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Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

Summer 2010

Bank Accounts Are Changing: What You Need to Know
Costs may go up for checking and savings, but here are ways to pay less by going back to the basics

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New rules limit the fees banks and other financial institutions can charge on some services, so it's possible that the costs of other services could go up. In the Spring 2010 issue of FDIC Consumer News, we discussed how to avoid potential interest rate and fee increases for credit cards. And here, with expectations that banks will be adding new fees or requirements on bank accounts — such as by discontinuing or limiting free checking services — we focus on ways that careful consumers can avoid unnecessary costs on their deposit accounts.

Because it's hard to predict how banks will change their fees and policies for checking and savings accounts, what follows are basic strategies to keep costs down, many of which we have provided in the past but are especially worth revisiting now.

Comparison shop so you don't pay more for accounts than you have to. Look at what is being offered by your bank and a few competitors. If your bank is among those that eliminates its free checking services, you may still be able to find another bank offering them, especially if you sign up for direct deposit or electronic statements or you conduct a certain number of transactions each month.

(Note: Under Federal Reserve Board rules, an institution can't advertise a "free" checking account if you could be charged a maintenance fee or an activity fee —for example, a penalty for going below a required minimum balance. But your bank can offer a "free" account and still impose charges for certain services, such as check printing, ATM use or overdrafts.)

Some banks may be adding or raising minimum balance requirements. One alternative is to ask yourself if you can get by with a "no frills" checking account. This is an account that typically offers basic banking services without a minimum balance requirement or a monthly maintenance fee, but may limit the number of checks you write or your monthly ATM or debit card transactions.

When you see some accounts that are good possibilities, call, e-mail or visit the institutions and ask questions to find the account that offers the best rates and features and the lowest fees. "Start by asking your bank if it has an account that would be lower-priced than your current account," said FDIC Senior Consumer Affairs Specialist Evelyn Manley. "But also ask some competing banks if they can save you more money."

In today's low-interest rate environment, it might be better to choose a free account that pays no interest or only a small amount of interest instead of selecting an account that pays a modest interest rate but imposes a monthly fee. Similarly, it may be better to maintain a balance and avoid a monthly fee rather than putting that money in an account paying a modest interest rate. In both cases, any interest you would earn will probably be a lot less than the monthly fee, which can be $10 or higher.

Also, understand what you can lose if you do not meet the terms and conditions of the account. Before you open a new account, read all of the information about it, including the fine print. You do not want to be surprised later by limitations and fees you could have avoided.

"Some accounts have a higher interest rate than other accounts or no monthly fee, but only if the consumer meets all the specified conditions, such as making at least 12 debit card transactions a month or keeping a certain balance," noted Sachie Tanaka, an FDIC Consumer Affairs Specialist. "If you don't meet all of the conditions each statement period, you may earn a lower interest rate or accrue service fees, which may not make economic sense for you."

Similarly, ask your bank how it calculates the account balance for purposes of meeting a required minimum. "Some banks will charge a fee if the account balance falls below the minimum at any point during a month, while others charge a fee if the account's average daily balance during the month is below the minimum," added Heather St. Germain, another Consumer Affairs Specialist at the FDIC. "Understanding the rules will make them easier to follow and will help you avoid fees."

Protect against unexpected costs by monitoring communications from your bank. Whether you keep track of your account online or on paper, it's a good idea to promptly check account statements for errors that can cost you money, fees you didn't realize you were running up, and account changes you forgot about or didn't notice in the mailings from your bank.

It's also important to review your account statement as soon as you receive it to identify and dispute unauthorized transactions. Better yet, check your account activity online periodically instead of waiting for the statement to arrive in the mail. And consider signing up for electronic statements if your bank offers them. "That way, you'll get an e-mail notifying you about your latest statement online, which can be a good reminder to promptly review your account," said St. Germain.

Paying attention to account activity is also crucial if there are unauthorized transactions. In particular, if your debit or ATM card is lost or stolen, your liability for unauthorized charges is limited under federal law based on how quickly you report a problem. To get the most protection, you must notify your bank within two business days of learning that the card is missing.

In addition to reviewing account statements, read any other mail or e-mail from your bank. These communications may contain notices of important account changes, including increases in fees or penalties. "If you don't read the notices of cost increases, you won't be able to avoid them," commented St. Germain.

If overdrawing your account is an ongoing problem, look into alternatives to high-cost overdraft programs. By far, the best and cheapest way to avoid overdrafts is to keep a good record of your transactions — all of your deposits and withdrawals, including direct deposits, automatic transfers, ATM transactions and debit card purchases — and have enough funds in your account to cover your anticipated withdrawals.

As part of your system for keeping track of your account, find out if your bank will send you an e-mail or text message alerting you when a significant transaction posts to your account (such as a recurring automatic payment) or if your balance drops below a specific amount. This alert service, which is offered free at many banks, enables you to consider moving funds to your checking account from a savings account so you can avoid overdrawing your account. Be sure to understand the potential costs, if any.

In recent years, banks have offered overdraft programs that — for a high fee — automatically approved debit card and ATM transactions when the balance dipped below zero. "Although having an occasional overdraft covered can be beneficial, many of the automated programs make it easy to incur several overdrafts — even in a single day — and quickly rack up fees that can come to hundreds of dollars," warned FDIC Chairman Sheila C. Bair in a May 6 op-ed piece in the San Francisco Chronicle.

Under new rules that went into effect on July 1, banks must ask customers if they want to pay for overdraft coverage for debit card purchases and ATM withdrawals. If you "opt in" (agree) to this coverage, your bank can charge you a fee to process these transactions when they exceed your account balance. If you don't opt in, expect that these debit card and ATM transactions will be declined; you will, though, avoid paying an overdraft or insufficient funds fee.

Keep in mind that these new limitations only apply to one-time debit card transactions and ATM withdrawals. That means, for example, that your bank may cover an overdraft that occurs by check or automatic payment (such as for your mortgage, insurance premiums or health-club membership) without you opting in for overdraft coverage, and it is likely to charge you a fee for doing so.

In addition, remember that if the bank returns a check or automatic payment instead of covering it, you may encounter additional difficulties beyond the bank's fee. For instance, the merchant that initially accepted the bounced check may charge a fee for the returned item and not accept checks from you in the future.

If you often overdraw your checking account and you'd rather pay a fee than have a purchase declined, consider avoiding your bank's overdraft coverage and asking about less-expensive options instead. Among the possibilities:

  • Link your checking account to a savings account so that, for a small fee, money would automatically be moved to cover overdrafts.
  • Pre-arrange for an overdraft line of credit, which is an automatic loan triggered by a shortfall in your checking account. This loan will generally be less expensive than overdraft coverage, especially if you incur several overdrafts and pay a separate fee each time, but look into the costs for both options.
  • If you're facing a short-term cash crunch, ask your bank and a couple of others if they offer an affordable small-dollar loan to cover your expenses.

If you struggle with overdrafts despite your best efforts to avoid them, and if you do not plan to participate in one of these lower-cost options, research what your bank and others may charge for covering overdrafts.

FDIC officials note that some banks are discontinuing certain fee-based overdraft coverage that carries high costs and others are lowering the fees charged for consumers who opt in to overdraft programs. So do your research, shop around and then make the best decision to suit your needs and your wallet.

Minimize fees at the ATM. Most banks don't charge their customers to use the bank's ATMs. So do your best to get cash at your bank or one of your bank's machines.

When you need cash and you're not near your bank or one of its ATMs, know your options. You especially want to avoid paying two fees — one to your bank, the other to another bank for using its ATM.

One possibility is to use your debit card when making a purchase and ask for cash back. This is also a good option if your bank charges a fee for exceeding a certain number of ATM transactions in a month. However, first confirm with your bank that getting cash back on a debit card transaction is free. And be sure to record the purchase as well as the cash withdrawal, so you don't overdraw your account.

For more on how to efficiently manage checking and savings accounts, visit the FDIC Web page www.fdic.gov/consumers and the U.S. government Web site www.mymoney.gov.

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Last Updated 8/23/2010