Checking Accounts: The Difference Between Fees Up Front And Compounded Fees And How To Avoid Them

Banks make money by charging fees on products or services it provides customers. Fees can add up and become rather costly if you do not know how much you are assessed, the charges you can be assessed for, and what the differences between the two main categories of fees are. Before you choose to open a new checking account for the first time, it helps to know the difference between the fees one bank charges up front and the compounded fees another bank charges that may surprise you. There are also a tips here to help you avoid the fees. 

Fees up Front

Fees up front are any fees the bank charges to open a checking account, fees for checks printed, fees for low account balances and fees for debit card production and/or use. Most of these fees should not surprise you, as most banks charge one or more of these fees to open an account. Even with "free" checking, there is often a charge to print and use checks or a charge to create a debit card for use at designated ATMs.

Fees Compounded

While banks can charge fees for bounced checks and overdrawn accounts, they generally publish what these charges are. However, you may be caught off guard by the ways in which some banks assess and collect these fees. For example, one bank may charge a $35 returned check fee, and if that fee overdraws your account, they can add another fee for an overdrawn account. This fee for an overdrawn account may be assessed on a daily, weekly or monthly basis until you have cleared up the negative balance and paid the bank. The daily fees for a single week can sometimes equal or exceed the sum of one returned check fee! These are fees the bank may have published in a service pamplet, but some banks do not always tell you how rapidly the fees build up and continue to build on top of each other.

How to Avoid the Fees

To avoid fees up front and avoid compounded fees you may not have expected, you need to select the bank with the lowest fees all around. (This may take some digging, but there are banks out there that have a very manageable fee schedule.) Additionally, the bank representatives will point out their different checking accounts and ways in which you can save money by choosing a different financial product. Try to avoid using checks entirely and use just your debit card instead. It will save even more money in fees because you will not have to pay the check printing fee or any bounced check fees that may occur in the future. Finally, consider banking at a credit union, where the fees are significantly less than a bank's.