ATM and overdraft fees continue their climb

By Sabrina Karl

The results are in from Bankrate’s annual checking account and ATM fee study: What banks are charging customers for overdrafts, ATM transactions, and general account fees continues to climb steadily.

The cost to hold a non-interest-bearing checking account has risen from $1.77 ten years ago (the lowest average over the study’s 21-year span) to $5.61 this year. That’s up ever so slightly from last year, but a bit below the peak of $5.86, seen in 2015.

The average monthly fee for interest-bearing checking accounts is almost triple that, though, averaging $15.05 this year. Ten years ago, it sat at $12.55.

Overdraft fees are also approaching highs. The 2019 average is $33.36, which is a smidge higher than last year’s average and just below the two-decade record set in 2017. The average non-sufficient funds fee has increased 19 times over the study’s 21 years, rising more than 50 percent from $21.57 in 1998.

The cost to access ATMs also saw new high in 2019, continuing a trend of 15 consecutive records. For in-network ATMs, the average fee was $3.09 this year, rising 2 percent over 2018. A decade ago, the average was $2.22.

But the total out-of-network ATM fee is now approaching $5. After adding an average out-of-network surcharge of $1.63, the 2019 average total charge for using ATMs belonging to other banks is $4.72.

This is a record high for out-of-network ATM fees, with the average charge rising 18 times since 1998. Ten years ago, the average was $3.54, and over the study’s 21-year span, total ATM charges have averaged 4.25 percent annual growth.

In some good news from the study, the opportunities to avoid monthly fees and ATM charges have grown, with the share of free checking accounts reaching 42 percent, the highest proportion since 2011.

How much does the interest rate matter on savings and CDs?

By Sabrina Karl

If you have cash to sock away, or surplus accumulating in your checking account, you may wonder about moving funds to a savings account or even a certificate of deposit. Your first question might be, will it earn enough to make it worth the trouble?

The answer can be a resounding yes, if you play your cards right. And in this case, playing smart simply means doing your homework with some easy rates research.

Let’s say you can shuttle $5,000 to savings. The current national average of savings account rates among all FDIC banks is 0.09 percent APY. At that paltry rate, your $5,000 in savings wouldn’t even earn $5 in a year, and over five years, you’ll earn just $23.

But that’s where high-yield savings accounts and CDs come in. Instead of 0.09 percent, it’s easy to find savings accounts paying 2 percent APY or more. That’s 22 times the national average, and over the course of a year, you’d earn about $100. Over five years, your balance would grow to $5,525.

Keep in mind that savings accounts allow you to add and withdraw from your balance whenever you like. But the rate can change at any time. In contrast, CDs offer higher rates that you can lock in for a certain number of months or years. The trade-off is that you’ll be assessed a penalty if you cash out early.

With a little research, you can find multiple 5-year CDs paying 2.75 percent APY or more. In our $5,000 example, a 2.75 percent CD will grow your balance to $5,736 at the end of five years.

Whether you go with a flexible savings account or a higher-earning, but more restricted CD, paying attention to rates can go a long way in putting more money in your pocket.

Cashing a CD in early? Here's what you need to know

By Sabrina Karl

While the ideal certificate of deposit scenario is to stash your savings and then not need that money until the CD matures, life doesn’t always work out as planned. Although cashing out early will cost you some money, sometimes it’s simply necessary.

Whenever you open a new CD, the bank or credit union will stipulate its early withdrawal penalty terms. In other words, these rules are set at the time you open the CD, not current bank policy at the time you withdraw.

This points out how important it is to read the fine print before deciding on a new CD. While many institutions fall within a normal range of penalties, some impose exceptionally stiff penalties, while others have pleasantly mild policies. Identifying this information is important pre-commitment homework.

But what if you’ve already opened your certificate, and now find you need the cash? The first step is to look up the terms you received when you opened the CD, and then call the institution to confirm your specific penalty calculation.

If the penalty is a flat number of months’ earned interest, it won’t really matter when you initiate the withdrawal. But with policies that penalize you more or less depending on how close you are to maturity, you may want to consider your best withdrawal timing. Some banks also allow a partial withdrawal, which can help minimize the penalty.

Once you know your penalty amount, you can also compare it to the expense of any other alternatives you might have for securing cash. For instance, if your cash flow need is short term, tapping a home equity line of credit may cost you less than the CD penalty.

In any case, be sure to talk with the institution to fully understand your penalty calculation before making a withdrawal decision.

Are CDs guaranteed?

By Sabrina Karl

When it comes to earning a return on your money, most options trade risk for return. The greater the risk you’re willing to accept, the more you can potentially earn.

Certificates of deposit are no exception, except in reverse: in exchange for a modest, capped return, your risk is almost nil.

CDs are virtually risk-free in two ways. First, they carry an explicit, unmovable interest rate. You know before depositing funds what rate the bank or credit union has agreed to pay you, and for what period of time you’re both committed.

The only exceptions are CDs with names like “raise your rate”. These special certificates allow you to improve your rate during the CD’s term, at your direction. But they don’t include any reciprocal option for the financial institution to do the rate changing.

But what if the bank with your CD goes under? Even here, you’re almost always protected. The vast majority of banks are FDIC-insured, as are most credit unions, with NCUA insurance. These two federal programs provide an important safety net to consumers, keeping them whole even in the case of a bank failure.

Deposit insurance covers up to $250,000 held by one individual at a single bank. So if you have more than that in deposit accounts, you’ll want to spread it out across multiple institutions.

A bank failure does present the only real risk of a CD, since you’ll likely be offered the choice of cashing out your CD, or continuing at an almost certainly lower rate. Your risk, therefore, is only the possible loss of earning the CD’s advertised rate for the full term.

An infinitesimal number of banks fail these days, so for savers wanting to invest some of their funds in stable, fixed-return vehicles, there is hardly a safer option than CDs.

The case for banking both locally and online

By Sabrina Karl

Time marching generally leads to us being given more choices. And banking is no exception. Decades ago, where you banked was a simple matter of choosing from a handful of local institutions. Today, the number of choices runs into the hundreds.

What changed, of course, is the advent of the internet. With each passing year, more and more banks and credit unions are opening new accounts online. So now instead of just the institutions that operate branches in your local community, you can conduct numerous banking functions with any one of over 200 institutions that accept nationwide customers.

So should you ditch your local bank and opt for an online bank instead? There are many good reasons to add internet banking to your financial setup. But there are also good arguments for holding a local account.

The biggest reason to go online with your banking is that savings, money market, and certificate of deposit rates are typically substantially higher with online institutions. In fact, the difference might surprise you.

Take savings accounts. The national average rate is currently just 0.09 percent APY. But dozens of online banks are paying 20 to 25 times that average, at over 2 percent APY. And the premium on your earnings is similar for money market accounts and CDs.

But, there are some trade-offs with internet banks. Often, the ones paying the highest rates have very limited product offerings. Some don’t even offer checking accounts. In addition, although depositing checks via mobile app is commonly allowed, depositing cash is something you can’t do with many online-only operations.

So if you want to maximize earnings on your savings while keeping it easy to handle cash and accessing a full array of banking products, consider a combination of banking both locally and online.