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 practicing 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 Personal Capital keeping track of his money and is always negotiating better student loan refinancing bonuses for readers of the site.
Twelve thoughts on Great News! ATMs are Now Free
Last I heard, banks made about 2 billion a year on fees. I hadn’t seen the article saying it is six times that.
It’s amazing they get away with it. I should transfer all my banking to my USAA account. I’ve been with BOA since I started banking and it’s pretty much out of laziness that I stay. I probably make a mistake once or twice a year and get dinged with a fee but they always overturned it if I call. But it does take a call which is annoying.
The one reason I keep a decent amount of money with BOA/Merrill Lynch is for the credit card perks which is another factor.
Tom @ HIP
It is amazing that they get away with it. I think it’s a classic case of a death by a thousand paper cuts. I doubt any one particular person’s financial life is being ruined by paying an occasional $3 or $15 fee (it’s just annoying) but collectively it adds up to some big bucks for the banks at the end of the day.
What credit card perks make it worthwhile to keep your money with Bank of America?
Full Disclosure: Bank of America is where my wife banks and that’s what prompted this post – we’re moving her over to USAA.
The preferred honors status gets you an extra .75% rewards on my travel rewards card. That makes it worth 2.625% back on every purchase. It’s my everyday spend card for things outside of better categories like grocery or gas. You have to have $100k between Merrill lynch and BoA to qualify though.
If that’s cashback, then that’s a good deal. USAA has a credit card where you earn 2.5% cashback without any limits, which is pretty darn good.
I live in NYC, too, and I got tired of Chase fees. I switched to Charles Schwab years ago and don’t have any regrets. When I need to deposit I check I just take a pic of it and upload to the app. Super easy!
That sounds great. If it weren’t for those darn quarters, I’m not sure if (or when) I’d ever step back inside an actual bank branch.
A reader emailed in a question: “Does your bank allow you to deposit more than $10K via mobile deposit?”
I completely forgot to address this in the post. Mea culpa. The answer is yes, they do, although I believe it’s on a customer by customer basis. As a data point, I’m allowed to deposit up to $100,000 daily. If you want to deposit a check that is above your daily limit, you have two options: (1) call the customer support team and ask if it can be temporarily raised; or (2) go to a UPS store, where they can deposit the check for you. In the past, I’ve made a couple of large deposits at the UPS store and they went off without a hitch.
I’m with Chase as there is one on my way home (its about 2 miles from my house) and another that is about 1/2 mile from my work (I drive to work so both are ridiculously convenient). I’ve had both an online account (ING) and credit union account in the past and have always found Chase more convenient (when I didn’t live in a Chase area, I had BoA). The one thing, and I have no idea if it is still the case, but I saved .25% on my mortgage versus the other banks around here when I purchased my home a few years ago by being a long time Chase customer.
As for fees, I have never paid a fee on an account so that’s not an issue; that said, I have looked and the fees are absolutely ridiculous. Also, I rarely, if ever, go anywhere that I cant find a Chase bank. If I do, I just grab some cash on my way out of town. In the very rare occasion when I have to use a non-Chase ATM (the most recent time I can think of is a few years ago when Hurricane Sandy knocked out power here in OH), I will just accept the few dollars as a cost of doing business. Heck, even when I had the ING and credit union accounts, I had to use specific ATMs for the no fees, granted the network was larger but it was still something to think about.
I would consider an online bank if they ever went back to having a decent rate on CDs or savings accounts, but until that happens, its not worth it to me .
Thanks for sharing your experience Michael. Just out of curiousity, what type of transactions are you doing at the bank? I wasn’t sure from your comment whether you mainly meant the Chase locations near your home and work were helpful for cash withdrawals or if you had other banking needs that required you to visit a branch.
And right on on decent rates for CDs and savings accounts! It’s pretty hard to find those these days anywhere.
Many of the larger banks also offer at reimbursement with direct deposit setup. We use a regular bank and I’ve never paid for withdrawals. I use ATMs internationally as one of the cheapest ways to convert to local currency on travel.
I’ve verrrry slowly been moving over to solely having an online bank. We are only at Chase still because we have a mortgage with them (soon to change). There is truly no need for me to ever go to an actual bank branch at this point. Interest rates are so much better online (Ally!!!) and they make the online side of it so convenient, which is how I manage 100% of my banking anyway. And, you know, one thing that was holding me back was the difficulty of depositing cash, but I think I’ve only done so once in the past year. There seriously are basically no downsides to online banking.
Yes, the online banks work really hard on making the online experience as good as it can be for obvious reasons. In my experience (which is limited), the banks with brick and mortar businesses are well behind the online banks when it comes to website ease-of-use. Unless you’re depositing a lot of cash frequently, either holding onto it or turning it into a money order isn’t that big of a deal for the one-off time each year when you end up with a lot of cash. I find myself in general using less and less cash these days, unless of course I’m having steak at Peter Luger’s.