As you know, this is a totally judgement-free zone. Unlike some other personal finance advice peddlers, I will never tell you not to buy a latte. You’ve worked super hard for your money, you should be able to spend it on whatever you want!
However, there is one kind of expense that I do actually judge a bit: bank fees.
In the US, the 10 largest banks earned $11.45 billion in overdraft fees in 2017. That’s over $90 per US household. There are companies on the S&P 500 whose total annual revenue is much less than that:
- Ralph Lauren: $6.2 billion;
- Hanes: $5.7 billion;
- Harley-Davidson: $5.6 billion;
- Underarmour: $5.2 billion;
- H&R Block: $3.1 billion; and,
- TripAdvisor: $1.6 billion.
Plus, ATM fees are at an all-time high. The average out-of-network ATM charge is $4.72! If you withdraw $20, that’s almost a 25% mark-up to buy your own money!
And, finally, the average fee for a checking account in the US is $15.05 per month. $15 per month may not sound like a lot, but that adds up to $180 per year. And, if you consider the median checking account balance for people under 35 is $1,200, then $180 equates to paying the bank a 15% APR! You are paying your bank a rate as high as most credit cards charge! Ridiculous.
Part I: Managing Cash
Stop Buying Your Own Money
The bank I choose to let hold on to my money for me should feel very special. Most people think of banks as providing a service. They watch your money, keep it safe, give you access to it when you need it. And, just like every other service you buy, it costs money to purchase those services. Just like when you go get a haircut, it costs you money to purchase that service.
It is time to stop thinking that way. Your salon does not turn around and sell your hair for a profit.
Your bank sells your money to other people. For a profit. So, why would you also pay them to hold on to it? Ridiculous.
When someone walks into a bank and applies for a loan, the bank needs to have that money available to lend. When you walk into a bank and deposit your paycheck, they turn right around and lend that money out to other people.
If you are living paycheck-to-paycheck and drawing your account down to nearly zero twice a month, then the bank cannot really lend out your money to someone else. That means they cannot earn any profit on your money, unless they charge you some fees. That’s why many banks will waive their fees if you keep your balance above a certain minimum. They are not doing that to be nice. They are doing it because instead of receiving a fee from you they are receiving interest from someone else. Interest on your money!
The bottom line: banks make money on your deposits, so you shouldn’t feel bad about avoiding fees.
So, familiarize yourself with the fees associated with your accounts. Find out exactly what triggers those fees and stop doing those things. Your goal should be to pay exactly $0 in fees to your bank for money you have deposited there. You should only pay your bank when you borrow other-peoples’ money.
You should never buy your own money back from your bank. Never. Stop paying monthly fees. Stop using ATMs that charge you a fee. Stop paying fees to pay your bills.
The one exception to this rule is if you must wire money, like in the case of buying a house. Wiring money is a service banks provide to move your money instantaneously to someone else, and to guarantee that it will be available. Unfortunately, there is no way around this fee. But you should only have to pay it a few times in your life.
Otherwise, use the rules to your advantage and pay no fees to your bank.
I hope this has been helpful! I welcome your comments with your thoughts and questions. And, don’t forget to subscribe to the newsletter to get notified whenever a new article is posted.