What’s the Real Meaning Behind All Those Bank Fees?

Craig Donofrio — Break It Down

Most banks are in it for the money: both by providing you a place to stash yours and by charging you a spectrum of fees to do it. The best banks keep it to a minimum, some other banks have tons, but odds are good that if you’re keeping your money in a bank account, you’re also coughing up some fees, whether you’re aware of it or not. A monthly maintenance fee there, a usage fee here, it can add up—make sure you know what you’re on the hook for, and why, preferably before you open an account.

“I had a boss who used to say, bank fees exist for one of two reasons: to shape a behavior, or to generate revenue,’” says Joe Mecca, associate vice president of communication at Coastal Credit Union, based in the Raleigh-Durham, North Carolina area. In 2016, big banks raked in $15 billion in customer cash from bounced checks and overdraft fees. It’s probably safe to assume those banks are more concerned with cashing in than employing cognitive cash therapy for spendthrift customers. But it’s true that banks do use fees to discourage consumers from certain practices—like receiving paper account statements instead of electronic versions.

Here are some of the most widespread bank fees:

Overdraft and overdraft transfer fees

Overdraft fees, a charge by the bank for overdrawing funds from your account, are the most common and profitable fees for banks. Say you have $120 in your account, but a transaction is $125. The bank “covers” that $5 and lets the charge go through, for a fee. According to CNN Money, the average overdraft fee is around $34, while the amount the typical consumer overdrafts is $24.

But what if you have the funds to cover that transaction in another account? An overdraft transfer fee is when funds are withdrawn from a linked account, usually your savings or a line of credit, to cover whatever is missing from your primary account. It should be no big deal—you still have money in the bank, it’s just in a different account. According to Mecca, this process is automated and inexpensive for banks, so not all of them will charge for such a service. But if yours does, be careful: overdraft transfer fees can also happen consecutively, with each transaction costing you an extra $5 or $10 (or more, or less) if funds are lacking in your primary account.

Debit card usage fee

Some banks will charge you a monthly fee if you don’t use your debit card enough. That’s because banks make an interchange fee—a small percentage charged to the merchant you’re purchasing from—every time you swipe your card. The usage fee is the bank’s way of trying to persuade you to use your debit card to make them more money: If you’re only using your bank account as a vault for credit card payments, the bank is missing out on those interchange fees (which are instead going to your credit card company).

Deposit verification and stop-check fees

If you need to talk with someone to verify a deposit went through, you might wind up owing a verification deposit fee. Similarly, transactions that stop a bill payment or cancel a check can also cost you.

These fees “require human assistance, so it’s a cost on the institution’s side,” says Mecca. While technology has allowed many consumers to verify deposits on their own, canceling a payment is one of those requests that almost always costs money because of overhead cost. “We charge less for making the request via digital banking, but there’s still a fee because someone will have to touch the stop payment at some point,” explains Mecca of Coastal’s particular policy. For example, if you stop a check online and the merchant tries to cash it, a bank representative will have to step in and prevent the check from going through.

Account maintenance and minimum balance fee

At its most basic, banks make money by storing your cash for you. In turn, the bank can lend your money out and earn interest on the loan. But if you don’t have a fat balance, the money the bank can earn on your account is diminished. Big banking’s solution? Minimum balance or maintenance fees that kick in every month if your account doesn’t have X amount of funds.

“It’s a way for them to try to make money on every customer,” says Mecca. “With customers who are high-dollar depositors, they have a source of low-cost funds they can lend out at a higher rate.”

It’s not always about maintaining a minimum balance. Some banks waive the so-called maintenance fee if you receive a certain amount of payments via direct deposit or if the owner of the account is a student. And some banks don’t require a minimum, or charge a service fee at all.

While a few service-based charges are to be expected, it pays to shop around if you’re paying your bank loads of fees every month. While every bank needs to make money, the best ones keep the costs to the customers at a minimum.