Overlooked savings account fees that can erode your balance

Earning an attractive annual percentage yield (APY) on a savings account is something most people want. What may lurk beneath the surface are savings account fees that can diminish your interest. Not all fees are automatic; you may incur charges because of actions you take, such as excess transactions or receiving a paper statement. Not all banks charge the same fees or have the same requirements. Dig in to understand how overlooked savings account fees can impact your APY and identify where to learn about possible charges.

What savings account fees should you avoid?

Fees you want to avoid on savings accounts are charges for maintaining the account, completing certain account activities or failing to meet account requirements. These charges are deducted from your account, reducing your overall return.

Not all banks charge fees on savings accounts. It’s important to review the institution’s Truth in Savings disclosure to identify potential charges. Possible savings account fees may include:

• Monthly maintenance fees
  
• Minimum balance fees
  
• Transaction fees
  
• Withdrawal fees
  
• Service fees
  
• Paper statement fees
  
• Inactive account fees
  

High APYs are nice, but if the account has multiple fees, they can quietly reduce the account value.

Common overlooked fees that can reduce your savings balance

Savings account fees can range from account maintenance charges to transaction fees. Here are seven account charges that can hinder returns.

Monthly maintenance fees

A monthly maintenance fee is a charge that is deducted during a statement cycle. Banks vary in how they impose this fee. Your institution may waive the fee if you meet certain requirements, but waiver requirements vary by bank.

The fee may seem minimal on a monthly basis, but it’s essential to annualize it. If you have a smaller balance, the recurring fee can have a larger impact on your account, as you may not earn sufficient interest to cover the cost.

Minimum balance fees

A minimum balance fee may be charged when your balance goes beneath a specific threshold. Some banks even begin charging a maintenance fee if you go below a minimum balance.

Banks differ in how they determine whether you’ve met a minimum balance requirement. Some base it on the daily balance, while others use the average daily balance or another calculation. It’s best to determine what you can keep regularly in the account, not what you hope to do.

Transaction fees

Some banks charge a fee if you exceed the stated number of transactions during a billing cycle. Such charges can occur because of transfers, account-to-account movements, or other activities.

The fee goes back to Regulation D, but the Federal Reserve removed the six-transfer limit per month requirement in April 2020. However, banks may still set their own transaction limits and charge fees for exceeding them.

Withdrawal fees

Excessive withdrawal fees may apply when you exceed an account’s withdrawal limit. A bank may allow withdrawals up to a certain limit, then begin charging when you surpass the threshold during a billing cycle. Don’t overlook asking whether ATM, teller, or online withdrawals are treated differently.

If you’re using a savings account for regular spending, it may be wise to consider a money market account or a savings account without the fee.

Service fees

Service charges typically result from activities that aren’t always routine for a savings account. Possible costs may include a wire transfer fee or a charge for requesting that the bank research account activity.

Not all institutions may charge for such actions, and how they’re handled varies. It’s best to consider what services you may need and identify costs before opening an account.

Paper statement fees

A paper statement fee is a cost for receiving a physical statement by mail. Most institutions prefer to send statements electronically, often at no cost. If you prefer paper statements, some institutions may charge for the convenience.

Banks differ in what they charge for this fee. Some may even offer waivers for certain account types. Even if you opt for electronic delivery, you can download and print statements if you prefer to keep physical records.

Inactive account fees

Dormant account fees may be charged when your account has been inactive for a certain period. Each bank handles the charges differently.

It’s best to determine what a bank considers dormant and what activity resets the inactivity period. If you have older savings accounts you rarely use or that are for goals in the distant future, you may be particularly susceptible to the cost. Check the bank’s policy to determine what activity prevents the account from being considered dormant.

Where to find savings account fees before they surprise you

Reviewing a financial institution’s Truth in Savings disclosures is a good way to identify savings account fees. Regulation DD, which implements the Truth in Savings Act, requires financial institutions to disclose APYs, interest rates, minimum balance requirements, and fees associated with an account.

Asking a bank representative may be helpful, but reviewing account disclosures is a good way to identify all charges. When reading the account documentation, look for terms like:

• Monthly service fees
  
• Minimum balance
  
• Transaction limits
  
• Paper statements
  
• Wires
  
• Inactive account
  
• Account closure
  

When you review statements, don’t just look at the ending balance. Read it to identify any bank fees. Furthermore, whenever you receive account alerts or secure messages, review them to make sure you don’t miss a change in fee policies.

How savings account fees can offset APY

Savings account fees can offset the interest you earn because the charges reduce your account balance. APY reflects the interest rate and the effect of compounding over a year, but costs take money away from your account. Doing the math to identify how fees will impact your savings account is essential.

Example fee offsetting interest earnings

It’s helpful to see how savings account charges affect your balance. Having an attractive savings APY is nice, but not if the interest you earn is eaten away by fees.

Here’s an example comparison of two savings accounts. One has no monthly fees, and the other has $10 in combined monthly fees. Both accounts start with a $1,000 balance and earn a 4% APY.

The account with no fees ends with a $1,040 balance after 12 months. By comparison, $10 in monthly fees adds up to $120 over a year, or three times the $40 in interest the original $1,000 would earn at a 4% APY if the balance remained untouched.

If you have a larger account, the fees may seem inconsequential, but smaller balances are more sensitive to charges. Whenever comparing savings accounts, it’s prudent to learn how fees will affect your earnings.

How to avoid or reduce savings account fees

Reading account disclosures and asking bank representatives when you have questions can help you avoid savings account fees. While it does take work to avoid charges, it’s relatively simple to accomplish.

Implementing the following is a good way to avoid fees:

• Opt for accounts with no maintenance fees.
  
• Maintain a balance above the minimum balance requirement.
  
• Set alerts for older, less-used savings accounts to avoid triggering dormant account or minimum balance fees.
  
• Enroll in electronic statements and download them if you want physical copies.
  
• Monitor withdrawals and transfers to avoid transaction limit fees.
  
• Review statements to identify possibly overlooked fees.
  
• Avoid keeping large balances in a low-APY account solely to qualify for a fee waiver; consider switching to a high-yield savings account to earn more.
  

Staying informed is a good practice when selecting a bank account, so you don’t needlessly lose money due to fees.

What to compare when choosing a lower-fee savings account

Finding a savings account with a competitive APY is good, but uncovering potential fees that can offset your earnings is just as important. To do this, evaluate different bank options to locate the best fit for your needs.

Items to consider when comparing savings accounts include:

• APY, monthly maintenance charges, minimum opening deposit, and minimum balance requirement
  
• Transaction and withdrawal rules
  
• Paper statement and inactivity policies
  
• Service fee schedules to identify overlooked fees you might encounter
  

Just because a bank markets a savings account as having no monthly fee doesn’t mean the account is 100% free. Verifying that the institution is insured by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA) is vital. Make sure the ability to access funds and other account features measures up to your needs; otherwise, it may not be worth your time.

Frequently asked questions

Fees and waiver requirements aren’t the same across financial institutions. Here are some common questions readers have when reviewing savings account fees.

What fees should I avoid with a savings account?

It’s wise to avoid costs that consistently apply, such as monthly maintenance fees, minimum balance fees, transaction fees, paper statement fees, and inactive account fees. If there’s a possible waiver, learn what it takes to qualify.

Can a savings account charge a fee for too many withdrawals?

Yes, a bank can charge for making too many withdrawals in a billing cycle. Institutions are no longer required to follow the six-withdrawal limit in Regulation D, but they can still set their own withdrawal limits and charge fees for exceeding them.

Can monthly fees cancel out savings interest?

Yes, it’s possible for monthly fees to offset savings interest, depending on your balance, APY, and cumulative fees. Smaller balances are more susceptible to this problem.

Are no-fee savings accounts always free?

No, no-fee savings accounts aren’t always free. The account may have no maintenance fees, but other fees are still possible.

The bottom line on savings account fees

Just because a bank markets a savings account with a high APY doesn’t mean it’s always the best option if it’s rife with fees. You want to select a savings account that will help you maximize your earnings while minimizing fees. When comparing banks, review the Truth in Savings disclosures for each account to learn the fee schedule and how it could affect your money. It’s best to choose an account with a competitive APY and minimal fees that align with your habits and service needs.