Have you ever been hanging out with a friend and for some reason needed to stop by an ATM to pick up some cash? I’m always mystified when they pull out their phone and start telling me how we’ll need to walk 6 blocks and one avenue over so they can find their bank’s ATM branch because “I don’t want to pay those high fees, you know?”
It turns out I have no idea what they’re talking about since I haven’t paid any ATM fees my entire life. I wish I could say this was the result of some thoughtful planning or good decision making but I simply lucked into this. I’ve always had an account with a bank that doesn’t have any branches. No branches means lower overhead, which means they’ve always been happy to pick up the fees charged by other bank’s ATMs. It’s a win-win for the bank and the customer.
But it’s not just ATM fees that rack up over time. Banks make a ton of money charging various fees to their customers (we can quibble whether it’s a ton but $11.6 billion seems like a big number). If you’ve ever paid an overdraft fee, a non-sufficient fund fee, annual fee, low-balance fee, monthly maintenance fee or lost-card fee (or the above-mentioned ATM fee), you should rethink your banking relationship.
There’s absolutely zero need for you to be paying any of these fees. Particularly maddening is a bank that charges you an overdraft fee to simply move money from your savings account to your checking account. How does anyone justify a $20 fee to move your own money within a bank?
Here’s what you should be getting from your bank account:
- No overdraft protection fee.
- No fee charged when you use an ATM outside of your bank’s network, plus a reimbursement of the fee charged by the other bank’s ATM.
- No annual fee.
- No monthly maintenance fee.
- No minimum required to avoid fees.
But banks have to make money, right?
When you log into your checking account, you’d be forgiven for thinking that the bank is holding your $5,000 in a special place just for you. You’d also be forgiven for thinking that the bank is just waiting for you to tell it what to do with each dollar, paying out a measly 0.01% interest rate while it guards and protects those dollars. After all, it’s your money that you deposited into your checking account and the bank probably has some type of fiduciary duty to watch over it safely.
Of course, nothing could be further from the truth (except the fiduciary duty part). Spoiler Alert: The funds deposited into your account are used to make loans to other customers. The customers taking out those loans are paying much higher than 0.01% interest. Meanwhile, the bank makes money on the spread between what it’s charging those borrowers and what it’s paying you. If you have an average monthly balance of about $5,000 in your checking account, the bank could be making as much as $245 a year ($5000 x 4.99%, the difference between lending at 5% and paying you 0.01%). While $245 isn’t a lot of money, it certainly adds up when you have millions of customers.
So don’t feel bad for the banks when you decide to stop paying them fees. They’re doing just fine – not to mention that a certain percentage of checking customers will go on to open up other banking products such as savings accounts, credit cards and mortgages. This is why banks can afford to offer the no-fee solutions I described above.
Where to find no-fee checking accounts
If you want to use my bank, you’ll need an affiliation with the military (i.e. you served in the military, your spouse served or someone in you or your spouse’s immediately family served). If that’s you, I highly recommend signing up with USAA. But if you don’t have a military affiliation, you’ll need to find a company like:
- Bank of Internet USA
- Charles Schwab
- Or Google “no fee checking account” and see what comes up
Most of these will be “internet-only” banks. There won’t be retail locations for you to talk to a bank teller. But instead of waiting in line at a bank, you can get all the help you need on the phone or through the advanced technology you might expect when a bank doesn’t have any retail locations (USAA was one of the first banks to offer mobile deposits – but before that you could drop off checks with the UPS store for free and get them deposited overnight). It feels like USAA is always coming up with ways to make banking easier.
Downsides to using internet-only banks
In my years of using internet-only banks, I’ve only run into a few complications, all of which are pretty easy to solve:
- Sometimes they fail. Yep, that’s right – I used to bank with a bank that failed. Surprisingly, it wasn’t a painful process at all. Banks rarely announce that they’re on the verge of failure (as doing so would cause a run on the bank), so I simply logged in one day to receive a notice that federal regulators had shut down my bank. The bank had already worked out a deal where Capital One would purchase the assets of the bank (probably for pennies on the dollar), so the very day that my bank failed I already had a new Capital One account ready to go with the full deposit available for my use.
- Quarters. I hope you live in a place that has moved past the antiquated practice of using quarters for laundry but alas my NYC apartment has not. We have a constant need for quarters and given our mostly cashless life, quarters are not something we accumulate in the ordinary course. Luckily this problem is easily solved since we just walk into a nearby Chase branch and get rolls of quarters whenever we need them. While we’ve never been asked, we have Chase credit cards and assume that’s good enough to count as a Chase customer should the bank ever wonder about our insatiable demand for quarters.
- Depositing Cash. This isn’t a problem I deal with very often (lawyers are rarely tipped in cash) but it’s not always easy to deposit cash into internet-only banks. Sometimes they will let you do it via an ATM. Most likely, you’ll need to pay a small fee to convert that cash into a money order at the post office or some other retail location. When I do accumulate some unexpected cash, I usually keep it around and slowly use it as needed. No big deal.
Joshua Holt is a former private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He spends 10 minutes a month on Empower keeping track of his money and is always negotiating better student loan refinancing bonuses for readers of the site.