Choosing a Bank: ATM Fees

Americans pay billions of dollars in ATM fees every year. When you use an ATM that belongs to a different bank other than your own, the law permits your bank to charge you a fee AND the ATM owner to charge you as well.

In 2006, the average surcharge assessed by ATM owners climbed again. Add in your bank's surcharge and $20 withdrawal to get some cash for a cab ride might cost you up to 20% extra in fees ($2 from your bank and $2 from the ATM owner).

This practice made enough people angry that some cities and states tried to ban ATM fees altogether. (I actually disagree with banning ATM fees, since they have given incentives for banks to create more and more ATMs all over the world, giving us easy, 24-hour access to our money.)

But then again, I don't pay ATM fees. Ever.

ATM fees are just one of many considerations when choosing a bank, but for many people, it is their primary consideration. For some reason, our instinct is to choose a bank near our home or work, so we can withdraw money without paying fees. While this is fine for some people, wouldn't it be better if every ATM was your bank's ATM?

Since I started college, I skipped opening an account with Bank of America (check out Bank of America's outrageous "ATM Denial Fee") and the other local banks around campus. Instead, I went with UmbrellaBank, an internet bank. Their policy on ATM fees: customers never pay them. Not only does the bank not charge any ATM fees, but they automatically reimburse you when you incur a fee from the ATM owner.

This is a very common feature of internet banking, and it allows you to never have to think about which ATM to withdraw from, since you never pay a fee to get your money. Even some "brick and mortar" banks with actual branches are offering promotions to reimburse your ATM fees.

Deciding between a "brick and mortar" bank and an internet bank can be tricky. I'll discuss the considerations in making this decision in a future post. But if you have a bank that charges ATM fees, get rid of them.

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Financially Illiterate

There's something bizarre about our society that we don't seem to realize is a problem. Smart, educated college graduates starting their first job seem to have no idea how to approach some of the most basic questions of financial survival. And some of them never seem to figure it out.

I asked a recent Harvard graduate living in New York about his financial life:

Annual salary: $70,000
Credit card debt: $4,000
Monthly student loan payments: $250

He's just gotten a new job that pays better, and he is looking to find a place on his own. He's decided to opt for the best health, dental, vision, and life insurance plans through his employer. He's also looking to pay down his debt, so he's only using his debit card. In addition to paying down his credit card (which has a 19% APR), he's also making extra student loan payments so he can erase his student debt.

He wants to try and find a place to buy after a year, since he hates throwing money away on rent. He's going to save 15% of his income each month in a Bank of America money market account so he can have a small downpayment within a year or two.

The funny part about this story is that most people would think he's making all the right moves. Paying down debt, saving, getting good insurance, and even making a potential home purchase. The sad part is that many (actually, most) of these decisions are wrong. They are the result of conventional wisdom, rather than real financial savvy.

In subsequent posts, I'll talk about the factors that one should think about in their financial life, like the decisions the person above makes. Saving, investing, taxes, insurance, renting, buying, loans, credit cards, and more.