Today’s challenging economy is forcing banks to find new ways to strengthen their bottom lines — and much of their success in that effort is coming at the expense of small- business customers like you. Hidden fees, increased service charges, confusing account options, and wildly varying interest rates are just some of the techniques banks are using to pump up their profits — at your expense.
Most major banks are quietly experimenting with different types of fees while watching one another closely to see how consumers respond, and you can expect their efforts to intensify. According to Kiplinger Reports, overdraft and credit-card fees jumped 5 percent in 2014, double the 2013 increase. Late fees for credit payments are soaring and ATM fees jumped another 20 percent in 2014.
How will this affect you and your security business? One former banking executive estimates that you will likely overpay your bank through service charges, mortgages, credit cards, loans and checking and savings fees by thousands of dollars in the lifetime of your business, unless you learn how to play by the new rules of the game.
Here are five of the most common bank fees that may sneak up on your business:
1. Overdraft fees: If you allow yourself to get careless and bounce a check, you will likely get hit with an oppressive overdraft fee — one of banks’ most profitable ploys. According to a report from the Consumer Financial Protection Bureau, overdraft penalties now represent more than half of banks’ fees from consumer checking accounts.
Most banks now automatically hit you with an overdraft charge of as much as $35 every time you write a check for more than your account balance, even if the overdraft was only a couple of dollars.
According to a study by the Consumer Federation of America, 16 of America’s largest banks charge tiered overdraft fees that go higher after the first one. Keep in mind that your bank is not required to notify you when a check bounces because of insufficient funds. You are responsible for keeping tabs on your own bank balance. Some banks set no limit on the number of overdraft charges in a single day, so a little carelessness on your company’s part could cost you a bundle.
Many banks make you pay big penalties for a small error. Let’s say you accidentally overdraw your checking account. You have $1,000 in the account and you write three checks in one day. The first is for $50, the second for $75 and the third for $1,020. Some banks process such checks in order of size. In such a case, the $1,020 check would be processed first. That would mean all three checks, not just one, would bounce. Then you would be hit with three separate bad check charges. Besides an overdrawn account, you would be out as much as $105 in painful overdraft charges.
What can you do to minimize the chances of getting caught in this trap? Most important: keep a close watch on that checking account balance
2. Disappearing free checking accounts: Until recently, free checking accounts have been available at almost every bank. No more. The number of free checking accounts has been dwindling over the last four years. According to a recent survey by research firm Moeb Services, only 59 percent of banks are currently offering free checking accounts, a drop of eight percentage points over the last year, down from 80 percent in March 2010. Make sure your checking account is still free of charges. Even if is, do not assume that it will continue to be. Banks lose money on checking accounts so many are now offering free accounts only to their best customers.
According to Bankrate.com, the type of checking account to look for now is one that does not have a monthly service charge, minimum balance requirement or limit on the number of transactions you can make.
3. Dealing with a live person: Banks like it when you use an ATM to conduct your business instead of taking up the time of a costly teller. Some banks are trying to extract a fee from those of us who prefer dealing with a real live person instead of a machine.
Often called “excessive” use of tellers, these fees are imposed on customers who deal with tellers more than a set limit, often two times per month. Up to now, only a few banks are known to be levying this type of sneaky fee, but it may spread if they have success. Keep a sharp eye on your monthly statement to look for this one.
4. Whether you’re paying interest or receiving interest never be satisfied with the first offer: Shop around before you sign. Bank deregulation has produced a competitive environment with wildly differing interest rates and bank charges. If you can find a better deal than your present bank is offering, take it. There is no reason for you to stick with a bank that isn’t competitive
5. Closing Accounts: Don’t open a new bank account that you expect to keep for a short time. If there is one activity that should be free of a bank fee, it is the simple act of closing an account — not so. Many banks are now charging a fee for closing an account if it has been open for a short time, up to six months.
Fee Reversal and Firing your Bank
Not all of these fees are carved in stone. If you find one on your next statement, do not hesitate to call and ask that it be removed. While they won’t advertise the fact, most banks will oblige, especially if you are a “good” customer. And don’t think that these fees are the only ones you need to watch out for. Keep a sharp eye out for ones they have not thought of yet.
Additionally, chances are that you have been a victim of merger mania at least once. That’s when you wake up one day to find out that the bank you have grown comfortable with is no longer around. It has merged with a strange new bank that promptly laid claim to your accounts.
Will this new bank, which is larger than the gross national product of some countries, treat you better? Will it exercise economies of scale in order to bring you better and less expensive services? Not likely. Experience is showing that some of the huge megabanks resulting from merger mania are raising inefficiency and customer alienation to undreamed of heights.
Now, with new laws blurring the line between banks and other financial institutions such as insurance companies and stock brokerages, financial behemoths can only grow even larger.
Fortunately, solving this frustrating problem is relatively painless. Just search out the smallest FDIC member bank in your area and give it a try. They will be delighted to welcome you and your business, as they need you and will appreciate you. You will receive more personal attention from a neighborhood bank than from a financial goliath, with exactly the same insurance protection you receive from the largest banks.
William J. Lynott is a veteran freelance writer who specializes in business management as well as personal and business finance. For more information, please visit www.blynott.com.
