Why Your ‘Free’ Savings Account Is Costing You Money
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- By Jennifer Calonia
- May 19, 2014
No matter what the goal, savings accounts offer a safe haven for depositors to build toward their short- or long-term financial future. But some depositors with an unattended account might be doing more harm to their savings mission than good.
More banks are using savings account fees as a way to generate revenue, and if you’re not careful, your savings account could be hit with fees that wipe out any interest offered.
With the national average savings account rate at just 0.11% APY, according to our database, finding a high-yield savings account with no fees is crucial to ensuring a positive return.
5 Common Savings Account Fees
While depositing money into a savings account is still beneficial in many ways, account holders need to keep a pulse on the terms and conditions presented by their financial institutions, such as the addition or increase in existing savings account fees.
Searching through the scores of banks with free savings accounts can only get depositors so far, since there are multiple kinds of savings account fees across different financial institutions.
Just because a savings account is listed as free doesn’t mean there aren’t lurking fees. However, by being aware of the types of fees charged by your bank or credit union, you’ll save yourself from losing money unnecessarily.
Here are a few common savings account fees that go unnoticed:
These fees are also referred to as service fees. When depositors open a savings account, some institutions apply a monthly maintenance charge of anywhere from $2 to $10. Unlike the other fees on the list, this fee isn’t imposed to penalize you for any wrongdoing on your part — instead, it serves as a fee that exists simply because your account exists.
Technically, you can reason that service fees help to pay for the bank’s behind-the-scenes personnel handling your account and other overhead expenses. But with the abundance of financial institutions that flaunt their zero-fee high-interest savings accounts, it’s easy to avoid this costly and recurring charge.
Low Balance Fees
Even so-called free savings accounts often charge low balance fees. Customers who do not maintain the minimum balance requirement in their accounts each day sometimes lose their eligibility to earn interest and can even get slapped with low balance fees of up to $10.
As long as depositors closely monitor their savings accounts, keeping this savings fees at bay is possible.
You can thank the Federal Reserve for this savings account fee. The Fed’s Regulation D requires that banks keep a certain amount of funds on hand, and limits the number of free withdrawals or transfers customers make from their savings account to a third-party entity to six occurrences.
To ensure that Regulation D is met, banks and credit union charge savings account fees for each additional withdrawal beyond the maximum allowance.
Inactivity fees can be found among savings accounts with maintenance fees and free savings accounts alike. Essentially, an inactivity fee can cost anywhere from $5 to $10 when an account is left stagnant.
It can be annoying to feel pressured into saving money, especially if you’d prefer to reserve the right to prioritize your finances as opposed to allowing your bank to handle the task (and penalize you for it). Evading inactivity fees isn’t too vexing — adding small $25 monthly automatic transfers or setting up direct deposit into the account is usually sufficient enough to avoid getting charged. Even a withdrawal might count as account activity, depending on the bank.
Closing Account Fees
Some banks give customers a slap on the wrist for closing a savings account with little advanced notice. For those who are unfamiliar with what constitutes adequate notice, a one-month notice might seem like ample time to give your bank a heads-up. However, some financial institutions require up to six-months notice before closing an account. Anything short of that requirement might result in a closing account fee of anywhere from $25 to $50.
This is just a handful of the potential savings account fees you can run into when managing your account. Different institutions inflict different charges on customers, and some amounts can vary, but finding banks with no fees is a smarter approach than trying to dodge them.
Best Banks with Free Savings Accounts
GOBankingRates identified a few of the banks currently offering free savings accounts:
- Ally Bank’s High-Interest Savings Account: Ally allows customers to bank without the burden of monthly maintenance fees or minimum balances to keep. Another perk? No minimum opening deposit requirements to start, either.
- American Express’ High-Yield Savings Account: No maintenance fees and no minimum balance to maintain.
- Alliant Credit Union’s High-Yield Savings: The non-existent service fee and no minimum balance requirement makes saving money easier — plus, all it takes to open an account is a small $5 deposit.
- ING Direct’s Orange Savings Account: ING Direct, another online bank, makes the list with one of the best free savings account opportunities available. There are no minimum balance fees, no activity requirements and no closing fees.
Most financial institutions have one fee or another associated with their savings account products, but typically banks with no fees can be found in the form of online banks. Since they have fewer overhead costs, the savings get passed onto customers.
Another great place to seek out low to zero fees and higher-than-average savings account rates is at your local credit union. Most are non-profit cooperatives that are owned and operated by their own members, so the benefits and savings trickle down generously to their account holders.
Your financial well-being can improve by avoiding as many savings account fees as possible. Most of the charges appear innocent enough — $2 here, $10 there — but these fees can quickly add up, putting your savings at dire risk of a negative return, or worse, a negative balance.