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7 common banking fees and how to avoid them

Before opening a new bank account, know what it will cost you. Here's what to look out for.

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The average American pays $7 in banking fees every month, according to a recent GOBankingRates survey. These fees vary by user but include everything from monthly maintenance/service fees, to charges for overdrafts and insufficient funds. While a few dollars here and there may seem nominal, it can certainly add up over time.

In just a year, $7 per month would nickel-and-dime the average consumer out of $84 — just for simply keeping money stored away in a bank account. The good news is that it's easy to avoid paying bank fees if you are aware of them ahead of time. You can shop around for options that have fewer fees, and we include some recommendations later on.

Below, CNBC Select breaks down the most common banking fees and how you can avoid them, saving you hundreds of dollars over the years.

7 common banking fees

1. Monthly maintenance/service fee

Many banks charge by the month for you to keep your money in an account with them. Monthly fees can range from $4 to $25, but they are generally easy to avoid. Account holders can tend to get out of their monthly fees by opening both a checking and a savings account at the same bank or by maintaining a minimum balance in your account. Sometimes, setting up a monthly direct deposit is enough to waive the monthly fee.

However, you can choose a checking or savings account with no monthly fees from the start. CNBC Select rated the best no-fee checking accounts and the Capital One 360 Checking ranked best overall for its top-rated mobile app, physical bank locations, above-average APY and customer experience.

The money that you save on not paying any monthly fees can instead earn you more in a high-yield savings account that offers no fees whatsoever, like the Marcus by Goldman Sachs High Yield Online Savings. Read about our other top-rated high-yield savings accounts here.

2. Out-of-network ATM fee

ATM fees from both your bank and the ATM operator can add up when you withdraw cash often. The big brick-and-mortar banks charge customers on average $2.50 for using a non-network ATM. Use only ATMs in your bank's network, which can usually be found on their website. Most banks' mobile apps help users to locate and use the nearest fee-free ATM.

If you are in a rush and unable to find an in-network ATM, take out a larger dollar amount so the fee is only a one-time charge, or try to get cash back by using your debit card at the cash register of your next purchase.

Some banks may offer a refund for out-of-network ATM providers' charges. For example, Synchrony Bank refunds ATM fees in the U.S. up to $5 per statement cycle. Still, you should be wary how much you withdraw from an ATM because the fees, even with a $5 refund, can really add up. According to Bankrate, out-of-network ATM operators charge customers an average fee of $4.64. Just going to the ATM twice in one month would already put you over the refundable amount in some cases.

3. Excessive transactions fee

An excess transaction fee happens when savings account holders withdraw over the federal limit, which is six free withdrawals and transfers per month. Note, however, that this limit is currently waived during the coronavirus outbreak under Regulation D.

Excessive transaction fees can cost anywhere from $3 to $25 per transaction, but this can easily be avoided if you use your checking account as your everyday account for routine withdrawals, like paying bills.

4. Overdraft fee

Overdrawing your bank account is an easy accident. To help avoid it, sign up for direct deposit so that money is consistently and automatically being put into your account. This will help you maintain a minimum balance required for your account and prevent overdrafts.

Many banks also offer overdraft coverage or protection for a fee, around an average of $35 per overdraft. Instead of being declined for a purchase when you don't have enough money in your bank account, the bank will cover you by taking the funds from your linked savings account, second checking account, line of credit, etc.

5. Insufficient fund fee

For those who don't opt for overdraft protection, having insufficient funds can cost you when you try to make a purchase. An insufficient fund fee or returned-item fee for failed transactions can cost up to $35 per transaction. These fees, as well as bounced check fees, can be avoided by keeping an eye on your account and transferring money into your account in advance. To make it easy, sign up for notifications so that you are automatically alerted by text or email when your balance is low. This way, you can rest assured that your funds will cover you.

6. Wire transfer fee

Wire transfers may be a quick way to transfer money without using physical cash, but they cost you for the convenience. For this service, banks typically charge between $16 to $35 for domestic and international transfers. Use wire transfers sparingly unless it's an official transaction that requires a big amount of money. Otherwise, you can transfer funds online or through your bank's mobile app.

7. Early account closing fee

Closing your account too early has its repercussions. Banks have different timelines (usually 90 to 180 days) for how long you have to keep your account open before closing it without a fee, which can be up to $25. Check what your bank's rules are before you move forward with canceling your account.

Bottom line

Like with any financial product, you should shop around for the best bank account before deciding to put your money in one. While the traditional brick-and-mortar banks (Bank of America, Wells Fargo, Chase Bank, for example) offer physical branch locations that you can visit in person, they often come with high fees tagged onto their accounts.

Avoid most of these fees by researching online bank accounts that are FDIC-insured. When it comes to saving, look for high-yield savings accounts that promise low fees and higher-than-average interest rates.

Learn more:

Information about Marcus by Goldman Sachs High Yield Online Savings has been collected independently by Select and has not been reviewed or provided by the banks prior to publication. Goldman Sachs Bank USA is a Member FDIC.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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