Last month, I posted a comment about bank fees on J.D. Roth’s fantastic blog, Get Rich Slowly. (Get Rich Slowly is probably my favorite of the personal finance blogs — J.D. combines excellent, level-headed advice with frequent updates, and has drawn a strong community around the blog as a result.) The comment was about how Washington Mutual made off with $180.00 of my very favorite dollars:
I once set up a Washington Mutual savings account, and they told me the minimum balance was $1,000. I put a little more than that in the account. At some point I needed to withdraw a bit from that account, and it went below the minimum. For months, I would get a $10 â€œlow balanceâ€? fee charged against that account, and Iâ€™d blame myself for not doing a better job of saving.
Finally I brought the account over $1,000, and waited to see the fee go away the following month. But it didnâ€™t. â€œOh, I must have deposited too late in the month,â€? I thought. The next month, the fee was still there. What the hell? So I called Washington Mutual, and they said, â€œWe raised the minimum balance to $3,000.â€? Aha. Thatâ€™s quite a trick! (It would be called â€œbait and switchâ€? were in not for the miracle of fine-print terms & conditions bill inserts!) Now I have my savings in a bank with no minimum (USAA â€” in my experience, a great bank).
You can lose a lot of money by blaming yourself for fees, charges, and penalties. In fact, many businesses are set up to profit generously from blame that you turn on yourself, when really you are being set up to fail. This is a great personal finance tip that is dirt-simple to catch, as soon as you know to look for it: whenever you see a fee, blame the company that charged you for it, not yourself.
A news story about Washington Mutual (WaMu) from a few years ago (I believe in the Wall St. Journal) taught me about this. The article talked about how WaMu was increasing the amount that it charged customers for bounced checks, and said that they were leading a change in the way banks viewed these charges. Rather than seeing customers who bounced checks as a problem, WaMu had started to see them as a source of profit. Once, too many bounced checks would get you a stern letter from the bank warning you to manage your finances better. Now, no such letter would arrive, but WaMu would charge you more than nearly any other bank (currently, $25.00) for each bounced check. The article described the push as trying to get consumers to see bounced check fees as “short-term loans” — mind you, loans with absurd, usurious interest rates. Of course, they knew that you’d feel so badly about bouncing a check that you were very unlikely to complain.
My experience with the low-balance fee is another good example of this. Did the cost of providing savings accounts suddenly jump, so that WaMu needed to change the minimum balance from $1,000 to $3,000 to make ends meet? Hardly — instead, changing the minimum allows them to collect low-balance fees from more people, like me, who turn the blame for the fee to themselves.
Banks and credit card companies make up to one-third of all of their revenue from these kinds of fees — not including interest. Likewise, you’ll find various fees tacked on to nearly every bill you regularly pay (if you’re not afraid to lose your appetite, take a look at all the fees tacked on to your local phone bill). As a consumer, your question should be, what am I getting for that money? Nearly always, the answer will be, “nothing,” and the only way they can sell you something of no value is by making it seem like it’s your fault, not theirs, that they charged you for it. Don’t buy it.
I took my experience and my money to a bank (USAA) that has no minimum balance, and in fact also reimburses me for ATM fees charged by the ATMs I use — killing two fees with one stone. When you learn to look for these fees, you’ll see that: (1) they’re everywhere; and (2) you almost always can avoid paying them. Look for a bank that is hungry for your business, not one that’s so well-established that they need to drive up fees to make more money. The hungry banks are more likely to be a good deal.