5 Biggest Banking Mistakes That Are Making Other People Rich

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Banks are in the business of making money off your money, and they play a crucial role in the American economy when they put their customers first. But many banks grab more than their products and services can justify — but only if you let them. 

By avoiding a few common mistakes, you can give the bank less of your cash and keep more of theirs while managing your money and keeping it safe and insured. If not, you can expect some of your hard-earned money to pay for fuel in a wealthy stranger’s private plane.  

Mistake No. 1: Paying Avoidable Fees

Paying fees is the most direct way to take money from your family and give it to a banking executive or stock shareholder. 

“Consumers make many costly banking errors, such as not using a fee-free checking account,” said Laura Adams, MBA, an award-winning author, personal finance expert with Finder.com and host of the “Money Girl” podcast. “The best banks reimburse ATM fees and never charge monthly maintenance fees. If you routinely pay those fees, you’re unnecessarily losing money and padding your bank’s profits.”

Recent research from Stilt shows that fees collected by major banks rose by triple-digit percentage points during the first few months of COVID-19. A Consumer Financial Protection Bureau report found that many legacy banks have since lowered or eliminated some fees in response to growing consumer outrage and competition from no-fee alternatives — but charging customers to access and manage their money is still par for the course.

The stilt report showed that most big banks continue to hit their customers with all or some of the four major fees:

• Overdraft: $24 to $36 (average 7.2 per year per customer)
• Insufficient funds: $30 to $36 (average 5.6 per year per customer)
• Account maintenance: $5 to $14 (average 9.2 per year per customer)
• ATM withdrawals: Average of $1.70 (average 10 per year per customer)

Mistake No. 2: Trading Service and Cost for Brand Recognition

Big banks rely on — and exploit — brand loyalty and the feelings of security and stability people associate with large, well-known institutions.

That’s part of why it’s so important not to choose a bank based solely on familiarity. The following institutions, all of which are household names, continue to charge at least some of the four major fees — overdraft, insufficient funds, maintenance and ATM withdrawals:

• Bank of America
• Chase
• Citi
• Fifth Third Bank
• PNC
• Regions Bank
• SunTrust
• US Bank
• TD Bank 
• Truist Bank
• Wells Fargo

Mistake No. 3: Clinging to the Branch Concept

Just as well-known names comfort cautious customers, physical branches also give many consumers peace of mind — but it usually comes at a cost.

According to CNBC, “Brick-and-mortar banks typically charge customers higher fees than online-only banks since they have to recoup overhead costs to keep physical branches up and running.”

You still need to visit a branch for things like safe deposit boxes, notary services, instant cashier’s checks and the personal touch of face-to-face banking. But virtually every common banking task can now be done through an app or an ATM — and by going online, you can go truly fee-free. 

The following are just a few of the online banks that provide the same services without any fees or minimum balance requirements: 

• Chime
• Sofi
• Varo
• Ally

Mistake No. 4: Settling for Low Yields in an Era of High Interest Rates

Just as big, well-known banks with physical locations are more likely to charge fees, they’re also more likely to pay the lowest yields for your savings deposits. Thanks to the highest interest rates in decades, banks are collecting king’s ransoms on the mortgage, auto and personal loans they issue — but they’re not sharing the wealth with their customers. 

According to the St. Louis Fed, the average savings yield is still a piddling 0.42% — and big banks tend to be far on the low side of the average. Here’s a look at some of the “high-yield” savings accounts the brick-and-mortar giants are currently offering:

• Chase: 0.01%
• Bank of America: 0.01%
• Wells Fargo: 0.15%
• Citi: 0.12%

Online Banks Almost Always Pay More — Often Much More

Like with fees, big institutions rely on brand power, familiarity and the perception of elevated security to get rich off savings yields never paid. 

“Bаnks lоve custоmеr inertiа,” said Dennis Shirshikov, professor of finance, economics and accounting at the City University of New York and the head of growth at the real estate investment site Awning. “Тhey knоw thаt if thеy оffer yоu а lоw interest rаte оn yоur sаvings аccount, mоst peоple wоn’t bothеr tо look elsewhere. But high-yiеld sаvings аccounts аnd better loаn rаtes dо eхist. Yоu’re essentiаlly giving free mоney tо yоur bаnk by not mоving yоur mоney where it could eаrn morе.” 

Actual high-yield savings accounts mostly exist in the same realm where you can avoid fees — online. Here’s what you could get by going digital: 

• Chime: 2%
• Ally: 4.25%
• Sofi: 4.5%
• Varo: 5%

Mistake No. 5: Complacency and Sloppy Banking Practices

Tuning out is the mistake that’s most likely to make other people rich through your banking habits. By checking in regularly, you’ll notice surprise fees, hidden costs, changes in interest rates or new policies that could cost you money. Not only does being attentive keep your bank honest, but it also allows you to catch forgotten recurring payments or inappropriate charges from third parties.

“Peоple оften set uр аutоmаtic pаymеnts fоr subscriptiоns or sеrvicеs аnd thеn fоrget аbout thеm,” Shirshikov said. “Thоse chаrges hit yоur аccount every mоnth, аnd yоu’re bаsicаlly giving yоur hаrd-eаrned mоney tо compаnies fоr sеrvicеs yоu might not even be using.”

Finally, follow basic banking best practices to keep your money in your account.

“Not having a linked savings account to cover a checking overdraft could incur an expensive charge,” Adams said.

That’s just one example. Others include not using your debit card to gain potential rewards, missing the opportunity for bonuses and choosing the wrong kind of account.

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