- Personal Finance
How Banks Make Money
Finding a Bank and Their Fees
Finding a bank today seems like an easy task. You find one in the area that is close to your home or office that will be convenient for you. In some areas there are banks on almost every corner. In my hometown, there is a street that has 4 different banks, one on each corner. You may pick the one that has the nicest building or one that you have seen advertised, you may even know someone who works there. Let’s be honest we don’t usually pick the ones with the nicest people, after all, unless you are in a small town, you don’t know them. As you work with them you will find out what you like and dislike about the bank you have chosen. It may inconvenient hours, the tellers are rude, the manager ignores you, or you find hidden fees.
All banks, and credit unions, have fees, that is one of the ways they make money. How they generate the fees is the real question. I mean it’s not the fee, but how they assess the fee on the account. Some have minimum balance requirements or a per check or transaction fee, and all of them will have an overdraft and return check fee. A return check fee is the fee they charge you if you write a check and it overdraws your account and instead of paying the check and charging you an overdraft fee, they return the check to you. Incidentally the overdraft and return check fee is usually the same. All banks have overdraft protection available, which will transfer funds into your account, from a savings, credit card or line of credit, for a fee, in order to cover the check you wrote. Now bear in mind, the savings, credit card, or line of credit is yours, they just transfer what you have in one account and put it in another account and charge a fee. Now you could call them in advance or do it transfer it yourself, and there is no fee. The fee is from them transferring the money in case you overdraw the account and you did not know it. Could they do it for free as a courtesy, yes they could, but to remove funds from your account, they need prior written authorization, or a court order. Bear in mind, if you overdraw the account and they just pay the fee, basically lend you the money, they charge a higher fee.
Overdraft Fees And How They Are Calculated
Overdraft fees are expensive ranging from $20.00 - $40.00 per item, even if your overdraft is under a $1.00, which is a 4000% profit on what they loaned you, talk about loan sharking. You need to remember that some people never pay the overdraft and the banks end up paying what they used and take a loss, so in part the fee is that high because of someone else, financial institutions are not non profit (except credit unions), they need to make money to keep running, or we there will be more bank failures. So I don’t’ really have a problem with the fee, and some bank personnel, myself included will look at the situation and the amount of an overdraft to determine if the fee should be refunded. For example, an overdraft of $10.00 or less does not warrant a $40.00 fee, but maybe a $20.00 fee. What I have a problem with is how they determine you have an overdraft.
I mean I know an overdraft is when you use more money than you have, but with you using money everyday how do they figure you ran out of money. Some banks go by the the time money comes and leaves your account. For example, you have $50.00 in your account at 7 am at 9 your check for $60.00 comes in and at 12:00 you make a deposit for $100.00, according to the bank you were overdrawn by $10.00 at 9am. Because at 9 am you were overdrawn they charge the overdraft fee of $40.00. Now by noon you know have only $50.00 after you added $100.00 ($50.00 - $60.00 -$40.00+ $100.00).
Some banks, such as Chase Bank, at least it was this way when I worked there, post all debits than come in during the day first and the credits last, once the account goes negative they charge the fee. In the above example, you have $50.00, four transactions totaling $60.00 and one deposit of $100.00 comes in during the day. The subtract out the $60.00 charge the fee and then add the $100.00. Also the time of day is important in both scenarios, toward the end of the day between 3:30 pm and 5 pm, they stop transacting business for that day and now it becomes the next day. If you deposit after these times, you are essentially depositing money the next day, which can also cause a fee.
The bank I work for I believe does it more fairly, we process all credits to your account first and then process all the debits. We also have no cut off time, it becomes the next day after we close our doors for the current day. So what this means is that at 7 am you have the same $50.00 and you have 4 withdrawals totaling $60.00 and a $100.00 deposit at 4:59 pm. So the accounting on your account would be $50.00 + $100.00 -$60.00 leaving you $90.00 in your account. Honestly which of the three ways seems more fair?
My Experience With Bank Of America
I have to throw my two cents in as well. I use 4 different banks for various reasons, Bank of America, I have discovered is the most unethical and unscrupulous of them all. My situation was that I accidentally overdrew my account, which I admit, and they had told me that if I make a deposit by end of day, I will not be assessed any fees. Here is the timetable of the events. On Dec 8 at 7 am I noticed my account was going to overdraw by $140.00. At 9 am that morning, 2 hours later, I wire transferred $182 from another account into my Bank of America Account. At 9:15, 15 minutes later, I checked the Bank of America account, and the balance showed it was positive $33.23, so from their own admission I should not be assessed a fee, because Dec 7 the balance was positive and now at 9:15 on Dec 8 it was positive. I got home from work at 6 pm and checked all my accounts, and Bank of America showed a $106.77 negative balance. What the heck happened? When I investigated it showed, they had charged 4 overdraft fees for $35.00 each. But how, after all I showed a positive balance and nothing new came in. I found out that ½ of my debits that were pending on Dec 8 was back dated to Dec 7 causing the account to overdraw.
If you refuse to clear up an overdraft they will eventually close the account and report you to Chex Systems, an organization similar to credit bureaus, which makes it harder to get a new checking account at other financial institutions. Now I did tell them to close the account and I refused to pay, since I felt the situation was unfair. They said they could not close an account with a negative balance. Excuse me, how do they close the account in 120 days like they said it would. Now during that 120 days, they charge extended overdraft or negative balance fees, usually at 7 day intervals, usually the same as the overdraft fee itself. Some banks, mine included charges a daily negative fee after 7 days,
Which is usually $5.00 - $10.00 per day. My bank is $6.00 per day. Because they hold off on closing the account, like I had requested, they can now increase my overdraft charges by a couple of hundred dollars. So by the time it hits Chex Systems they will say they wrote off $600.00 and not $280.00, which was the cost of the fees. Honestly, like I said I have 4 checking accounts, I really don’t need them and the Chex System reporting is of no concern to me.
The unethical part of this is that every other bank that has pending transactions will post for that day, not a day earlier. Because they changed the date on the transactions between 9:15 am and 6 pm, my account now showed an overdraft on Dec 7. Remember that morning Dec 7 was positive and by 9:15 the account was positive. The problem was because transactions were backdated, I had no proof and the customer service person could not see what I saw at 9 that morning. Unfortunately, I did not think I needed to make a screen print of my transactions to make sure nothing funny happened. Now because they assessed a $140.00 fee it also caused 4 debits that posted on Dec 8, which was pending that morning, to cause the account to overdraw again, causing another $140.00 in fees.
In short I guess, don’t use Bank of America, they cheat their customers, but while searching for a bank check into how transactions are posted, how fees are assessed and what services they have to help you protect your account. All banks are different and not all are as bad as Bank of America, although many of the national banks, are more stringent because they feel they can be. I also check to see if they used any TARP money as well, but that is just me. So good luck in finding a bank and please if you have an experience with your bank, whoever it might be, please leave a comment.