By Susan Tompor
Detroit Free Press
WWR Article Summary (tl;dr) Consumers should be cautious about how they use their accounts, as they might not realize that banks can have some different policies for how they process some transactions. (LIKE OVERDRAFT FEES!)
Detroit Free Press
Making money by saving money at the bank or credit union is ridiculously tough when consumers are battling super-low rates on savings and sky-high banking fees.
All anyone can do is shop for higher, promotional savings and CD rates, and keep a close eye on some tricky practices and fees. Here are some suggestions:
-Try to avoid rising overdraft fees
If you’re regularly pulling out a debit card, pay attention here as it can be amazingly easy to get smacked with a string of high overdraft fees.
And we’re not expecting any regulatory relief ahead.
Early in May, the Consumer Financial Protection Bureau essentially kicked aside plans to overhaul rules relating to overdraft fees.
Much to the frustration of consumer watchdogs, acting Consumer Financial Protection Bureau Director Mick Mulvaney is moving in a vastly different direction than his predecessor Richard Cordray, now the Democratic candidate for governor in Ohio.
Banks had fought hard for years against any further crackdown on overdraft rules. For now, they’ve won with the latest delay out of the CFPB.
“They’ve sent a pretty clear signal that this isn’t a priority for them,” said Debbie Goldstein, executive vice president at the Center for Responsible Lending.
Under federal regulations that went into place in 2010, banks cannot charge overdraft fees for debit card purchases and ATM withdrawals without a consumer’s earlier consent or without what’s known as an “Opt-in.”
In reality, consumers find “opt-in” rules confusing, particularly when they’re opening up a new account. Many times, Cordray had argued, consumers weren’t fully informed about the risks of running up high fees by opting in for overdraft coverage involving debit cards and ATMs.
Consumers use debit cards for convenience and pull out the plastic to cover everyday purchases instead of using cash.
The risk of triggering costly overdraft fees goes up, though, when consumers who don’t maintain a large cash-cushion buy coffee or lunch during the day without realizing that their paycheck hasn’t cleared their checking account yet.
College students and others on tight budgets can be particularly vulnerable to getting caught in this trap.
If you “opt-in,” you allow your bank to cover an overdraft when you’re running short of money and using your debit card. But opting in means you would trigger fees to cover that overdraft.
To avoid such fees, consumers can consider opting out of overdraft protection on debit card and ATM transactions.
If you opt out, your card would be declined at the register when you don’t have enough money in your account to cover the purchase.
Many times, consumers might even have that $5 or $10 in cash in their wallets if the plastic is denied, so they can still buy what they want with cash, Goldsten said.
If they don’t have cash on hand, she said, they might happily decide to skip the coffee that day in order to avoid a $35 overdraft fee.
Overdraft fees cost consumers an estimated $14 billion a year, according to consumer watchdogs.
Often, consumers are charged several fees, which average $35 each, within a short time period, according to research by the Center for Responsible Lending.
It’s not out of the question for some consumers to be hit with cumulative fees adding up to hundreds of dollars.
About 9 percent of checking accounts are held by consumers who are viewed as “frequent overdrafters”, those who attempt to overdraw their accounts more than 10 times in a 12-month period, according to report issued in 2017 by the federal watchdog agency.
“If they incur a lot of fees, the bank may choose to close their account,” Goldstein said.
And those consumers can end up on checking account blacklists that make re-entry into the banking mainstream very difficult.
They may end up using even higher cost alternatives, such as check-cashing services or payday loans.
On average, overdraft fees at credit unions hit a record high of $28.20 a pop, according to a Bankrate.com survey. That compares with an average overdraft fee of $33.28, according to an earlier Bankrate.com survey.
What should you do? Plenty of consumers are able to keep a closer eye on their money by using text alerts for their bank accounts.
Consumers should also be cautious about how they use their accounts, as they might not realize that banks can have some different policies for how they process some transactions.
-Use rising interest rates to your advantage
The next Federal Reserve policy meeting is scheduled for June 12 and June 13. Many economists expect another quarter-point hike then, too.
We’re starting to see some banks advertise rates at 2.75 percent and higher for 5-year CDs; and promotional rates of 2.35 percent were available in May for one-year certificates of deposit.
“Rates are rising and investors are warming to cash in an environment where stock market volatility has picked up,” said Greg McBride, chief financial analyst for Bankrate.com.
“So expect to see continued increases in CD yields and more promotional offers.”
In general, consumers should compare offers at online banks, community banks and credit unions, too, along with larger banks.
“Not every bank is boosting yields, and the biggest banks are typically paying the lowest returns,” McBride said.
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The average yield on a one-year CD is 0.59 percent, according to Bankrate.com. That compared with 0.43 percent at the beginning of the year and 0.35 percent a year ago.
The average on a five-year CD is 1.23 percent now, according to Bankrate.com. That compares with 1.01 percent at beginning of the year and 0.91 percent a year ago.
McBride noted that top-yielding, online savings accounts are offering rates of nearly 2 percent and may be a good option for emergency funds. The online banks are nationally available, federally-insured and many have no minimum deposit. About half of the top accounts have no minimum deposit or minimum deposits of $100 or less.
-Look for free checking at a credit union
Your best bet for snagging a checking account that doesn’t rack up one monthly service fee after another is likely a credit union, according to a survey by Bankrate.com.
About 82 percent of the largest credit unions nationwide offer free checking accounts to all members _ a stark contrast to only 38 percent of banks, according to the survey.
A free checking account can be defined as an account that has no fees regardless of your balance.
“This is especially important for those living paycheck-to-paycheck because every dollar counts and they cannot afford to see hard-earned money needlessly siphoned out of their accounts each month,” McBride said.
Truly free checking can be a big boost to the bottom line for millennials and others without a set 40-hour schedule. Not having to maintain a set balance in a checking account each month can help people who face unpredictable cash flow because their hours or money earned from commissions vary each month.
Saving money by ditching a regular monthly charge you can easily avoid makes sense for everyone, of course.
Many times, consumers can get free checking if they agree to a direct deposit of a paycheck or regular monthly check.
Only four out of 50 credit unions surveyed, or 8 percent, required customers to maintain a minimum balance each month to avoid a fee, according to Bankrate.com.
If you pick the wrong account, you could be stuck paying $10 or $12 a month for checking. Some credit unions have lower monthly fees of $5 or lower.
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ABOUT THE WRITER
Susan Tompor is the personal finance columnist for the Detroit Free Press.
