BANKS AND CREDIT CARD COMPANIES should be paid for their services. But you — the consumer — should always be on the lookout for the best deals.
“Fees continue to move higher, just as they have for the last 15 years,” says Greg McBride, chief financial analyst for BankRate.com. But shopping around could save you a lot in fees. Here are some things to look out for:
Before selecting a checking account, consider your money habits. Do you visit an ATM every day? Do you have direct deposit? Generally, small community banks, credit unions and online-only banks will offer the best deals. And, yes, free checking really does exist.
“We found that 38 percent of banks offer a free checking account, and it’s 72 percent among credit unions,” McBride says.
When you factor in accounts that are free with direct deposit or minimum balances, that percentage is even higher, he says. Here’s what you should consider:
• ATM usage: Choose a bank with an ATM that’s convenient — and free — for you. Otherwise, you could be in for a fee double-whammy — one from the institution with the ATM and another from your own bank. “Paying $3 to take $20 out of an ATM is equivalent to a 15 percent fee,” says Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton. “When put in those terms, the fees sound much more egregious.”
• Minimum balances: Ask your bank if you can avoid minimum balance fees by linking a savings account to your checking account, so both balances count. While bundling can reduce fees, it’s not always the answer. “Keeping $50,000 in a savings account paying one-tenth of 1 percent to be able to save $10 a month on a maintenance fee does not make sense financially,” Hook says.
• Bounced check/overdraft fees: Before you dip lower than your balance, ask about overdraft protection or a credit line. Some banks offer this for free, while others charge hefty per-transaction fees. If you do this with the wrong bank, it could end up costing you more. And these lines of credit often have high interest rates, so don’t keep balances long-term.
• Monthly maintenance fees: Many accounts waive monthly maintenance fees with direct deposit or a minimum balance. Others are free only on a trial basis, so be aware of end dates, Hook says.
• Online bill pay fees: Forget it. There are so many banks that offer this service for free. If yours doesn’t, get out.
• Paper vs. statements: Some banks charge for paper statements, and McBride says that’s a trend. “The world has changed. You can get an electronic statement for free.” If a paper statement is important to you, ask about accounts without those restrictions.
Start with an inventory of your current credit cards. Write a list of your cards, their interest rates, your balances, any benefits and the monthly fees. Then look for cards that work for you.
• Cards with benefits: If you’re a frequent credit card user who always pays the balance in full, look for cards with benefits such as cash back or travel points. However, be sure you understand the fine print. One late payment could wipe out your benefits.
• Annual fees: Yup, there are still cards that charge an annual fee. McBride says some are worth it — if you use the offered rewards and all the other benefits. But if you don’t, there are plenty of no-fee cards.
• Interest rates: Everything is negotiable, so if you have a good payment history, ask your card issuer for a better rate. Explain that you’re a long-time customer with an exemplary payment history, and have an offer from a competing card. The worst they can say is no.
Before you cancel any card, understand what it could mean to your credit score. If you cancel a card that you’ve had for a long time, you may shorten your “length of credit history,” which could ding your score. Also, if you cancel a card that has a large available balance, you could knock around your credit utilization ratio (the ratio of available credit to the balances you owe), which also counts toward your score.
But as long as you keep making payments on time, your score will recover quickly. Just don’t switch cards while applying for a mortgage or other consumer loan.
— Karin Price Mueller
Karin Price Mueller, the founder of NJMoneyHelp.com, writes the Bamboozled consumer affairs column for The Star-Ledger, and the Money and Biz Brain columns for Inside Jersey. Send your money questions to her at Bamboozled@njadvancemedia.com.