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You probably don't budget hundreds of dollars per year for checking account fees, but according to the results of our 2009 Checking Study, if you're paying them, it's money draining out of your account. Here are six steps to take to ensure that you don't fall into that trap.
Think about what you need
Before opening a checking account, think about what services you need. If it's just simple checking, bill pay, ATM or debit card transactions, then look for a free checking account. That's an account that doesn't require you to maintain a minimum balance and doesn't charge you for "per item" things such as 25 cents per check after you've written 10 checks in a month. Seventy-six percent of noninterest accounts in our survey qualify as free checking accounts.
Check out the differences online
Most banks offer three or four checking account options. Visit the Web sites of several banks and see the differences between accounts. Do you really need free checks if you're going to have to pay a fee for the account? If you pay most bills online, perhaps you only need a couple of paper checks per month and it would be cheaper to buy them yourself. Carefully review what each account offers and see if it's worth the price of admission, or if you'd be better served by a free account. The average minimum deposit needed to open a free account is $68.32 versus $473.12 for an interest-bearing account.
Consider high yield if it fits
Interest on the balance in your account may sound good, but unless it's a high-yield account, you'll be stuck with a service that probably requires a hefty balance and pays very little interest. You'll have to pay a service fee any month in which you don't maintain the required balance. There are some high-yield checking accounts that allow you to maintain a very low balance but require you to adapt certain behaviors, such as using a debit card for 10 or 15 transactions per month, having a monthly direct deposit or automatic bill payment, and accepting electronic statements. If those stipulations fit your lifestyle, then a high-yield checking account can be an excellent choice.
Don't bounce checks
Overdrawing your account is the single biggest way to rack up fat fees. The average non-sufficient funds (NSF) fee rose more than 2 percent this year to $29.58. The key to not bouncing checks is simply to know how much money is in your account. It can take a bit of coordination if two people are drawing from the same account. But even just one person having access can be problematic if you're using checks, a debit card and scheduling automatic bill payments. Check your balance daily if you're going to be making several debits throughout the day. Keep your receipts until you've reconciled debits and credits with what's been posted to your account. If it helps, maintain a paper register -- banks still hand them out for free -- so you don't have to log on every time you want to check your balance. Keeping a cash cushion in the account is also useful.
Set up overdraft protection
If overdrawing is unavoidable, then set up overdraft protection with the bank. You'll need a savings account, credit card or home equity line of credit which will be linked to your checking account and debited when you overdraw. This is not an automatic bounce protection program; you'll need to sign an application. While there is a moderate fee associated with this service it will save you costly NSF fees -- especially if you're a serial check bouncer.
Use your bank's ATM
Almost all banks impose a surcharge if you use an ATM that doesn't belong to your bank. The average fee rose this year by more that 12 percent to $2.22. ATM fees can be avoided by assessing your cash needs on a daily or weekly basis and withdrawing money when you have access to your bank's ATM. Sure, there are times when you're out of town or you make last minute plans and you need some cash. But the majority of withdrawals can be planned. If you travel frequently to areas where there is no access to your bank's ATM, consider an account with a credit union or a community bank that doesn't have an ATM network and will reimburse a certain number of fees each month.