How to Avoid Spending Hundreds on Your Checking Account

It’s no secret that checking and savings accounts won’t provide much of a return these days given how low the Federal Reserve is keeping interest rates, but you might not know that a bank account could wind up costing you as much as $750 per year.

A recently released study from WalletHub examined the fees associated with checking accounts from 25 of the largest consumer-facing banks in the U.S. to determine how much they would cost when used by five distinct types of consumers (more on them in a bit).  It revealed that the way in which one uses a checking account, particularly in regard to minimum balance requirements and account overdrafts, can result in overall cost fluctuations into the hundreds of dollars.  The study also found that price of different checking accounts can vary by as much as 350% under the same exact usage patterns.

That is clearly valuable information for entrepreneurs given how varied our financial needs can be as well as how drastically they change during the life cycle of our ventures.  The best checking account for someone in the garage phase is obviously going to be different than the best account for someone who is preparing for an IPO, after all. 

What’s more, most entrepreneurs are, for all intents-and-practical-purposes, their companies.  In other words, the money that you spend on your personal life likely has a direct impact on your company’s finances, and vice versa.  It’s therefore important that you choose both your personal checking account and your business checking account with care.

The Best & Worst Bank Accounts for Different Types of Use

You can use the following list as a starting point in your search for the right checking account, as it lays out WalletHub’s picks for the best accounts for five distinct types of consumers as well as the usage criteria that serves as the basis for these selections.

• Old-School:  Traditional bank account user who eschews modern account management tools, often does business at a brick-and-mortar branch, uses a credit card (rather than a debit card) for most purchases, and prefers paper statements.
  • Best Account:  A basic checking account from either Union Bank or USAA Federal can be free for old-school consumers.
• Young & High Tech:  Modern consumer who uses mobile banking tools, sometimes prioritizes convenience over paying ATM fees, and has limited funds.
  • Best Account:  The basic checking accounts from PNC, Sovereign Bank, and USAA Federal can be free to use.
• Cash-Strapped:  Someone who uses a checking account to manage monthly cash flow, leveraging account overdraft protection to make ends meet when funds are low.

   

  • Best Account:  USAA Federal’s basic checking account would cost around $170 per year under this scenario, which is 67% less than what the average checking account would run this type of consumer.

     

• Average Joe:  Your run-of-the-mill consumer who uses a checking account for its traditional bill payment, direct deposit, and cash-access features, while usually maintaining an account balance above $0.
  • Best Account:  USAA Federal’s basic checking account would cost just under $90 per year for this type of consumer – 46% less than the average account.

• International & On-the-Go:  Has family overseas and wires money to them and/or visits on a regular basis.  This person also uses direct deposit and online bill pay.

   

  • Best Account:  USAA Federal’s basic checking account would cost nearly $220 per year for this type of consumer, but that’s still 33% less than the average account. 

Tips for Picking the Right Checking Account

WalletHub’s most-and-least expensive list is a good place to start your search for a checking account, but it’s fair to expect that you’ll want to do a bit of product comparison of your own, especially considering just how many checking accounts are on the market as well as how often these offers change.  You should therefore keep the following in mind during the course of your research.

1. Cast a Wide Net & Think Practically:  You don’t want preconceived notions to overly-influence your search, but you do want to determine which fees and features will prove most important under your expected usage so that you can prioritize.  This will enable you to rule out certain offers immediately and then help you ignore inconsequential account terms when comparing the offers that survive the initial cut.

    

2. Don’t Worry About Rewards:  While the Federal Reserve’s cap on debit card swipe fees has recently been called into question, it has the potential to cost banks $8.4 billion in annual revenue if ultimately upheld in court.  In order to compensate, many banks have curtailed their debit card rewards programs.  That means prioritizing checking account rewards will drastically reduce your selection and may even result in you paying higher-than-necessary fees.  There’s really no reason to go down that road either, as you can simply use a credit card to make purchases and earn rewards that way.

3. Read the Fine Print:  Financial institutions and regulators have recently done a lot of work to improve account disclosures, but we all know how dense and confusing they still can be.  After all, the average checking account charges 30 different fees and account term transparency varies widely by issuer, according to the 2013 Checking Account Transparency Report.  In order to avoid any surprise costs or unwelcome usage restrictions, it’s a good idea to just bite the bullet and carefully parse the fine print before signing up. 

While this might seem like a lot of work, it should ultimately prove worthwhile given how often we use our checking accounts these days and the uncertain outlook for our economy.

Odysseas Papadimitriou is an entrepreneur and the founder of the personal finance websites CardHub & WalletHub