Study: Average checking account fees cost $1,000 over a decade

For Joelle Brown, writing three rent checks to her landlord before a long trip turned out to be a bad idea. She expected one check to get deposited each month, but her landlord cashed them all at once.

“I was in school at the time and was living off of loan money,” says Brown, who was then an undergraduate at a university in Vermont.

The deposited checks caused her account to drop below zero, but she didn’t know this for four days. By then, she had used her debit card to make additional transactions, leading to a total of $600 in overdraft fees.

And even worse: “It was right before Christmas,” she says.

Brown’s experience isn’t unique. About 30% of all checking account holders are hit with overdraft fees over the course of a year, according to a 2014 report by the Consumer Financial Protection Bureau. There are other bank fees that are higher, but overall, overdraft fees make up the majority of checking account costs.

NerdWallet looked at the average costs of overdraft and other fees over time, and found a higher price tag for a checking account than you might expect.

The average cost of monthly maintenance fees, ATM and account use fees, and overdraft and nonsufficient funds fees for a checking account is nearly $1,000 over a decade, according to a NerdWallet analysis of CFPB data.

Read on for more about the study findings and what you can do if you’re paying steep fees for your checking account.

Key findings

• Checking accounts have an average annual cost of $97.80 in fees, based on data from the CFPB.

• In 10 years, the average cost is $978, and in 20 years it’s $1,956.

• The most consumer-friendly checking accounts, on the other hand, cost $31.05 a year on average. That’s only if you incur the average two overdrafts per year at one of these banks, where overdraft fees are half of what they are at banks overall. If you never have an overdraft, these accounts are free.

• Choosing one of the most consumer-friendly checking accounts, which NerdWallet determined based on analysis, can save you an average of $667.50 over 10 years compared with an average checking account.

• For the more than 109 million U.S. households that have checking accounts, the total average annual cost of the accounts is $10.7 billion. This is just from the three types of fees: overdraft-related, ATM and account use, and monthly maintenance.

• If those households switched to one of the most consumer-friendly checking accounts, they’d save $7.3 billion altogether in just one year.

The fees

This average price of a checking account comes from three different types of fees:

• Monthly maintenance fee: This is the sticker price of a checking account. It’s around $10 to $12 for the most basic checking account at the biggest U.S. banks, but you can usually get it waived if you keep a certain amount of money in the account or you set up direct deposit.

• ATM and account use fees: These one-off costs are what you pay for account services such as buying money orders, sending wire transfers or using out-of-network ATMs. You pay these fees upfront, but there can be additional costs such as a fee from an ATM operator for use of its machine.

• Overdraft and nonsufficient funds fees: Overdraft fees — which cost a median of $34 according to the CFPB — can be surprising if you don’t closely monitor your checking account. If you don’t have enough cash in your account and your bank has to help you cover a transaction, you’ll be charged an overdraft fee. If your balance is already below zero and the bank doesn’t cover you, you’ll get a nonsufficient funds fee.

Bank customers incur an average of about two overdrafts per year, but in practice a minority of them, 18%, account for the majority of overdrafts. This group tends to earn less than the national median income of $54,000, and for them, paying overdrafts can mean the equivalent of losing a week’s worth of wages over the course of a year, according to another recent study from the Pew Charitable Trusts, a public policy group that studies consumer banking.

So why don’t more consumers compare checking accounts like they would grocery store items?

The trouble with comparing accounts by fees

1. Some costs are unpredictable. A checking account houses a bundle of financial services, from ATM withdrawals to overdraft protection, but there’s no one-size-fits-all. Overdraft programs and alternatives, such as overdraft protection transfers and overdraft lines of credit, can be hard to compare. Banks have different daily maximums for overdraft fees. And if you don’t know whether you’ll need an overdraft service someday, it can be hard to prioritize a cheap option when there are many other checking services to compare.
2. Disclosures get long and complicated. The median length of a bank account disclosure, including fee schedules, is 40 pages, according to Pew’s 2015 analysis. Financial institutions must abide by compliance requirements when they disclose information, but that doesn’t mean they need to offer easy-to-read summaries of all the key points and fees.
3. The way banks disclose fees varies. Length isn’t the only concern. There isn’t a uniform format that’s legally required for disclosures. Pew created a summary disclosure box which various banks have adopted, but inconsistencies crop up even with that format. In addition, not all fees have the same names across financial institutions. Some banks, for instance, call an inactivity fee a “dormant account fee” and overdraft coverage a “courtesy pay.”

A future with clearer fees

“We live in a world where there’s going to be more and more data and info available,” says Jonathan Zinman, professor of economics at Dartmouth College in Hanover, New Hampshire. “Regulatory pressure and increasing consumer awareness will continue to push financial service providers in the direction of more transparent pricing.”

As more banks lay out their fees in a clear and uniform fashion, it will become easier for consumers to compare accounts and know what they’re paying for.

How to save money now

You don’t have to wait for new laws to better understand and reduce the cost of having a checking account. Here are a few strategies.

• Set up alerts for low balances. You can typically set up email and text notifications through online banking to help you avoid overdrawing or going below a minimum daily balance requirement.
• Avoid ATM fees. Stick to ATMs within your bank’s network and get cash back at grocery store checkouts.
• Switch to a financial institution with few fees, including low or no overdraft fees. Compare overdraft fees across financial institutions to see what works for you. Look for accounts that don’t have monthly maintenance fees or that offer easy ways to avoid them.

“If you’re regularly hit with bank fees, taking the time to find the right bank can easily save you hundreds of dollars over a few years,” says Sean McQuay, credit and banking expert at NerdWallet.

For more details, including methodology, read the full report.

Spencer Tierney is a staff writer at NerdWallet, a personal finance website. Email: spencer@nerdwallet.com. Twitter: @SpencerNerd. NerdWallet data analyst Sreekar Jasthi contributed to this study.

This article originally appeared on NerdWallet.