If You're a Bad Bank Customer, That's Good

It's part of our national pastime to bash banks these days, but there's good reason for it. Besides the global financial destruction caused by banks, banks charge lots of fees. Those fees are good for the bank, but not so good for you. Every dollar you pay in banking fees is a dollar you can't save for retirement.

Banking fees are sneaky. They come in the form of ATM fees, overdraft protection fees, bounced check fees, minimum account balance fees, credit card interest charges and low or no interest payments on your account balances.

If you're lazy about your banking practices, you could easily spend $1,000 a year in bank fees. Here are a couple of quick examples:

• ATM Fees. If you pay $3 a week in ATM fees, that will cost you $156 a year.
• Overdraft Protection. If you can't balance your checkbook and tap your overdraft protection a few times a year, you could easily spend another $150 a year.
• Minimum Account Fees. If you don't pay attention to your minimumaccount requirements, and dip below the minimum several times at say $20 a month, it could cost another $100 a year.
• Credit Card Interest. If you carry a bank credit card balance of $5,000 at 15 percent, that costs you $750 a year in interest.
• Low or No Interest. If you keep an extra $10,000 in your bank account at no or low interest, that is costing you money. If you use more competitive cash management products from low cost brokerage firms, you could probably earn at least 1 percent more on those deposits. At $10,000, that's another $100 a year.

Instead of spending money on banking fees, what could that extra $1,000 mean if you tossed it into your 401(k) plan? Well, assume you're 40 years old and save the $1,000 each year. After 25 years at a 7.5 percent return, you'd have an extra $73,000 in your retirement plan.

So basically you took a $1,000 banking expense and turned it into a $73,000 retirement asset. Not bad for just paying attention to how you're using the bank.

Bottom line: Try your best to become a bad bank customer by avoiding fee generating bank services. Then take the savings and contribute it to your retirement plan.

ATM photo on Flickr courtesy of Michael Lehet, CC 2.0

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