out-of-network bank fee, or the fee customers are charged for using a bank machine other than the one that belongs to the bank in which their money is held, is $1.57. That may not sound like a lot, but it’s 11% more than it was in 2011, and when you think about it, it’s a lot to ask for access to your own funds.

You can’t do much about the fact that banks will do whatever they can to extract their penance, but you can avoid withdrawing cash from out-of-network machines by planning ahead. If you think you’ll need extra cash and your bank machine is not nearby, you can also access funds by asking for cash back when you make a purchase with your debit card [see also 50 Free Resources to Help Manage Your Money].

ATM fees also change by city, as certain cities have a tendency to charge more than others. Here are five of the most expensive cities in the U.S. as far as ATM fees are concerned:

Overdraft occurs when you withdraw more money than you have in your bank account, driving the balance below zero. The bank considers this a loan, and charges consumers accordingly. A 2009 report by the Center for Responsible Lending found that overdraft fees increased by 35 percent between 2007 and 2009, generating more than $24 billion for banks in 2008.

Since 2010, banks have been required to get customers’ permission before charging them fees to cover debit card and ATM overdrafts; if you decline the fees, you simply can’t make your purchase or withdraw cash. These rules don’t apply to checks or automatic bill payments, so check with your bank to see what charges will apply. You can avoid these fees altogether by taking a few precautions. One option to consider is setting up a savings account linked to your checking account, so funds can be automatically transferred if your balance dips toward zero [see also Free Lunch on Wall Street: 21 Ways Investors Can Make (and Keep) More Money].

Of course, you’ll need to pay a fee to have this feature enabled, but if you have been burned by overdrafts in the past, it could save you a bundle in the long run. If you’re good at managing your money, you could also deposit a cushion into your account that you avoid spending, just in case you miscalculate your balance.

Banks offer several different types of checking and savings accounts, but the one thing they all have in common is restrictions, fees and opportunities to waive fees if you meet certain requirements. In that regard, choosing banking services is much like making any other major financial decision: it begins by assessing your needs, and ends with you choosing the product that best fits those needs at the lowest cost. Think about how much money you typically keep in your account, how many checks and other financial transactions you make, and what sorts of other banking services you typically use or expect to use in the future.

Some people simply need the Cadillac of bank accounts; most others need far fewer bells and whistles. When it comes to services you aren’t going to use, find a bank that won’t make you pay for them. Assessing your banking needs should be done as often as you assess your financial plan; find out more in How To Create An Effective Financial Plan.

We’ve already covered online banks, but just because you choose a bank with a local branch doesn’t mean you can’t bank online. Virtually every bank and credit union offers online banking services. If you aren’t making use of these resources, you’re missing out on some money-saving opportunities. For example, if you’re still writing checks to pay your bills, why not find out if you can pay bills online? In many cases, there are no fees attached to this service, and you’ll save yourself the cost of both checks and stamps. You can also use the Internet to check in on your bank balance and transfer funds from one account to another. This can help you avoid other fees and charges, such those attached to overdraft and bounced checks.

Many banks offer free checking to customers who maintain a minimum balance, which is generally somewhere between $500 and $2,000. But in an interest-free checking account, that isn’t always such a great deal if that money could be earning you more interest in a different type of account. One way around this hidden opportunity cost is to link bank accounts. For example, if you have a high-interest savings account or certificate of deposit (CD) in addition to your checking account, your bank might let you satisfy the minimum balance requirement if you keep the balance in your savings. Even if you can’t use your savings account this way, it’s a good idea to have one to help shore you up if you fall short on cash. Link it to your checking, but, if possible, don’t allow it to be accessed via your debit card. This will prevent you from dipping into it on impulse [see also Best Financial Advice for Young Adults].

A bank account is essential, but it’s really only meant for storing money you plan to spend in the short-term. Because the interest rates on any type of bank account are low compared to other investments, you should not use them to stash longer term savings. Once you get some money saved up, it’s time to look into investments with higher yields, such as certificates of deposit (CDs), bonds, mutual funds, exchange traded funds (ETFs) and even stocks. If you’re unsure about how to proceed, a financial advisor can help you sort out which type of investment is the best for your situation and future goals. When it comes to saving money, a bank account is a good first step, but you need to invest those funds to really help them grow.

Getting the best banking services at the lowest price isn’t complicated, but it does take work. You won’t get a great deal if you don’t comparison shop, ask questions and look for price breaks. Bank fees may not seem like big expenses, but they can quietly drain money from your account for a lifetime. The convenience and security of a bank costs money, but whether it costs a lot or a little is entirely up to you.

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.