BIDaWIZ Blog » BANKING

Is Your Bank Charging You An Inactivity Fee?

The BIDaWIZ Team — Fri, 31 May 2013 21:17:02 +0000

Some consumers may have stashed away money for future emergencies. We actually advocate that individuals maintain an emergency fund in a highly liquid account to cover unexpected issues such as medical emergencies, unemployment, theft or casualties. This fund should cover at least six months worth of living expenses. If that’s the case, you’ve likely opened up a money market or savings account and haven’t looked back. Unfortunately, money held in inactive savings and money market accounts can be subject to fees by the bank. Learn how to avoid these inactivity fees.

The inactivity fee
Not all banks are the same in how they may apply an inactivity fee to your account. Some may indicate in the terms of use that if you don’t use an account within a few months and maintain a minimum monthly balance, then they will assess a monthly fee. The fees may vary from a few dollars to as high as $10 to $20 each month. That can certainly add up to a couple hundred dollars a year in bank fees that can be avoided.

How can you avoid inactivity fees
You need to understand exactly how the bank defines inactivity. Is it no transactions at all or does it just relate to purchases? If inactivity is defined as no transactions at all, then the fix is simple. Transfer $1 from one bank account to another every month. To avoid the hassle, most online banking platforms allow you to schedule transfers in advance with frequency. However, be sure you will not be charged a fee for the transfer, which would negate the whole purpose of the exercise. If the bank requires that you make at least one purchase every month, call them to try to waive the fee if you maintain a certain minimum balance. You’d be surprised, but most customer service representatives are given a certain amount of authority when it comes to waiving fees.

Should I Be Interested in Online Banks For Their Savings Rates?

The BIDaWIZ Team — Wed, 20 Jun 2012 14:00:43 +0000

Online banks typically offer higher rates than their brick and mortar counterparts. In this low interest rate environment, savers have been hit hard by earning little to no interest income. In fact, if you compare the real rate of inflation to the interest rates offered by most banks, savers are likely losing money. So, should you open an account with one of the online banks?

What are interest rates higher for online savings accounts?
Online banks with minimal overhead are able to offer higher yield savings accounts than most brick and mortar banks. Leading the way is American Express at 0.85%, followed by Ally Bank (formerly GMAC) at 0.84%, followed by Discover and ING at 0.80%. How does this translate into dollars? If you initially contribute $5,000 into a 0.85% interest bearing savings account and add $50 every month, that would translate into $280 in interest income over the next five years versus $32 if held in a traditional bank account earning 0.10%. CDs and municipal bonds offer slightly higher yields which may make sense if your time horizon is greater than three years. However, those financial products typically include long lock-up periods and a penalty for early withdrawal which isn’t recommended for emergency cash.

Are online banks less safe?
As long as the funds are insured by the federal deposit insurance company (FDIC), they are as safe as those held in a traditional brick and mortar bank. An investor should think more about convenience, customer service, yield, and liquidity as important factors in deciding where to hold their money. For instance, the 0.85% savings rate may offer a higher yield than a traditional brick and mortar at 0.10%, but, online banks may not offer other services such as mortgage origination. What may make sense is to allocate certain funds to an online savings account and keep an emergency set of funds in a traditional brick and mortar bank.

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How Can We Save When Interest Rates Are Still Very Low?

The BIDaWIZ Team — Fri, 06 Jan 2012 08:30:44 +0000

While the jury is still out on the effectiveness of the Federal Reserve’s loose monetary policy, it’s clear that savers are hurting big time. The average savings account pays just under a quarter of a percent per year and it’s even less for money-market funds. Furthermore, the yield or return on savings accounts is actually negative if you account for inflation which is now at roughly 4%.

Online Savings Accounts & Local Banks
Online banks with minimal overhead are able to offer higher yield savings accounts than most brick and mortar banks. Leading the way is Discover’s online savings account at 1% APY, followed by American Express & ING at 0.90%, and then Ally Bank (formerly GMAC) at 0.89%. How does this translate into dollars? If you initially contribute $5,000 into a 1% interest bearing savings account and add $50 every two weeks, that would translate into $419 in interest income over the next five years. CDs offer slightly higher yields which may make sense if your time horizon is greater than three years. However, those financial products typically include long lock-up periods and a penalty for early withdrawal which isn’t recommended for emergency cash.

Outside of the online banks there are not too many other attractive savings account options, except from a few local banks. If you live in Massachusetts or New Hampshire, Washington Savings Bank offers a 1.50% APY but you need to open a checking account first. Those in the Pennsylvania and Ohio area may want to consider Dollar Bank which offers 1.50% APY but checking is also a requirement. If you live in Minnesota with children under the age of 18, a lesser known bank called Ultima, offers a whopping 2% for a SMART (student-related) savings account.

Reduce Credit Card Debt
Those with credit card debt should focus on paying it off since the interest rates on borrowings of 10-20%+ is cutting into savings. Start by making your largest payment on the credit card balance with the highest interest rate as this will reduce the amount of interest you pay over time. In fact, you can even make minimum payments on your credit card balances with the lowest interest rates while you focus on paying off the most expensive card. If the rates are the same or very similar across credit cards, focus on paying down the card with highest balance. Also, consider transferring your credit card balance to a new issuer. Lastly, don’t forget to ask your credit card issuer to lower your interest rate.

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Should I Switch to a No Fee Bank?

The BIDaWIZ Team — Thu, 06 Oct 2011 18:00:35 +0000

Back in August, we wrote a piece entitled, “The New (Reduced) Debit Card Swipe Fees Are Coming to Retailers,” highlighting the consequences for the Federal Reserve voting to reduce the amount of debit card interchange swipe fees banks could charge retailers. Just as we had expected, big banks rolled out all sorts of new debit and checking account fees to recoup some of the losses. However, because of the backlash they received from major social media campaigns including a designated bank transfer day, the banks recanted. So, with all the noise and the potentials for other fees in the future, should you consider switching to a no fee bank?

Big banks tried rolling out new fees
The headlines of late have been filled with news that Bank of America withdrew their plan to charge debit cardholders a new $5 monthly fee next year for card purchases. It is important to note that if you just used your debit card to withdraw money from the ATM, you would not be charged at all which seems to be an area of confusion. In addition, even if you used your debit card to make purchases the monthly fee would have been waived for premium customer. These customers typically maintain a minimum monthly balance and/or have a credit card, mortgage or brokerage account with the bank.

Bank of America isn’t the only one that attempted to roll out new fees. Wells Fargo launched a pilot program on October 14th to charge certain debit card holders $3 per month for using a debit card in addition to regular checking account fees. The program only covered Georgia, New Mexico, Nevada, Oregon and Washington. If the fees were to go into effect for all of Wells Fargo debit card customers, it would have generated $120 million in revenue per month or $1.44 billion a year based on the estimated 40 million debit card holders at Wells Fargo. But, because of customer backlash, these programs were shutdown.

Are there any banks offering free checking and no fee on debit card transactions?
Even though many of these banks dropped their new fee programs, you may still be wondering if there are any banks that don’t charge any banking fees. Some of the smaller and online banks don’t charge checking or debit card transaction fees. Charles Schwab, ING Direct, USAA Federal Savings and several credit unions and community banks have maintained their no fee policy.

Should I switch to a no fee bank?
While nobody wants to spend any more money than they have to on their bank, fees alone are not the only factor to consider when evaluating a bank for personal or business use. An additional $60 to $200 a year in fees would still probably be worth it if you have a strong relationship with your bank, they offer certain services that other smaller banks don’t offer and they are convenient. For instance, you may only have a checking or savings account now but in the future you may need a mortgage or a brokerage account which may not necessarily be available at a no fee bank. On the flip-side, if you’re facing a financial hardship and literally every dollar is needed to get by, then a no fee option should be seriously considered. So, the answer to the question depends on your specific circumstances.

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The New (Reduced) Debit Card Swipe Fees Are Coming to Retailers

The BIDaWIZ Team — Wed, 17 Aug 2011 16:30:32 +0000

A significant piece of the increased banking regulation set forth by the Dodd-Frank Act and the Durbin Amendment will go into effect October 1st, 2011. Banks have responded by exploring all different types of new fees and potential revisions to terms and conditions agreements. One such potential revision could put a cap on the total amount consumers spend per debit card transaction at $100, forcing them to pull out their credit card instead for large transactions. With this new legislation, let’s investigate who is the likely beneficiary: banks, the consumer, or retailers.

Debit Card Interchange Fees Cut in Half for Retailers
The Federal Reserve board recently voted to reduce the amount of debit card interchange swipe fees banks could charge retailers per transaction from $0.44 to around $0.21. If you’re a retailer, this means the fees banks charge you for debit transactions should be cut in half starting on October 1st, 2011. This will translate into at least a $10 billion reduction in total fees banks charge retailers (2009 Nilson Report). In response, banks have already started to explore revisions to customer agreements with the intention of limiting their exposure to this now less profitable source of revenue. One such potential revision is to put a cap on the amount that consumers can spend per debit card transaction to the $50 to $100 range. The idea for banks is that since the debt card swipe fees will be half of what it used to be, let’s limit spending on debit cards to a lower dollar amount and transfer larger spending to credits cards which will be more profitable.

A $3 Fee Could Be Coming to a Debit Card Near You
Wells Fargo will roll out a pilot program starting on October 14th to charge certain debit card holders $3 per month for using a debit card in addition to regular checking account fees. The program will only be rolled out in Georgia, New Mexico, Nevada, Oregon and Washington. It may sound like chump change to you but if the fees were to go into effect for all of Wells Fargo debit card customers, it would likely generate $120 million in revenue per month or $1.44 billion a year based on the estimated 40 million debit card holders at Wells Fargo. So far, Chase is the only other major bank to explore such a program but the jury is still out on the success of it. If the programs are a success and customer retention remains high, we can almost guarantee you that other banks will follow suit.

Who Benefits from the latest legislation?
In the short-term, retailers will likely get a $10 billion break, but in the end it doesn’t look like they’ll be a clear winner. Here’s why. The savings from the reduced debit card swipe fees banks charge retailers were designed to be passed onto the end consumer. That’s wishful thinking with many businesses continuing to be stretched thin in a deteriorating economy. In addition, banks are already exploring other fees to charge customers and retailers know that so they’d be hesitant to give the customer a break when they can be hit with another fee in the future. Finally, historically banks have a strong track record for finding ways to recoup lost revenue and we don’t think this time will be much different.

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What? The Bank Doesn’t Want Your Money?

The BIDaWIZ Team — Fri, 05 Aug 2011 14:00:32 +0000

In unprecedented fashion, Bank of New York Mellon (BNY) announced yesterday (8/4) that they don’t want any more money from some of their largest clients (over $50M in deposits) and they will start charging 13 basis points or .13% for holding their cash. You might be asking yourself why would a bank not want deposits and how will this announcement potentially affect the rest of us?

Why would a bank not want more deposits?
Over the past few weeks, many of the largest financial institutions in the world have been gradually reducing their risk by selling investments and holding the cash at the bank as they re-allocate their funds. The result, banks are being flooded with deposits which are considered transient and thus cannot invest that money and earn a return. More deposits also mean that banks will have to set aside more capital to meet capital reserve requirements and also must pay the FDIC a 0.10% deposit based fee. To offset the loss, banks will begin charging customers, which is exactly what has happened at Bank of New York Mellon (BNY).

Why is there so much cash being held at banks?
The 512 point drop (4.3%) in the Dow Jones Industrial Average and the 60 point drop (4.6%) in the S&P 500 yesterday was significant, but, it wasn’t sparked by any one independent event. When markets move that quickly and significantly as they did yesterday, it is likely due to a chain of events, which in this case, started with the recession in 2008. The lingering sovereign debt crisis, the debt ceiling debacle, a weak jobs market and a lack of consumer confidence are all related to why we are in this position today. Now, we are left with a lot of cash sitting on the sidelines as large financial institutions reduce their risk.

Interest Rates on Savings Accounts Should Continue to Fall
We are in the beginning of a period of financial repression in which interest rates on savings accounts are significantly lower than the rate of inflation. You will actually be losing money because the value of the dollar is going down quicker than the interest rate you earn on your cash. This trend will likely continue and the announcement such as the one made by Bank of New York Mellon (BNY) may start to impact the individual saver. Other banks may soon follow suit and savers may even begin paying a premium just to keep their money safe at the bank.

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3 More Banks Go Under. Is Your Account FDIC Insured?

The BIDaWIZ Team — Mon, 01 Aug 2011 14:30:13 +0000

The financial woes for many regional banks continue with three more shutting down this year, bringing the total to 61 as compared to 157 in 2010. While many of the largest banks (i.e. JPMorgan Chase, Bank of America, Wells Fargo & Citigroup) are in relatively stable financial position, it is always important to make sure your bank accounts are FDIC-insured.

How do I know if my bank account is insured?
The Federal Deposit Insurance Corporation (FDIC) which happens to be part of the US government, insures you against the loss of your deposits if an FDIC-insured bank or savings association fails. It’s not all insured though. Most FDIC-insured banks cover your total deposits with the bank up to $250,000. If you have a joint bank account with your spouse, then the total insured is $500,000.

The types of deposit accounts that qualify are checking and savings accounts, money market accounts, and certificates of deposit (CDs). Be careful with CDs though, because many brokerage houses offer CD’s through an issuing bank or savings association that may not be FDIC-insured. It is important to make sure that you identify that the bank issuing the CD is FDIC-insured.

Are there any accounts that are fully insured?
Yes, if you have a noninterest-bearing account, then your entire account balance is fully insured. You can have $20 in the account or $20 million; it is all FDIC-insured. But, make sure the bank is FDIC insured. Also, this unlimited insurance coverage is in effect only through December 31, 2012 as part of the Dodd-Frank Act.

What Should I do to Protect My Checking & Savings Accounts?
If you have significantly more than $250,000 in assets with any one bank, then it might be time to re-think how you are managing your money. While you may have to pay a fee for opening up another account at a different bank, it might be worthwhile to have your money fully insured. Alternatively, you can switch some of the money to a noninterest-bearing account since it is fully insured through December 31, 2012. You’ll have to assess your risk appetite, but it is something to consider with banks still failing.

Can the FDIC Fail Too?
Not really since the FDIC is backed by the creditworthiness of the US government. In the event that the FDIC does not have enough money to insure claims, the US treasury would provide a bridge loan to the FDIC. In case you’re wondering how much money the FDIC has in their fund today, we took a look. In their 2010 annual report, the FDIC reported $81B in assets and $88B in liabilities but $18B of those liabilities are contingent which means the FDIC anticipates they will have to provide $18B of its funds to FDIC-insured banks. In the event that they do not have enough funds to cover claims, they would get a bridge loan from the treasury. Also, to put things into perspective, the amount of gross assets in the fund today would only cover a paltry 2% of the $3.6 trillion in deposits held at the four largest banks.

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Working with Your Bank to Reduce Fees

The BIDaWIZ Team — Mon, 11 Jul 2011 18:41:59 +0000

By now, most if not all banks have implemented new banking fees to make up for the lost revenue as a result of the recently passed credit card relief bill. What was once “free” checking now comes with a fee and minimum monthly balance requirements are in vogue again. But, there are still ways to reduce or avoid the fees and you don’t necessarily have to change banks to do it.

Bank Relationships Matter
Just because a bank is charging a new checking account fee doesn’t necessarily mean you’ll have to pay it. Many banks value their relationships with customers, especially those that have a long history with the bank and also use other products.

Meet with your assigned bank representative to discuss ways to eliminate and reduce the new fees. If the bank representative doesn’t seem to budge much, explain how you are considering switching to a competing bank because they offer a better option. Banks have customer retention quotas to meet so this tactic might work in your favor.

Stop Using a Human Teller
There are some banks that will waive a fee if you bank entirely online or at the ATM which means not using any of their human teller services. Today, this is feasible with ATM’s accepting checks and new mobile technology allowing customers to snap a picture of their check and deposit with their smart phone. But, make sure you save all your receipts and make copies.

Maintaining a Minimum Balance and Using More Banking Products
If you can maintain a certain minimum monthly balance it is also possible that you can make the case for your checking account fees to be waived. In addition to that, banks love when a customer uses their checking, brokerage and credit card services. It’s worth exploring adding a service or two while you’re meeting with your assigned bank representative. That will really get the bank excited and fees will likely be dropped.

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Getting Your Child Financially Ready For College

Susan Ladika — Fri, 24 Jun 2011 11:49:00 +0000

Whether your child plans to work a part-time job while in school, rely on student grants and loans, or get money from Mom and Dad, the most important thing you can do is help instill good financial habits that will help your child pay bills in a timely fashion with the cash, and avoid running up credit card debt.

How can I make that happen?
The most important thing you can do is help your child establish a budget. Have your child write down all their income sources, and then list all expected expenses. Include things like tuition, books, room and board, and utilities, as well as discretionary spending, like pizza, clothes, laundry, and trips home.

The next step is to have your child record all their expenses for a month or two, compare them to their budget, and make necessary adjustment.

Should they still use their existing bank account?
The answer is, it depends. Unless their current account is with a bank or credit union that has branches in the town where they’ll attend college, it might be best to open a new account. Otherwise they might be paying fees every time they use an ATM machine. Some banks offer accounts that cater specifically to college students.

Should they have a credit card?
New regulations have made it harder for anyone under the age of 21 to get a credit card. You could co-sign for a card, but then you’re also liable for any charges.

One alternative is a prepaid credit card, which functions similarly to a debit card. You decide how much money to put on the card, and then purchases are deducted, running down the balance until you reload the card. Visa and MasterCard offer the cards, so they can be used anywhere those cards are accepted. But keep in mind the cards typically come with fees, which vary greatly from card to card. You may need to pay an activation fee, a reloading fee, or a monthly fee just to have the card.

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What’s The Best Way To Pay For Purchases When Overseas?

Susan Ladika — Wed, 11 May 2011 16:34:56 +0000

It used to be paying with travelers checks was de rigueur when traveling overseas, but these days they’re overshadowed by credit cards and ATM machines. However, there are some things you should be prepared for before you pull out the plastic when you’re abroad.

What do I need to do to prepare?
If you’re not a regular foreign traveler, you should notify your bank or credit card company that you’re heading overseas. Otherwise they might suddenly start seeing charges from London and Lisbon popping up, and shut down access to your account, fearing it’s a matter of fraud.

Are there any costs if I use my credit card or debit abroad?
Many banks charge fees for the purchases you make or the money you withdraw from your account when you are abroad. When you call your financial institutions to notify them that you’ll be traveling abroad, ask about the foreign transaction fees they charge. It’s not uncommon to be charged up to 3 percent of the purchase price. But certain cards carry no foreign transaction fees, so you might want to scout around, and if your credit is good you might want to apply for one before you depart.

What about using cash?
While you can often obtain the currency of the countries you’ll be traveling to from your local bank, it’s not a necessity to get it in advance. When you arrive at your destination airport, it’s easy enough to change U.S. dollars for the local currency, but you need to aware of exchange rates and make sure you’re getting a reasonable amount. Or stop at the airport’s ATM machine and withdraw cash from your bank account. If you withdraw from an ATM machine, make sure you find out the fee because they can be high and above the amount listed on the machine since it is an international withdrawal. In most places you’ll want to have local currency on hand for small purchases, or to use at places where credit cards aren’t accepted.

About the Writer
Susan Ladika has been a writer and editor for 25 years. Her freelance work has covered everything from business to travel to science to international issues, and have appeared in such publications as Science, Town & Country, HR Magazine, Developer, The Wall Street Journal-Europe, The San Francisco Chronicle, and many others. She has also done extensive editing as a newspaper and wire service editor holding positions such as the Tampa Tribune Bureau Chief.

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