How Your Savings Account Is Ripping You Off

Banks are raising fees on accounts that used to be free.

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Savings accounts were created as a way of helping bank customers put money away for a particular purpose. These accounts used to be low-balance requirement, no-fee, high-interest bearing savings vehicles. It appears that banks have forgotten this and are now trying to use savings accounts as a way of taking customers’ money. Commercial banks are often the worst offenders.

[In Pictures: 8 Painless Ways to Save Money.]

Here are three ways that commercial banks are keeping your savings from growing.

Low Interest Rates

Most investors will not place their money without an expectation of a solid return on their funds. Real estate investors expect to earn profits from increased equity on their investment. Stock investors expect capital appreciation from their equity investment. Bond investors expect generous dividend payments for their investment. The only place that investors will place money and expect virtually no return is in a savings account.

Savings accounts at the big banks are the worst. Most commercial bank savings accounts are paying 0.10 percent interest. This is virtually nothing for your hard earned dollars. If you put $10,000 in the bank, you would earn $10 dollars for the entire year using simple interest.

You can get a better return using high yield savings or credit union savings accounts. Your best bet however may be to put the money in a higher yielding CD. Put the same $10,000 in a 1 year CD earning 1.5 percent interest and you could earn $150 bucks. It won’t make you rich buy the extra $140 could buy you a new smartphone.

High Monthly Fees

More and more savings accounts are instituting monthly fees as a way of generating additional fee income. Savings accounts are imposing fees for not maintaining the account minimum. For example, Bank of America requires a $300 account minimum to open a savings account. If a customer’s account falls below $300 for just 1 day during the month, they are charged a $5 monthly maintenance fee.

How long do you think it would take a customer to earn back the $5 dollars lost? It would take a customer 16 years just to earn $5 in interest on a balance of $300 using simple interest.

But that’s not all! Banks are introducing new withdrawal fees as well. Federal law allows you to six withdrawals per month from your savings account. But banks have come up with a better plan. They are now charging customers a $3 fee for taking more than three withdrawals in a month. The law may allow you six but banks have determined that it’s more profitable to lower that limit and charge you fees.

[Visit the US News Personal Finance site for more insight and money management tips.]

Loss Of Accrued Interest

It doesn’t make a huge amount of difference if your account compounds interest daily or monthly. The important thing is that interest is accrued. Unfortunately, banks are now including stipulations that can stop your account from accruing interest. If your account balance falls below the minimum balance requirement, your account will not earn any interest the entire month.

Let’s say you have a savings account that requires a minimum balance of $2,500. You mistakenly allow your account balance drop to $2,495. The $5 dollar difference will keep you from earning any interest until your balance is back to $2,500. You will also get hit with a monthly fee as well. That’s a pretty harsh penalty for being a few bucks short.

If you find that your bank is using any of these practices, it may be time to start shopping around for a new savings account.

Pinyo is the owner of Moolanomy Personal Finance Blog, which covers a wide range of personal finance and investing topics, with features that include reviews, comparison guides, and Q&A sections.