In football, a penalty can cost you yards. But when it comes to banking, a penalty can cost you your hard-earned money. That’s why it’s a good idea to avoid penalties.
Common penalties like overdraft fees and non-sufficient funds fees (NSF) are costly. Though some banks have recently lowered their overdraft fees, the average overdraft fee across checking accounts is rising from $26.61 in 2023 to $27.08 in 2024, according to Bankrate’s Checking and ATM Fees Survey.
Knowing the most common penalties and fees on banking products and how to avoid them can help you save cash.
1. CD Early Withdrawal Fees
Fixed-term deposits (CDs) usually have early-withdrawal penalties if you cancel or withdraw your money before the end of a specific term. Early-withdrawal penalties can be significant and can reduce your benefits or even your principal. Some banks don’t allow partial withdrawals, so keep an “all or nothing” mindset in mind when planning.
Early withdrawal penalties for a five-year CD can range from 150 to 540 days, although these penalties can vary.
How to avoid this fee: Determining when you’ll need your money before choosing a fixed-term deposit is the best way to avoid early-withdrawal penalties. And to avoid these penalties, it’s important to know what the funds are for. If you think you might need some money over the life of the CD, put some of your funds in a high-yield savings or money market account. You might also consider a no-penalty CD.
“Anyway, think ahead. If you’re currently looking to buy a home, a one-year CD is probably not the best option. If you’re putting the money in a CD because you’re worried you might run out of it, put it in a savings account with a different financial institution than your regular checking account, so it’s a little more difficult to withdraw.”
Pam HorakCertified Financial Planner at Pathfinder Planning
2. Early Account Closing Fee
CDs aren’t the only bank products that charge fees for closing an account early. Some banks also charge fees for closing an account early. Banks that charge these fees usually do so if you close your account within the first 90 to 180 days. Early account closure fees are usually between $5 and $50.
How to avoid this fee: Find out if your account will be subject to these fees. Keep in mind that you must have one of these accounts open for the required period of time to avoid the fees. Keep this and any minimum balances in mind before you open an account.
In reality, if you plan on closing your account this soon, it may not be the right time to apply or it may not be right for you.
3. Maintenance costs
Some banks charge a maintenance fee (or a monthly fee) if your account balance falls below a certain amount. Banks may charge these fees to encourage savings or a certain amount of balance, so that the bank guarantees that a certain amount remains in the account or they pay the fee.
Maintenance fees typically range from a few dollars to $25. According to Bankrate’s 2024 Checking Account & ATM Study, the average checking account maintenance fee for interest-bearing accounts is $15.45, while the average for non-interest-bearing accounts is $5.47, both up from the previous year.
Banks that charge these fees usually waive them if you maintain a certain balance or set up direct debit, and some banks might also waive the fees if you make a certain number of transactions or if you’re a student.
How to avoid this fee: Check the fine print and choose a bank with no monthly fees or fee-avoidance criteria you can meet. Be strategic in choosing your bank: Use direct deposit to waive fees on one of your accounts. For other accounts, look for banks with no or low minimum balance requirements.
Online banks (banks that don’t have branches) typically don’t charge these fees, so you should also include these types of banks in your search.
4. Overdraft Fees
If you spend more than you have in your account, you go into an overdraft, or negative balance, and if your bank covers the overdraft transaction, it may charge you an overdraft fee.
For example, if you write a check for an amount that exceeds your checking account balance and the check clears, your bank may charge you an overdraft fee. Another transaction that can result in an overdraft fee is if you make a purchase with your debit card that exceeds your account balance. Your bank may make up the difference and charge you an overdraft fee.
According to Bankrate’s 2024 Checking Account and ATM Fees Survey, the average overdraft fee is $27.08.
Paying for purchases with a credit card instead of a debit card can help you avoid overdraft fees, but you’ll still need to pay off your balance each month to avoid paying interest, says Ashley Koch, a certified financial planner with Cultivate Financial Planning in Radford, Virginia.
How to avoid this fee: Check your checking account balance before using your debit card or writing a check.
Using a credit card for purchases also helps you avoid overdrafts. You don’t have to pay for those purchases until your statement is due, which saves you time. But be sure to pay your balance in full by that date. Otherwise, over time, the high annual percentage rate (APR) could end up costing you more than the overdraft.
Alternatively, look for banks that have eliminated overdraft fees. Banks that have eliminated or significantly reduced overdraft fees include Capital One and Citibank.
Savings overdraft protection may have no transfer fee or may have a fee that is lower than the standard overdraft fee. Savings overdraft protection means that your savings act as a backup for your checking account.
5. Recurring overdraft fees
Some banks may charge you a continuing or extended overdraft fee if your balance has been negative for a long period of time. In some cases, you may not even have the money, which will only make the problem worse. However, if you have money in another account, make sure you transfer it immediately to avoid this fee.
How to avoid this fee: Monitor your accounts and set alerts. Knowing your balances and budget can help you have cash on hand for situations like these.
During this time, you can make purchases on your credit card and spend cash to quickly bring your account balance to a positive, buying you time until your statement balance is due. Be sure to pay off your credit card debt so you don’t get charged interest.
6. Insufficient Funds Fee
A non-sufficient funds fee (NSF), also known as a non-sufficient funds fee, is charged when your checking account does not have enough money to pay for a transaction. An NSF fee differs from an overdraft in that your balance does not go negative and the transaction is declined.
Though they’ve seen a decrease over the past year, NSF fees can be costly, averaging $17.72, according to Bankrate’s 2024 Checking Account Survey. Only 6% of banks charge neither overdraft fees nor NSF fees.
How to avoid this fee: As well as avoiding overdraft fees, it’s important to check your account balances regularly, especially before making any large purchases. If you use a mobile banking app, consider setting up low balance alerts. It’s also important to keep track of any payments that are automatically taken from your account so you know when they’re due.
Many banks that don’t charge overdraft fees also don’t charge NSF fees, so consider switching accounts to completely eliminate the possibility of incurring this fee.
7. Excessive Withdrawal Fees
Savings and money market accounts are often limited to six withdrawals per month. This limit was put in place by Regulation D, a previous federal regulation that required banks to cap withdrawals from non-transaction accounts. Although this regulation has been repealed, most banks maintain the limits on savings and money market accounts.
Many banks will penalize you if you go over that limit by charging steep withdrawal fees, while others will close your account or move it to a non-interest-bearing account.
According to a Bankrate study, excessive withdrawal fees often range from around $2 to $15.
How to avoid this fee: Keep track of how many times you withdraw money from your savings account each month. Try to use your savings or money market accounts as infrequently as possible so that you have funds set aside for emergencies or specific purposes.
This limit doesn’t apply to ATM withdrawals or teller visits, so if you’re approaching your monthly limit, make sure to withdraw money in these ways. If you frequently need to transfer funds from your savings account to your checking account, keep more room in your checking account and less room in your savings account.
8. Paper Statements
Many banks currently charge a fee for paper statements, which can make it costly to receive your statements in the mail. Some banks may waive the fee for higher-ranking accounts. There are usually no fees for electronic statements.
| bank | Paper statement fee |
|---|---|
| Bank of America | $0 |
| JPMorgan Chase | $0 |
| PNC Bank | 3 dollars |
| Truist | $0 |
| Viobank | 5 dollars |
How to avoid this fee: Sign up for paperless e-statements when you open an account or log in to a new account for the first time. Check online or with your bank to see if there are any monthly fees for paper statements.
9. Transfer Fees
Banks typically charge a fee for official bank checks and wire transfers, and in some cases, banks may even penalize you for receiving funds via wire transfer, so it’s important to know if your account is subject to this fee.
According to Bankrate, the average domestic transfer fee is about $26, while the average international transfer fee is about $44.
How to avoid this fee: Wire transfers are often used when you need to send money somewhere quickly. Planning ahead can help avoid this process. Also, see if your bank offers free wire transfers or other payment options, like Zelle, so you can send money to someone quickly. Services like Venmo can also help you reimburse others for small purchases.
Some banks may offer the option to send money via Automated Clearing House (ACH). Make sure there are no fees and no limits on the amount you can send.
10. ATM Withdrawal Fees
ATM fees can add up quickly. According to Bankrate’s 2024 Checking Account and ATM Fees Study, the total cost to withdraw cash from an out-of-network ATM averaged $4.77, up slightly from the previous year. The average ATM fee was $3.19, while the average fee when using another bank’s ATM was $1.58.
How to avoid this fee: Many banks have large ATM networks or will waive ATM fees if you use another bank’s ATM machine. Look for a bank that doesn’t charge ATM fees for the ATM machines that work for you. Other ways to avoid ATM fees include:
- Earn cash back when you check out at grocery stores and other retailers.
- If you need to use cash, use a digital payment app like Zelle or Venmo.
- Only use ATMs within your bank’s network. Many banks, including online banks, have partnerships with large ATM networks. You can find a list of ATMs near you on your bank’s website or mobile app.
11. Dormancy Fee
Dormancy fees (also known as inactivity fees) are charged when there is no activity on an account for a certain period of time. After a certain period of time, which varies by state, banks must forfeit funds in an inactive account, meaning they must turn the funds over to the state. Dormancy fees are in place to discourage this from happening by encouraging customers to keep their accounts active.
Not all banks charge a dormant account fee; for those that do, the fee ranges from $5 to $20, and the period before the fee is charged is usually anywhere from a few months to a year.
How to avoid this fee: Don’t open more accounts than you can manage. Having multiple accounts can be convenient, such as for storing separate savings funds, but it’s important that each account has a purpose and that you make regular transactions in each account.
“Financial institutions charge fees for maintaining accounts, especially those with low balances, and often impose dormancy or inactivity fees to encourage people to use or close their accounts. You can avoid these fees by occasionally transferring funds, such as accumulated interest, into your account, withdrawing money from your account, or even doing something as simple as taking the time to close your account altogether.”
— Greg McBride, CFAChief Financial Analyst, Bankrate
What to look out for in your bank account
An important way to avoid bank fees is to keep track of your checking account balance to avoid overspending or overcharging your account. It also helps you maintain the minimum balance required to avoid monthly service fees.
“Putting a little thought into what you’re doing up front and understanding the rules for your account can save you a lot of money and frustration,” says Pathfinder Planning’s Horack.
Ultimately, it pays to find a bank with an account that pays a high yield without charging fees that eat into your balance. Online banks are often a good option, as they often offer high yields without charging account fees.
—Bankrate writer Marcos Cabello contributed to an updated version of this article. Former Bankrate writer Renée Bennett contributed to an updated version of this story.
