In the last year, new Federal Reserve Board rules have reined in the ability of banks and other financial institutions to impose charges and fees for some of their services. Issuers of credit cards generally cannot increase the interest rate on a card for one year after the account is opened. Consumers will no longer be charged a fee when a transaction causes an account to exceed its credit limit, unless the consumer has agreed in advance. For “subprime” cards, held by those with a limited or bad credit history, the total initial fees cannot exceed 25% of the card’s initial credit limit, with the exception of fees for late payments, for exceeding the credit limit, or for returned payments due to insufficient funds.
With these and other tightened regulations, it is predictable that financial institutions will gravitate toward other means of enhancing revenues through new or increased fees, and with new or more demanding requirements placed on consumers. In such a climate, consumers are well advised to brush up on some strategies for minimizing the financial hits from the institutions:
* If your bank decides to add or raise a minimum balance requirement for your account, consider whether you would do just as well with a “no frills” account that would have no such requirement, and likely no maintenance fee. The tradeoff may be a monthly limit on the number of checks that you can write, or on the number of ATM or debit-card transactions.
* The return from interest-bearing accounts today is barely an improvement on keeping your money under the mattress. It might be smarter to use a free account that pays no or very little interest, instead of an account that pays a slightly higher interest rate but also comes with a monthly fee. The monthly fee could well be greater than the meager return on the interest-bearing account.
* It is not exactly riveting reading material for most people, but make yourself promptly check your accounts online or check your paper account statements for errors, or for fees or account changes you may not have been expecting. In the same vein, monitoring the activity on your debit or ATM card will help you promptly report a problem if the card is lost or stolen, thereby limiting your liability.
* Many banks offer a free “alert service,” meaning that the bank will send you an e-mail or text message notifying you when there has been a significant transaction on your account or if your balance drops below a certain threshold. Such a “heads up” could allow you to shift funds among your accounts to avoid overdrawing an account.
* If overdrawing an account is a recurring event, consider changing from overdraft coverage to cheaper alternatives, such as linking a savings account to a checking account, arranging for an overdraft line of credit, or, for a short-term shortage of cash, applying for a small loan.
* ATM fees may not be crippling, but they can add up. Try to stick mainly with your own institution’s ATMs, where there generally is no charge. If your bank allows getting some cash back on a debit-card transaction at no charge, that is an alternative to an ATM for getting small amounts of cash.