Here are a few ways how you can avoid ATM fees when you travel.
You’ve heard it a million times – how your mindless spending on avocado toast and lattes is the only thing keeping you from millionaire status.
It’s time to stop lecturing people on how they spend their money and instead focus that criticism on where they keep it. Because really, the places where you’re probably throwing away the most money are at the banks and brokerages charging you fees.
Banks provide a critical service, but these days, there’s absolutely no reason to pay the most common fees.
“You can and should avoid most bank account fees,” says Arielle O’Shea, banking expert for NerdWallet who cites overdraft, ATM and monthly maintenance fees on checking and savings accounts as the most common ones with which you’d get hit.
Avoid ATM, overdraft and other fees
Eleven dollars is the average cost of monthly maintenance fees on the most basic checking account at the four big banks (Bank of America, Wells Fargo, Chase and Citi). Going into overdraft usually runs you $30 to $35 per charge, which can happen multiple times in a day. And attempting to access your own money at an ATM could run you $5 or more if you need to use an out-of-network ATM, with a fee levied by both your bank and the out-of-network bank.
“I don’t get hit with those fees,” you may be thinking. That’s probably because you’re in a comfortable enough financial situation to avoid them by meeting certain criteria, such as $500 in monthly direct deposits or a daily account balance of $1,500.
But that’s not the case for everyone.
“You have to jump through hoops to avoid the fees like minimum balance. Naturally, that’s harder for lower-income people,” says O’Shea.
When it comes to your investment accounts, which can include a 401(k) or IRA, there are plenty of ways you can get nickeled and dimed. But the expense ratio is one you really need to dodge.
Expense ratio costs add up
The expense ratio covers the operational cost of the investment fund. Knowing that it exists is good, but it’s more important to understand the potential damage it can inflict on your investments.
“Vanguard’s average expense ratio is 10 basis points and the industry average is 58 basis points,” explains Maria Bruno, head of U.S. wealth planning research for Vanguard. “So, if you’re thinking about a $10,000 investment, for instance, and you equate those 10 basis points to what you’d pay over a year, that’s $10 compared to $58.”
That $48 difference may seem minor, but if you compound it over time, it adds up, Bruno points out. That money is going to pay a fee instead of being invested and working for you.
Anjali Jariwala, a founder and principal of FIT Advisors, knows first-hand how a lack of knowledge about expense ratios can hurt her clients’ retirement funds.
With 401(k)s, she’s seen clients randomly pick investments with pricey expense ratios of 1% or more “which does eat into performance long term,” says Jariwala, who recommends looking at Fidelity and TD Ameritrade funds in addition to Vanguard.
A NerdWallet study found the average American will pay over $200,000 in 401(k) fees in their lifetime. It’s critical to mind your fees!
After you reexamine all the investments in your retirement plan, you also need an audit of your banking products. Pull a few months’ worth of bank statements and look for fees.
You shouldn’t be paying monthly maintenance fees. You should also get reimbursed for ATM fees and have access to free overdraft protection. Finally, you need to be earning actual interest on your savings – none of this 0.01% or 0.03% nonsense.
Get that money
It’s easy to go with one of the big-name banks on your block, shrugging off the tiny 0.03% APY they’re paying on your savings account.
But let’s translate that jargon: if you have $5,000 in savings, you earned a whopping $1.50 cents in interest this year. Switching to a different bank that offers 2% APY means that you earned $100 this year. It’s not get-rich-quick money, but it’s a serious improvement.
It’s also worth noting that the bank is making a profit not only off fees, but also from the money you’re putting into savings, so you absolutely should be looking to get some of that back in interest.
“Generally, just like every bank, we make money by leveraging customer deposits to be able to lend customers money on the other side of the balance sheet,” says Anand Talwar, deposits and consumer strategy executive for Ally Bank. Ally, for instance, is also a large auto finance lender.
Where do I put my money?
Ally Bank puts some of that profit back in customers’ pockets by paying1.80% APY on savings, reimbursing ATM fees up to $10 per statement cycle, and offering no-fee checking accounts. But it’s not the only contender for where to put your money.
Capital One 360, Marcus by Goldman Sachs, Discover, Charles Schwab and others offer competitive interest rates on savings accounts and/or no-fee checking accounts.
Jean Chatzky, CEO of HerMoney.com and HerMoney podcast, routinely shops around for the best interest rates on savings accounts. She recommends checking out comparison websites like BankRate, MagnifyMoney and WalletHub. But keep in mind third-party comparison sites may be getting paid by banks to prioritize certain accounts. Chatzky recommends looking at several sites to compare options.
And yes, online banks are perfectly safe.
You can also look at local credit unions to see how competitive they are on fees and the interest rates offered on savings accounts.
Is it hard to switch banks?
“It’s so easy to transfer the money over,” says Chatzky, joking that the hardest part is proving your current ownership of a bank account in order to complete the transfer.
This is usually done by the new bank making one or two small deposits (think two cents) into your existing account at your current bank and then you prove your ownership by being able to verify how much the new bank deposited. And yes, it does take the money back.
Bruno says don’t be afraid to pick up the phone and call customer service if you’re worried about moving your investments. Just be sure you’re doing an asset transfer and not a distribution of retirement plan.
When you’re ready to switch accounts, there are a few things for which you need to look out:
Check your bank statements to look for everything that’s set to auto-pay and be sure to update your payments with new bank information.
Make sure it’s FDIC insured for banks and SIPC insured for brokerages or automated financial advisers.
Read the fine print (or call and ask) to see if there will be any fees for closing your account.
Erin Lowry is the author of “Broke Millennial Takes On Investing” and “Broke Millennial: Stop Scraping By and Get Your Financial Life Together.”
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.
One thing about millennials is that we love having our own funds! Buzz60’s Natasha Abellard has the story.
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