We hate to just throw money away! So, from time to time, we’ll comment on areas where you can avoid wasting your money. Today’s topic involves bank fees and credit card fees.
You may remember my friend, Jane, from a previous article, How much of a nest egg will you need to retire gracefully? Jane took my advice and searched for an Atlanta bank that offers free checking accounts (Free checking accounts are fading away fast). To help her select a new bank, Jane went to this web site to compare features of checking accounts at many Atlanta banks and credit unions – Atlanta, GA Checking Accounts. But, because of the way she uses her new account, it’s far from free.
In order to get “free” checking, Jane established a savings account with the same bank and she keeps several thousand dollars in that savings account. She does not manage her checking account very well – whenever she writes a check or uses her debit card that causes an overdraft situation, her bank automatically transfers some of her savings into her checking account.
The bank will do this once or twice per month for free but after that, a charge is assessed – a hefty charge! Jane is paying hundreds of dollars per year for this service because she uses it so often. Oh, and whenever Jane needs cash, she goes to any old ATM to withdraw it. She pays no attention to the TWO fees she is paying – one fee to the bank who owns the ATM and another fee to her home bank! She is throwing money away! And to add insult to injury, the bank pays her peanuts in interest on her savings.
If Jane would just manage her checking account, she would avoid this situation. There are several software packages out there that could help her manage her account easily. We use Quicken for this task. The cost of the Quicken software would be more than offset by the bank charges she would save. Most larger Atlanta banks offer Direct Connect for Quicken which simplifies the process. While most charge a fee of between $6.00 and $10.00 per month, some will waive the fee if you meet certain criteria. My bank waives the $5.95 fee if I maintain a $1,000 balance.
I wish I could say this was the only waste Jane incurs, but, alas, her lack of attention extends to other areas. She has several credit cards and is rather lackadaisical about the way she pays her bills. She gets hit frequently with late payment fees and over limit fees. These fees are not cheap! And, because Jane does not manage her credit cards properly, her credit card companies charge her higher interest rates.
All these fees could be avoided if Jane would simply spend an hour or two per month managing her accounts. And she needs to keep track of her checking balance on a more or less daily basis. That is so easy to do. Every morning as I sip my coffee, I have Quicken connect to my bank through the Internet. Within a couple of minutes, my account is reconciled with the bank and I can spot any problems immediately.
Jane thinks I’m being obsessive when I do things like this. But, who’s coming out ahead – Jane or me?
Here are some things Jane could do to help keep fees to a minimum:
- Never utilize overdraft protection schemes unless there is absolutely no fee for the service
- Use ATMs only that are owned by her bank
- Pay credit card balances in full every month
- Use only credit cards that do not charge annual fees
- Just in case she might have to carry some of a credit card balance over for a month or two, she should have credit cards that charge low interest rates (for example, I currently have a MasterCard that charges an annual interest rate of 7.75% on unpaid balances)
- Never use credit card cash advances
I realize that from time to time, Jane might need to use credit for some purpose. She should always seeks out the cheapest way. I often use my credit union for any loan I might need such as for an auto, home improvement, major purchase, etc.
So, if you are like Jane, start taking some time to manage your cash flow week to week and month to month. It’ll pay off big!