Fee fighters

Men's Fitness, August, 1998 by Kevin Foley

How banks are gouging you with new charges and fees - and how you can stop them

When banks started charging customers to see a teller, I laughed it off. Sure, old people complained and newscasters whined, but the fuss didn't bother me any - I'm an ATM guy; I walk into a bank twice a year, tops. But then I spent 45 minutes searching an airport for a cash machine that wouldn't chisel $4 off my already-microscopic balance just to give me some of my money, and my laughter froze. Bank fees suck.

My problem wasn't bad karma, despite my inexcusable indifference toward elder Americans uncomfortable with computers. It was the banking industry. A movement toward mergers has meant that while there were 16,000 banks competing for customers in 1983, there are now less than 9,000. There's nothing wrong with consolidation, save this: Larger banks charge higher fees. Annual non-interest checking fees at the biggest banks average $91.50, compared to $73.56 at smaller institutions, says the Federal Reserve.

Fee-ing frenzy

That's almost a 25 percent hit, but the big banks' fee delirium doesn't end there. It was gigantic First Chicago, after all, that implemented a $3 charge for customers who use a teller for transactions they could have completed at an ATM. The Ohio-based giant BancOne came up with the nervy idea of charging some customers a buck every time they use the bank's own ATMs. BancOne and First Chicago have now merged, leading critics to observe that they can get the whole Midwest coming and going.

Although controversial charges for basic services like seeing a teller draw all the attention, the fee parade is everlong. Banks big and small now charge about $20 on average for a bounced check, a 7 percent increase from 1995. That jump outpaces the inflation rate and far exceeds the banks' administrative costs and fraud losses. How far is "far?" According to the nonprofit Public Interest Research Group, fees for bounced checks are 7 1/2 times higher than the banks' costs. This disparity is galling, but somewhat understandable. After all, you can't expect banks to encourage rubber checks.

Fees and loathing

But returned-check charges are part of a larger trend toward higher banking costs, and many of those charges are impossible to justify. Thanks to a charge and a surcharge, even a routine ATM withdrawal can easily cost you $4 ... or more. Here's how it works: Most banks charge their account holders a fee to use "foreign" ATMs, cash machines they don't own. The reason for this is simple and understandable: Your bank has to pay an "interchange fee," typically around 50 cents, to the ATM's owner and another, smaller fee to the interstate or national network that links your account to the cash machine. To cover these costs and turn a profit, most banks charge anywhere from $1 to $2.50 when you use ATMs they don't own.

Fair enough. Where things get complicated - even unconscionable - is when the ATM's owner charges you another fee, tacking on an extra couple of bucks on top of what you've already shelled out. The ATM's owner, remember, has already been paid by your bank, and you've already reimbursed your bank to cover the fee. Why a second charge, then? A commodity ever in plentiful supply: greed. A 27-state PIRG survey last year found that 45 percent of the 860 ATMs sampled charged non-account holders twice to make withdrawals. The average amount of the fee was $1.15, up from 97 cents in 1996, the first year banks were legally allowed to assess the surcharges.

Bankers claim that surcharges are necessary to build and maintain an extensive network of cash machines, and that many consumers don't mind paying for the convenience of withdrawing their cash whenever and wherever they want to. They point out, correctly, that a small number of people pay a disproportionate number of surcharges, indicating that for some at least, the fees are worth it.

But the basic fact remains: ATM transactions are cheaper to process than transactions involving human tellers - one recent estimate claims an automated transaction costs a bank an average of 36 cents, as opposed to $1.06 for a human one - and the growth of automated banking has saved banks millions in labor and administrative costs.

In other words, banks are charging us more to save them money.

Fee freedom

So here's the choice: You can pay ever-escalating bank fees, you can pay twice to withdraw your money once, or you can take a few simple steps to cut the cost of your checking account. It's up to you. There's no moral here. Banks are obligated to do whatever they can legally to increase profits for their shareholders, and crying about that fact is about as productive as waiting for Congress to repeal the income tax or for Bill Gates to start giving away Windows 98.

But if you're sick of being bled by your bank and prefer to spend your money on things you want rather than boosting profits for some newly merged 26-state superbank, follow these simple tips. Making a minimal effort could save you hundreds of dollars a year, and also spare you the agony of giving your money away to a bunch of rich corporate jerks wearing $100 ties.