How to avoid bank fees

Most bank fees come from three places: overdrafts, returned payments and monthly account charges. You can avoid nearly all of them by choosing the right account, saying no to debit card overdraft coverage and keeping a small buffer.

An overdraft fee is for a payment the bank covered

When you spend more than you have and the bank pays anyway, you are overdrawn. The bank charges a fee for that, on top of the negative balance you now owe.

An NSF fee is for a payment the bank refused

A nonsufficient funds (NSF) fee is charged when the bank returns a check or electronic payment unpaid. The company you were paying may add its own returned payment fee.

Opt-in rules protect debit card and ATM use

Under federal rules, banks can't charge an overdraft fee on an ATM withdrawal or a one-time debit card purchase unless you opted in. Checks and recurring payments are not covered by this rule.

Monthly fees often have a waiver

Maintenance fees are usually waived if you keep a minimum balance or have direct deposit. If you can't meet the waiver, a no-fee account is the better choice.

How overdraft fees add up

Each overdraft is usually charged separately, so several small purchases on a low day can each carry a full fee. A $6 coffee can end up costing many times its price.

The negative balance and the fees come out of your next deposit first. That leaves less for the next round of bills, which makes the next overdraft more likely. Breaking that loop is worth more than almost any other banking change.

Your overdraft opt-in rights

Federal rules (Regulation E) say the default is no overdraft coverage for ATM withdrawals and one-time debit card purchases. A bank can only charge fees on those if you opted in. You can opt out at any time, and the CFPB says to simply tell your bank.

If you are opted out and a debit card purchase would overdraw you, the bank will usually decline it. A declined card at the register is awkward, but it costs nothing.

The rule does not cover checks or recurring electronic payments, like a gym membership or a loan autopay. The bank can still pay those and charge an overdraft fee, or return them and charge an NSF fee. Some banks let you opt out of those overdrafts too, but an NSF fee may apply instead.

Minimum balance and maintenance fees

A monthly maintenance fee is a charge just for having the account. Banks often waive it if you keep a set minimum balance, receive a direct deposit of a set size, or are a student.

Read the waiver closely. Some use your average daily balance and some use the lowest balance that month. One day below the line can trigger the fee. Paper statements, out-of-network ATMs and wire transfers can carry fees too, and your bank's fee schedule lists them all.

How to avoid most fees

Opt out of debit card and ATM overdraft coverage. Keep a buffer of a few hundred dollars in checking that you treat as zero. Turn on low-balance alerts, and time automatic payments for a day or two after payday.

Link a savings account for overdraft transfers if your bank offers it. Use your own bank's ATMs or an account that refunds ATM fees. If you are charged a fee, ask for a refund. Many banks waive a first fee when asked.

Switching to a no-fee account

If your bank still charges fees you can't avoid, move. Many credit unions and online banks offer checking with no monthly fee and no minimum balance. Make sure the new account is insured by the FDIC or NCUA.

Open the new account first and move your direct deposit. Then move each autopay and saved card, one by one. Leave enough in the old account to cover anything you missed for one or two months, then close it in writing.

If a past account was closed with an unpaid negative balance, some banks may turn you down. Basic accounts with no overdraft feature, sometimes called second-chance or checkless accounts, are an option while you rebuild.