Yesterday, the CEO of Bank of America argued that the bank has a “right to make a profit.” They do, in fact, have that right. But that doesn’t mean you have a responsibility to help them with that. If you regularly use your debit card and don’t want to pay the new $5 fee each month you use the card, you have a few options for avoiding the fee:

Switch to Cash
Many people have stopped carrying cash, but cash is still accepted in most places. I won’t say all, because I’ve been in doctor’s offices that couldn’t make change and airlines don’t take cash for in-flight purchases. But, for small, day to day purchases, carry cash. The merchant will be happier and you won’t get slapped with a fee. It might even reduce your urge to make all those small purchases.

Get a Credit Card
Of course, cash might not be appealing if you need to make a large purchase, and it won’t work for online or phone orders. Even if you avoid credit, you might want a credit card for these purchases exclusively. In addition to avoiding the debit card fee, you’ll receive purchase protection. Just make sure you choose a card without an annual fee. Only use the card for large purchases where cash is challenging, or online/telephone purchases. Don’t carry it with you. Then make an online credit card payment for the same amount as soon as you complete the transaction. It’s an extra step, but you won’t get dinged a $5 fee for the privilege.

Choose a Credit Union or Online Bank
Bank of America isn’t the only bank testing debit card fees, so you’ll probably have to avoid traditional brick and mortar banks to avoid debit fees. You can switch to a credit union, most of which belong to extensive ATM networks, or you can switch to an online bank. An online bank as your primary bank shouldn’t be your first choice if you make a lot of ATM deposits, but it’s great for those of you who generally only receive direct deposits, or can wait for deposits to be processed by mail.

While the new debit card fee is annoying, it can be avoided. I do wonder at the wisdom of the big banks doing this. As an NPR commentator pointed out yesterday, it does require effort to change banks if you have direct deposit, automatic debits, and online bill pay, but people will do it if the banks push us hard enough. I only use my debit card to withdraw cash, so I won’t be hit by the fee. But for those of you who rely on debit cards, I think the day will come soon when online banks will have those snazzy check scanning apps, and that might be all it takes to convince many people to leave the big banks.

I wouldn’t expect the fee to go away unless Congress changes the regulations or Bank of America loses customers in droves.

Last week, Chase sent me a notice about their “new and improved” checking accounts. The enhancement? My free checking account is no longer free. That may be improved for them, but not for me. I will be closing that account shortly because it was primarily a pass-through account for freelancing income, which I have little of.

Now, there’s word that Bank of America is testing four new checking options that will make it difficult to avoid a fee unless you have the most basic account with direct deposit, paperless statements, and no teller visits. I actually don’t have a problem with that particular account, because we already do all of that. Other than the no teller visits rule, it’s not a big change from their current basic account, which we have. We might visit a teller once a year to cash in collected change, but we can also cash in change for free at Coinstar if we opt for a gift card rather than cash.

Customers “Want” a Fee
The part of the Bank of America story that makes me stabby is their claim that they’re doing this not to recoup the revenue they’ll no longer receive once interchange fees are capped, but so that we can “compensate them” for the cost of checking accounts. And, this is the best pat, one of their spokespeople says, “Many of our customers choose to have a monthly fee. They like that predictability.”

I have never met one person who liked paying a bank fee. Customers don’t “choose” to have a monthly fee. They either aren’t in a position to receive direct deposits or can’t maintain a high minimum balance, so they’re forced into a fee-based account.

Banks Make Plenty of Money Despite Free Checking
In fact, free checking accounts still make the banks money. They do this in three ways:

1. Bounced check fees. Those fees aren’t going anywhere and banks rake in lots of dough for those, especially since they charge the person who bounced the check AND the person who received the bounced check.

2. Interbank loans. They take our deposits and use them to make overnight interbank loans. The interest is small, but when you’re moving millions of dollars, it adds up.

3. Customer retention. Free checking accounts are basically a loss leader. Consumers are more likely to choose other financial services from the bank where they hold a checking account. This includes mortgages, car loans, credit cards, savings accounts, CDs, money markets, and in some cases, investment accounts. The bank might lose 50 cents a month on a free checking account, but they’re certainly making up for that with other products.

Look, I understand that banks are in the business of making money. I don’t begrudge them that. I’m not even get angry with them for wanting to make more money – that’s the nature of business and their duty to shareholders. The part that angers me is their insistence that customers “want” those fees. No, we don’t. In some cases, we accept them because we have no other option, but no consumer wants them. Banks should just admit they need to make up for the lost money from other fees somewhere and not try to convince the public that they’re doing this for us.

I read a story on NPR’s Marketplace today that really made me stabby. Apparently some banks are now charging fees for customers to receive monthly paper statements. Sure, most of us can access our accounts online and have opted out of paper statements, but that’s not everyone. Banks shouldn’t charge you a fee for providing a core service, like statements.

Who Needs Paper Statements?
I’m sure that’s the question that wealthy bank executives ask themselves. They forget about their poor customers, their rural customers, their elderly customers. Of course, they probably don’t want those customers anymore, but they can’t close the account if there’s money in it, so instead they charge ridiculous fees.

The fact is that some people don’t have internet access, or have unreliable or insecure access. The elderly are a case in point. Although there are some Facebooking Grandmas, most still prefer to do their financial business on paper. It’s how they learned it and how they feel comfortable. They shouldn’t have to spend some of their meager income on a piece of paper that is mailed to their home.

Internet access is also a challenge in rural areas. In these regions, there is no cable or DSL access. Some areas don’t even have landline telephone access, so dial-up isn’t an option. Satellite internet exists, but it’s expensive and unreliable. Why should rural customers have to pay for something that used to be free just because banks have decided that most customers use the internet?

And what about the poor? They might not even have a computer. Sure, they can go to the library, but do you want to print your bank statement at the library? Yeah, me neither. Not to mention that they may be working during rapidly decreasing library hours, which means they couldn’t even print statements there if they were willing to take the risk.

It’s Time to Tell the Banks No
I’m glad that at least one Senator is aware of the problem and urging Elizabeth Warren to do something about it. First it was fees to see tellers, then it was fees to speak to someone on the phone. Now it’s a paper statement? Those are printed by a computer, stuffed by a machine, and mailed by a machine. It’s not costing them that much in salary or benefits, unless those computers are cyborgs, I suppose.

I understand that banks are a business, but they also make money off our money. It doesn’t just sit there in our accounts. They use it to make loans or collect interest on it. Then they collect monthly fees and other ancillary charges. They can spend a few cents a month to send me a statement if I want one.

Charging a business $9.99 a month for a piece of paper and an envelope? I’m sorry, but that’s highway robbery. Pure greed. We shouldn’t stand for that!

Some online banks let you create what they call sub accounts in your master savings account. Essentially, these allow you to make one deposit and then divide the money between several uses for easier tracking. If your online bank allows this, then simply label the subaccounts things like vacation, property tax, homeowner’s insurance, etc. Figure out how much you need to contribute to each account, then make one deposit and divide it.

Other online banks don’t allow subaccounts, but you can still allocate your money in your personal tracking.

Create a SubAccount Tracking Document in Excel
I use Excel to track our annual or semiannual bills, how much we’re allocating each month, and how much we have in the account total. If we’re able to pay a bill out of our checking without dipping into the subaccount, I just start that cell over at one month’s balance, or zero if I simply reduced that month’s savings deposit accordingly.

subaccounts starter tracking

Here’s a sample account. You can see that I’ve labeled the months in the columns, and put the accounts in the rows. I also noted the current balance of the subaccounts after the month’s deposit is made and the available balance, which is the difference between the starting balance plus deposit, and the withdrawals and earmarked funds. At the bottom, I list the monthly contributions to each account and the month’s the bills are due.

How to Track SubAccounts
Here are step-by-step instructions for updating the sheet once a month.

subaccounts in action

1. After the interest is applied and you’ve made your monthly deposit, log into the account. You’ll see the starting balance and the interest. Add these two together and enter that number as the starting balance for the month.

2. Enter the amount of your deposit.

3. If you made any withdrawals (or expect to), either for bills that were due from subaccounts, or for items that weren’t in the subaccounts, note it in the withdrawal column.

4. Add this months’ contribution to last month’s balance for each subaccount. This is your new balance.

5. If you paid any of the annual bills this month, subtract the bill amount from the subaccount balance. If you were able to pay it without using the subaccount funds, simply add that money to your available balance. If you paid it from subaccount funds, subtract that amount from the subaccount balance and note it in the withdrawals column.

6. If you still made the full deposit, divide it accordingly among the accounts. If you reduced your deposit by this month’s contribution for the bill you paid, don’t add money to that account’s balance.

7. Repeat next month.

Here are April and May in action. Let’s say I had to pay the earthquake insurance in April. I noted the amount ($1150) in the withdrawals. However, I made the month’s full deposit, so I allocated a portion of that to the earthquake insurance subaccount ($115). Then in May, I made all the deposits as usual.

Once you get the hang of it, it’s a matter of minutes to update the sheet. Then you’ll never have to worry about using earmarked funds if an emergency comes up.

In my post about the advantages and disadvantages of moving your money to a small community bank, I didn’t address credit unions, which are also an alternative to the big banks. Credit unions and banks will feel similar to the average customer, but they are actually quite different, so here’s what you need to know.

How Do Credit Unions Work?
A credit union is a non-profit financial institution. Rather than customers, they have members. The credit union is owned by its members, who elect the union’s Board of Directors. These Directors then oversee the bank for the good of the members.

Since credit unions don’t operate for profit, they typically offer very competitive interest rates – often better than you’ll get from a bank. Any proceeds they receive from these loans are used to pay above-average interest on deposits and make additional loans. Credit unions also offer lower, if any, service fees and may pay a dividend to members if there is excess revenue.

Are Credit Unions Insured?
Accounts held in credit unions are not FDIC-insured. Instead, they’re insured by the National Credit Union Share Insurance Fund, which is backed the by the US government. The unions are chartered and regulated by the National Credit Union Administration.

What Services Are Offered by Credit Unions?
Different credit unions offer different types of services, but most provide at least savings and checking accounts. Many also offer auto loans and mortgages. Some offer money market savings accounts, certificate of deposit accounts, and credit cards. Larger credit unions may also provide investment services and insurance. Many offer discounts on local attractions, Entertainment Books, and other items.

Do Credit Unions Have ATMs?
Your specific credit union most likely has ATMs outside its branches that you can use free-of-charge. Many credit unions are also members of the CO-OP Network, which gives you free access to 28,000 ATMs around the country. Make sure you ask if a prospective credit union is a member of the network before you join.

Do Credit Unions Offer Online Banking?
Again, it depends on the credit union. Smaller credit unions may not have the infrastructure necessary for online bill-paying, but will allow you to check balances online. If online banking is important to you, make sure a prospective credit union has it before joining.

Who Is Eligible to Join Credit Unions?
Credit union eligibility depends on the specific credit union. Some are limited to a specific trade group or organization. For example, the Aerospace Credit Union is limited to employees of the Aerospace Corporation, US Government employees who work at the LA Air Force Base, and employees of contractors who work at the base.

Other credit unions are open to anyone who lives in a certain area. For example, the WesCom credit union is open to anyone who lives, works, worships or attends school in one of five Southern California counties.

No matter where you live, you should be able to find a credit union that you’re eligible to join. Visit the National Credit Union Association website to find one.

Personally, I used a credit union for a car loan twelve years ago. I joined a trade credit union with a $50 deposit into a savings account. I then contacted a loan rep who helped me apply for a car loan. The rate was reasonable, and certainly better than anything I would have qualified for at a bank or dealership. The whole process required two trips to the credit union – one to open the account and one to sign the loan papers. These days I’d probably be able to do it all online and by fax, just like a regular bank.

Hopefully you rebalanced your investment portfolio at the end of 2009 to capture tax losses, but you can do it now if you haven’t already and have those losses for 2010. However, you should look at more than just your portfolio. It’s time to look at all the places you keep money to make you’re not being hit with new fees.

Review Your Checking Account
If you have direct deposit, then you may not worry whether your checking account carries fees. However, some employers don’t offer direct deposit. If your employer is one of them, it’s time to check your account for fees. You should be able to find a fee list online. If not, call customer service and ask. If they charge fees for calls, teller services, monthly account maintenance, low balance, etc., it’s time to move your money. Your first try should be a local credit union, which is probably fee-free. If you can’t find one of those, some major banks offer fee-free accounts. You could even ask your bank if they have one and inform that you’re prepared to find a new bank if they can’t switch you into it.

Review Your Savings Account
I’m not saying you should move your savings account each time a different bank shows a slightly improved rate. You should, however, check this account for fees, too. For example, last year I had to remove my money from Everbank after they more than tripled the minimum balance and doubled the associated low-balance fee. We weren’t in danger of triggering the fee, but we wanted the flexibility and they didn’t offer it.

Review Your Brokerage Account
This is a tricky one, because your investments may be tied up for a short while if you have to move them to a new brokerage. However, you should still check your brokerage account for new “account maintenance fees.” Those fees were one of the reasons I left E-Trade several years ago. They didn’t tell me they’d introduced the fee until they sent me a statement four months after they levied it and then said they couldn’t reverse it because it had been more than 90 days. Even when I said I wanted to close the account if they didn’t reverse the fee, they didn’t budge. So I closed the account and I’m never going back.

Review Your Credit Cards
Credit card companies are cutting limits and hiking fees and interest rates all over the place. If you don’t carry a balance, interest rate hikes are moot, but you need to know if they’ve cut your limit. They should send you a letter when they change your account, but check your account online monthly just to make sure.

Review Your CD Due Dates
If you have any CDs expiring this year, mark the due date on a calendar so you can notify the bank immediately about your intentions. If you wait more than 10 days, the CD will automatically renew and lock your money in for another term unless you pay a high surrender fee.

Check Your Credit Report
While you’re doing all this, why not check your credit report, too? I use to check one free report every four months: January, May, and September.

A once-a-year checkup is a good way to start the year, but always be vigilant about changes to your account because they can happen at any time. The sooner you take action, the less risk of getting hit by a fee.

As you may have heard on the news, the Federal Reserve released new rules restricting overdraft fees yesterday. Unfortunately, the rules aren’t quite as comprehensive as we would probably like. Congress is considering even stronger regulations, but there’s no telling when or if they will be passed. Here’s what you need to know about the current rules.

When Do the Overdraft Fee Rules Apply?
As with all Federal Reserve rules, there’s a lengthy waiting period for the new rules. They don’t take effect until July 1, so you can be sure the banks will be doing everything they can to maximize their overdraft fees in the meantime. Be extra vigilant and take steps to avoid overdraft protection in the first place.

Which Overdraft Fees Are Restricted?
Under the new rules, overdraft fees will still be fully permitted as an opt-out program for bounced checks and online bill pay. Overdraft fees will be made opt-in for ATM withdrawals and one-time debit card transactions/purchases.

What Does Opt-In Mean?
Currently, most banks automatically enroll their customers in overdraft protection. They claim it’s for your “convenience” so your purchases aren’t denied. Most customers say they’d prefer to have their purchases denied rather than pay an exorbitant fee so they can buy a pack of gum.

Under the new rules, all banks will have to ask their customers if they want overdraft protection for ATM and debit card transactions by July 1, 2010. If you don’t say yes, then they have to disenroll you from the protection. But watch your bank communications carefully – I’m sure they’ll try something squirrelly to get you to opt-in without you realizing what they’re doing.

What Should You Do?
Overdraft protection is a personal choice. My choice is not to have it – I’d rather manage my money myself. If you feel the same way, call your bank right now and ask to opt-out of all overdraft protection programs. Your payment will bounce or your purchase will be denied if you go over the limit, but it’s probably still cheaper than the overdraft fee. If they call or write to ask you if you want to opt-in to overdraft protection, say no and then also ask to opt-out of all other overdraft protection programs.

How Did This Problem Get So Bad?
In a word, profit. The banks rake in billions in overdraft fees every year, so they opted-in all their customers without their knowledge. In addition, they sort all of your deposits and payments in a manner that maximizes the bank’s potential for fees through bounced checks and overdrafts. As the economy slid and their other profit lines declined, they ramped up the fees.

Last month they attempted to head off the new rules by reducing their fees slightly, but it didn’t work. You’ve no doubt seen or experienced all the credit card shenanigans the banks have pulled ahead of the new credit card rules. Be just as vigilant when it comes to your bank accounts because the banks are not on your side.

Yesterday the big story was the FDIC’s request for prepayment of three year’s worth of fees by member banks to shore up its dwindling reserves. Don’t panic. The FDIC is still secure. You don’t need to close your accounts or rush to the bank to withdraw your money.

The FDIC Has a Treasury Credit Line
According to NPR, the FDIC has a $100 billion credit line from Treasury that it can draw on if its own funds run out. Then it can ask for the Treasury Secretary for an extra $400 billion if necessary.

Banks Have Ample Reserves
According to NPR, some banks are upset about this request because they believe it could weaken already weak banks. However, there is also $800 billion in unused capital sitting in the Federal Reserve. A mere $45 billion of that will be used to shore up the FDIC. This helps the FDIC avoid a “bail-out” and ensures it has enough money to rescue the banks it expects to fail in the future.

No, They Won’t Warn You of Impending Failure
A friend of mine was very upset when Washington Mutual was seized without warning. She felt she should have been warned so she could take her money out. But warnings and fears are exactly what causes banks to collapse. By keeping the information secret until the bank is seized, the FDIC avoids the run on the bank that results in people losing their money. So far only one bank failure has resulted in a loss of money – IndyMac, and that was a result of a Congressman shooting his mouth off and scaring the public.

This Won’t Crush Banking
Yes, it may hurt already weak banks. Those banks probably would have failed anyway, and can request an exemption from this additional fee. Strong banks can afford to pay. They’ll grumble, but according to NPR they would rather pay than be seen asking for another bailout.

Keep Banking As Usual
Unless you have large amounts of money in a single financial institution, keep banking as usual. If you do have more than the amount of money covered by the FDIC in a single bank, go ahead and split that money up. You should do that anyway.

Welcome readers of US News’ Alpha Consumer blog! If you want to know more about our budgeting system, I’ve linked to a few budgeting posts about halfway down this post. If you’d like to learn more about how we paid off $40,000 in debt in one year, I detailed it last September.

This morning I heard a story from the Financial Times, by way of NPR, that banks earn $38.5 billion a year from overdraft protection fees. First, this is highway robbery, since most people don’t opt-in to these programs. Second, can avoid paying these fees. If you’ve paid an overdraft protection fee even once, it’s time to take action to avoid paying one again.

Disenroll from Overdraft Protection
About a decade ago, I had an overdraft protection plan. Back then, it meant they pulled money from my savings account to avoid overdrawing my checking account. There was no fee for this, because it was all my money. At some point, the bank stopped offering that and instead switched to using my credit card, but that required a minimum $100 advance, a $20 cash advance fee, and a higher interest rate with no grace period. I opted out of that.

If you’re not sure whether you have overdraft protection, call the number on the back of your ATM card and ask. If they say yes, ask to have it turned off. Yes, your debit card will be declined if you overdraw, but you’ll know right away. You won’t get hit with fee after fee after fee.

If you tend to get hit with overlimit fees on your credit card, ask to have that turned off, too.

Create a Budget and Use It
If you know how much money you have at any given time, you’re less likely to overdraw your account. If you only have $80 until your paycheck hits on Monday, you won’t spend $100 over the weekend. Not sure how to create a budget? Why I have a few posts about different budgeting methods:

The monthly budget combined with the cash flow budget
The envelope budget
The irregular expense budget

Spend Only Cash
Some people aren’t good with plastic, and that’s fine. If you tend to overdraw when using your debit card or go over limit with your credit card, withdraw a fixed amount of cash from your account weekly and stop spending when the cash runs out for the week.

Keep Your Balance on a Post-It
If your account balance is low and you have errands to run, check your account balance and deduct any pending checks or purchases from it. Write the remaining amount on a Post-It and stick it to your debit card. Record each purchase as you make it, and then stop swiping the card when your balance gets low. I’d leave a $10 cushion in case any checks or payments post incorrectly. It’s better to leave a cushion than to fight the bank to credit you later.

Spend Less Money
If you frequently overdraw your account, then you’re spending more than you earn. It’s time to cut back. Start using grocery coupons, take your lunch to work, stop engaging in retail therapy, sell some stuff to raise funds, drive less, whatever it takes to bring your spending below your income.

The Financial Times article noted that 10% of the population pays 90% of the overdraft fees. If you’re in that 10%, it’s time to start managing your money. If overdraft protection kicks in just once per month at $35 each time, that’s a savings of $420 a year. I can think of a lot of things I could do with $420 besides give it to a bank.

A few months ago, I posted that I loved Everbank for its high rates and good customer service. Well, the bloom is off the rose, as they say.

This weekend while reading Consumerism Commentary, I learned that they increased their minimum monthly balance to $5,000 and raised the monthly low-balance fee to $8.95. I checked online, and it did indicate the new limits, so I called the bank. They said the minimum became effective July 1, and notices were sent out in May. I didn’t receive a notice.

I used this account primarily to hold my down payment funds, and happily took advantage of the nearly 4% initial interest rate to earn lots of interest on that money. Now there is less than $10,000 in the account, and my husband and I had just decided we will use some of the money to fill our new house. We also plan to use our savings account to accrue property tax and homeowner’s insurance payments.  Finally, the account will serve as our emergency fund.

We’re Changing Banks
At first we considered sticking with Everbank, but now we’ve decided that we don’t want the limitation of the high minimum balance. We also don’t want to worry about getting hit by a $9 fee if we have an emergency and have to go below the minimum. No other national online bank has a minimum balance requirement. We also no longer have the high teaser interest rate. Our current rate is almost on par with other online banks. At this point, Everbank’s thank you notes aren’t enough to keep me around. I’ll be moving to a different bank that won’t whack me with a fee for using my money.

What’s the Motivation for This Uncompetitive Move?
This is what truly baffles me. If none of your major competitors have a minimum balance, why would you increase yours from $1500 to $5000? It seems like a sure way to drive depositors away.

How to Close Your Account
This is the tricky part. If you drain the account and THEN close it, you won’t receive it accrued interest that hasn’t yet posted to your account. If it’s enough money to make a difference, notify them of your desire to close the account first and use their process to ensure you receive the interest.

It’s getting tough to find a good bank, but my hunt is on again. Oh, Everbank, why do you plague me so?

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