Even a Small Leak Can Empty Your Money Bucket Quickly

Small bits of money can add up over time and become significant chunks of cash. This is a big benefit when it's small bits that we save, but hurts when it's small bits that we spend. This piece from Marketwatch demonstrates how these little bits can add up.

For instance, take the small costs associated with using cash machines that aren't a part of your bank's network:

The Fall 2005 Checking Study released last week by Bankrate.com showed that the cost for using the "wrong" bank machine has reached an all-time record, with the average total fee now standing at $2.91.

That figure covers the $1.54 average fee assessed by the banks that own the ATM you are using, and the $1.37 average fee that banks charge customers who use a foreign ATM (and almost 70% of banks now charge customers this secondary charge).

Bankrate.com estimates that consumers will pay more than $4.3 billion in fees this year, just for withdrawing their own money in a way that most people justify as "more convenient."

Are you kidding me???????!!!! $4.3 billion???!!!!!! Ouch!!! See, small amounts can really add up.

But many people only look at the per transaction amount and don't see it as that significant. Instead, they should be looking at the total expense over time. Here's the situation:

So it's not "only a buck." Two trips to a foreign ATM per week, and it's about $300 bucks over a year. In a home earning the nation's median household income, that's more than one half of one percent of all the money brought in for a year.

It really does add up. In fact, it adds up to a pretty big number. But that's not all, there are other bank fees that cost you a lot by taking a bit here and a bit there. For instance:

Beyond rising fees, it's clear many consumers simply are unaware of what is happening in their own accounts. Fee-change notices tend to arrive from banks attached to statements, and most people hardly pay attention to their bank statement, let alone balancing their checkbook to reconcile all of those little fees and see just how quickly they add up.

Yes, it's certainly worth it to pay attention to these fees -- and other recurring small charges that eat away at your income. Though they seem insignificant on a per transaction basis, over time they have a significant, negative impact on your ability to accumulate wealth. Watch out and guard against them -- don't let them be a drag to your net worth.

Comments

[Kyle Welsh]

Great info for those who don't realize how far a bank typically reaches into their customers' pockets. I urge everyone to look at credit unions - there are many out there that offer just as many products and services as banks - the difference is that they don't gouge you along the way!

[Joshua K]

I used to spend a fortune on bank fees just for convenience. I had the money, so I didn't care...or so I thought. Recently, I was cornered in a situation where I needed some cash. (hospital parking). The foreign ATM charged me $1.75 and I know my bank will charge me $2.00. I'd been pretty good, and fortunately this was probably the first time I'd had to do it in about 6 months. I usually carry cash, and I recognize this instance of poor planning cost me $3.75, more than what I normally spend on lunch!

Most "convenience" stores now use debit cards and will offer up to $10 cash back. Even if you have to buy a pack of gum ($0.49 to $0.79) when you don't want anything (I admit, I usually go for the $0.99 bottle of Ozarka, and we know how expensive that is), it's still a fraction of what the banks will charge you.

It is ridiculous-I am not an American but I find some habits of this society quite crazy-especially the idea of 'convenience'!

[Todd Derscheid]

When we set up a savings account with our credit union, we were given an ATM card. We didn't use it for almost two years, after diligently depositing home improvement money into it, and occasionally withdrawing money during regular hours from a teller.

On the statement after the ATM use, we discovered a $3 ATM "convenience charge."

I called them, got it credited back, and cut up the card. Again, this was using the credit union's ATM, about 30 feet away from the teller's window that had received my deposits originally.

[Rich]

I finally got fed up being charged $3.75 for using the wrong ATM. I switched from Bank of America to a small regional bank. The new bank doesn't charge for ATM usage and they refund up to 4 service charges a month if you use another bank's ATM. That adds up to $180 a year, or $360 if you include my wife's transactions! Look around, lots of small banks are doing this.

[tolak]

The problem is larger than fees. Why do people make so many spontaneous withdrawals? It comes down to lack of budgeting and spending discipline. They find themselves on the street feeling like grabbing a bite or picking up some useless item, and then finding the next ATM around to quickly satisfy the need with disregard to fees.

A person keeping a budget knows where and when they spend and keeps adequate cash on hand, minimizing and controlling withdrawals. Like other financial traps, convenience encourages frequent transactions and associated costs.

[sandy]

This is the same in cooking energy.
Not using the oven and high heat can save thousands.
Switch to energy efficient cookware - it's almost like going solar!
Almost. 50-70% savings on energy every day isn't bad though.

Question: Our builder said the reason they don't offer Solar energy is that they are waiting for the bigger builders to offer it.

I said."Why not give us the option? Building a house is like entering 'might-as-wll-hell' anyway.
At least solar investments will pay us eventually.
We have to shift out though process and start saying, 'why not' instead of 'why should we.'

[Param]

An interesting twist on ATM fees...
I had to get a minor dent in my car fixed. Took it to an auto body shop. He said if I want the paperwork done (including a receipt), it will cost $36 (minimum charge). However, if I can pay CASH (sorry, no card - coz that would need paperwork), they'll take $20.
Unfortunately I didn't have $20 in my wallet so the guy suggested an ATM next store. It was a store owned ATM, so I paid $2 to them & $1.50 to my bank - the first time in my life I paid ATM fees & felt silly.
In retrospection, it looked like an under-the-table deal to me... but I did save $16 by paying $3.50 in ATM fees. Did that make financial sense???

[AnnieB]

Have you ever thought of asking your bank to waive your ATM fees from them, period? We use a major bank which has plenty of ATMs in our area, but are snowbirding to an area which doesn't have this bank. I complained to the bank, and they tried to get us to change our type of account, a major pain. But I persisted in complaining at the local bank. Low and behold, someone let us off the hook. We no longer pay ANY charges on their side. We just choose the cheapest local ATM and pay their side, usually $1.50.

[Ellen]

This point is illustrated perfectly in the movie Office Space, where they attempt to take the company for fractions of pennies. Every cent matters.

If you really can't get to an ATM from your own bank, shop somewhere that offers you cash back with your purchase. That way you actually get something with the bit extra you are paying, and maybe you even need that item.

[Ed Denehy]

Our bank has several convenient ATM's within a few miles of our house and many more of them within a 50 mile radius. They do not charge a fee to withdraw cash from our free checking or savings accounts. With a little planning, I don't need any other ATM's when we are home. When traveling, I use credit cards for almost all transactions (we never carry a balance). If I need cash, I bring it along or bring along travelers checks that I get at the AAA office before we go (they don't charge fees for them with a membership). I only pay an ATM fee when we travel abroad, as that is the cheapest way to get local money. I still use credit cards abroad as much as possible, using cash only when credit cards are not accepted. You would be surprised how little you can charge on a credit card in a foreign country. A few weeks ago, we charged 1 Euro at a highway toll booth in Italy.

[Afford Anything]

Look for a bank that will reimburse you for any ATM fees you have to pay. Schwab does this, and there might be others as well.