Taking advantage of modern banking is something everyone should be doing. It’s quick, safe, and easy. However, it’s rarely free. Even with no-fee checking and saving accounts, the banks will always find a way to make money off their customers. While it’s perfectly normal (and acceptable) to pay some small fees for banking services, you don’t want to cost yourself extra money either.
Unfortunately, a lot of people end up giving their banks a lot more money than they should. Whether it’s through excess fees, ignoring opportunities to save, or just refusing to change things up, you may be costing yourself hundreds (or even thousands) of dollars a year. Here are 12 common banking mistakes you might be making. If they sound familiar as you read, consider taking our advice to keep more of your money for yourself.
Paying High Monthly Service Fees
Most checking accounts still have some sort of monthly fee attached to it. Some savings accounts do too, although they are typically lower. However, more and more financial institutions now offer no-fee accounts that you should absolutely take advantage of. Why pay $10 or $20 a month just for the privilege of having a bank account when you could simply… not pay.
Some paid accounts will actually waive the fee if you meet certain conditions, such as maintaining a minimum balance or having your paycheck be deposited directly into it. If you do opt for a no-fee bank account, just make sure to read the fine print. These accounts sometimes have a la carte fees built in if you want to perform certain banking actions, which could cost you more than a standard monthly fee in the end.
Letting Money Sit in Low-Yield Accounts
If you’re able to actually leave a decent balance in either your checking or saving account, congratulations. You’re one of the lucky Americans not living paycheck-to-paycheck. However, if those balances are merely sitting there collecting dust instead of interest, you’re not doing yourself any favors.
Don’t keep much of a balance in your checking account at all. Their average interest rates are shockingly low — if they exist at all. The average return on a $1,000 balance in a checking account is just 60 cents. Instead, keep your extra money in a high-yield savings account. With interest rates currently on the rise, your savings will grow a bit faster than they used to. An even better choice is to invest your money into a relatively safe ETF or mutual fund. However, that involves extra steps and means you won’t necessarily have immediate access to your savings in an emergency.
Chasing Higher Rates
Speaking of those high yield saving accounts, don’t get caught up chasing rates. Many banks advertise high introductory rates, hoping you’ll switch over. However, these rates are often variable and can easily go down again in the future. Constantly moving your money from bank to bank just to snag an extra half-percent of interest is probably a losing game.
With interest rates — even high ones — still being around 1-to-2%, something as simple as an account closing or opening fee could basically wipe out any extra gains the higher rate would generate. Instead, find a bank and a savings account that suits your needs. The interest rate may rise and fall over the years, but who cares? As long as the fees are low and you make regular contributions, your money will grow without a lot of extra hassle.
Paying Overdraft or ATM Fees
Overdraft and ATM fees are almost always avoidable with a bare minimum of planning ahead. However, banks make millions of dollars every year from these fees. Overdraft fees are when your account doesn’t have enough money to cover a debit or other pre-authorized purchase. By default, your bank will probably allow the transaction to go through, putting your account into the negative. Then they will charge you a hefty fee — often $25 to $50 — for the service.
ATM fees can also add up in a hurry. Some accounts have a limited number of ATM transactions allowed per month. And almost any bank account will charge a fee if you use an ATM that’s not a part of their network.
The good news is you can likely opt out of overdraft protection. If your account doesn’t have the funds, your purchase will simply be declined. It’s a bit embarrassing, maybe, but it won’t cost you extra money. As for the ATM fees, you can either plan ahead for when you’ll need cash or look for a bank and account type that doesn’t charge you extra for multiple trips to the ATM.
Not Negotiating Rates
We’re moving past normal bank accounts and their fees now. As you probably know, banks also offer multiple types of loans — car loans, small business loans, home equity line of credit, mortgages, personal loans, and even credit cards (which are kind of like a loan, but also not really). Regardless, all of these financial products come with a long list of terms, including an interest rate and potential fees.
It’s important to remember that many of these figures are negotiable. For example, if your bank is only willing to offer you a mortgage at 3.9% but a third-party broker is willing to go as low as 2.9%, start negotiating. See if you can play one offer off the other. Make the banks compete with each other for your business.
You can apply the same logic to all credit products. Shop around for the best terms on an auto loan. Threaten to close your credit card unless they can match the interest rate your secondary card has. Banks definitely want your business, but you still have a say on the terms!
Plenty of banks offer rewards, lower fees, or other discounts — you just have to pay attention. Maybe your credit card earns extra cash back if you use it at a certain gas station or grocery store. Maybe your service fees go down if you have multiple accounts with the same bank, instead of spread out over a few different ones. You could qualify for a cash sign-up bonus after you open your account, as long as you meet all of the requirements.
It’s worth keeping an eye on what sort of perks and rewards programs your bank offers. You may be able to take advantage and benefit financially without a ton of extra effort.
Staying Too Loyal
If you’re like most people, you probably got your first account when you were a teenager. You most likely opened it at the same bank your parents used. Then, as you finished school and grew into an adult with a career, you just stayed with the same bank the whole time. Why fix what isn’t broken, right?
The unfortunate truth is that banks often give their best rates, deals, and promotions to new customers. If you’re regularly making flirty eyes with your bank’s competitors, you’re likely missing out on some savings. Not only should you shop around multiple banks for loans, mortgages, and credit cards, but it’s also worth checking out the benefits of moving your standard checking and saving accounts too. You could end up with lower fees, better interest rates, more services, and even a sign-up bonus.
Avoiding Digital Banks
The rise of the fintech industry has breathed new life into the banking world. There are dozens of brand new companies offering “online only” banking solutions. They have a website and a smartphone app, but that’s it. You can’t visit a branch in-person, because they don’t have any. You can’t call them on the phone, because there’s no number. And you can’t seek out their ATMs, because they don’t exist.
On the other hand, they still provide all the same basic banking services you probably need. Your paycheck can still be deposited directly into the account and you can pay all your bills online. The money they save on not having to buy or rent physical building space leads to ultra-low fees for their customers. Unless you have complicated banking needs, it’s worth checking out these digital banking upstarts. And don’t worry, they are typically partnered behind the scenes with federally certified banking institutions, meaning your money is just as safe with them.
Keeping a High Balance in Your Checking Account
Having some extra money in your checking account isn’t a terrible thing. It’s nice to be able to grab some quick cash at an ATM or pay a surprise bill that pops up. However, that money is really just sitting there, not doing much to help you. It’s not gaining interest, nor is it invested somewhere. Despite this, lots of people still keep hundreds or even thousands of dollars sitting in their checking account.
Make sure you keep enough money in your checking account to cover any automatic payments or bank fees that might be coming out. And maybe a bit extra, just in case. Otherwise, though, it makes more sense to send any extra to a high yield savings or investment account. It’s still safe there, and reasonably accessible if you really need it. Except now it will actually see a bit of growth.
Not Watching Your Transaction History
Do you look at every single transaction line for your bank account? You probably don’t — but you really should. In between the income deposits, the bill payments, and the regular Walmart and Starbucks debit transactions, there could be something hiding. Maybe it’s a mystery charge you don’t recognize. Or a recurring bill that you thought you had cancelled already. Those transactions might be hiding in plain sight. All you have to do is look.
If you see a charge you don’t recognize, contact your bank for more information. If you didn’t make it, the bank will likely open a fraud case (and reimburse you the money). This advice is especially important if you have a joint account with a significant other. Make sure you communicate regularly about what charges are (or aren’t) expected to pop up. We’re saying you have to over analyze every character of your monthly bank statement. But don’t ignore it, either.
Paying Bills Manually
If you have regular monthly bills that are the same amount every month, you really should automate them. Not only does it save you time, but it also eliminates the chance that you’ll forget to pay something. If you do forget, you could hit with late charges and see your credit score take a hit.
If you’re still paying bills by mailing in paper checks, you definitely need to switch to online payments. They are instant and will never be late because the postal service screwed up. If you’re already paying bills online, that’s great. Go ahead and make them automatic, if you can. The only thing to worry about now is making sure you have enough funds in your account when those automatic payments are due.
Ignoring Credit Unions
This article is all about banking mistakes that could cost you money. But what if you skip the banks altogether? A credit union is a perfectly reasonable alternative to traditional banks. Unlike banks, a credit union is technically a non-profit organization. They use the collective financial power of their members to run accounts, service loans, and earn money investing. They also have lower eligibility requirements, lower interest rates, and the same federal deposit insurance that typical banks do.
There are some downsides of using credit unions. They typically don’t have nearly as many physical branch locations (although that may not matter if you do most of your banking online these days). They also don’t have quite the same variety of banking products on offer. However, they still cover most of the basic needs, like checking and saving accounts, loans, and mortgages.
Reusing Online Passwords
If we’re being honest, this is less of a banking mistake and more of a “poor online security” mistake. However, most people these days make use of their bank’s online web service or smartphone app. The mistake, though, is re-using your email or Facebook password to login to your online finance portal. There’s too much sensitive data and fraud opportunity to be lazy with your password.
When it comes to online banking, make sure you use a unique password. Don’t just type in your standard one that matches your Netflix or Spotify accounts. For added protection, add two-factor authentication (2FA) to your bank account login. That will periodically require validation codes sent directly to your cell phone or email inbox, to ensure you — and only you — are the one accessing your financial data.