The Banks Get Rich Off YOUR Sloppy Habits

A popular maxim spread about today goes something along the lines of "the banks are ripping us off." I'm going to take issue with this statement, but not because I'm defending any banks. I'm just pointing the finger at lazy consumers who pay needless fees to the banks and then complain about how their getting ripped off.

There have been more and more stories lately of the biggest banks being fined billions due to shady behavior from manipulating asset prices to setting up fake accounts in order to earn bigger commissions/bonuses and so fourth. We already know that the biggest banks along with the Fed are inherently crooked, but there isn't enough focus on consumer behavior. There are things we can't change about the current banking system, but there are certainly things we CAN change which will help to avoid fees.

Collectively Sloppy Banking Habits Are a Multi-Billion Dollar Industry

The three biggest US banks, JP Morgan Chase, Bank of America, and Wells Fargo earned over six billion dollars in ATM and overdraft fees during 2015. Here's the thing though... it all could have been avoided! Now of course there are of course emergency situations where it might be necessary to get your hands on some cash as quick as possible, and paying an ATM for a one-time emergency would be fine in the long run but clearly he numbers above tell a different story. There aren't that many emergency cash situations going on, there is an abundance of sloppy habits with bank customers.

So How Can These Fees Be Avoided?

The old brick and mortar bank was bound to be disrupted eventually, and one of those disruptors was the concept of fully online banking. Online banks operate in basically the same manner as a traditional bank. They offer checking accounts, savings accounts, mortgage loans, and lines of credit. The main difference being that there are no brick and mortar locations for online banks. So you forfeit the experience of having an interaction with a human being from the bank. There will always be some people whose subjective preference for face to face experiences are so high that they will never give up on their old bank down the street, but the majority of people could be paying basically no fees for any of their banking transactions.

Online banks have advantages over traditional banks, including zero fees in most cases. Since there are no physical branches, the savings from not operating any branches are passed onto you the customer. Another advantage is considerably higher rates of interest on savings accounts. In an era of low interest rates, traditional banks offer a meager rate of interest when compared to only a few years ago in 2007 when you could easily find 6% interest at a number of banks. Below is a comparison of a Chase savings account compared to the online Synchrony Bank.

Chase basic Savings Account Rates- 0.01% APY
$1000 deposit grows to $1000.10 after one year.

Synchrony High Yield Savings Account-1.05% APY
$1000 deposit grows to $1010.50 after one year.

You read that right, if you give Chase $1000 for their basic savings account, you will end up with a whopping ten cents in interest after a year! Don't forget that you are required to pay taxes on that hefty sum of interest you earned. It goes without saying that even modest inflation estimates would mean that the Chase savings account is a guaranteed loss in real terms(aka inflation adjusted).

Now let's compare CD accounts, which means that the money is locked up for a certain period of time in exchange for a slightly higher interest rate.

Chase 12-month CD-0.02%
$1000 deposit grows to $1000.20 after one year

Chase 24-month CD-0.15%(for deposits under 10K)
$1000 deposit grows to $1003

Synchrony 12-month CD-1.25%
$1000 deposit grows to $1025.30 in one year.

Synchrony 24-month CD-1.45%
$1000 grows to $1029.41 in two years.

While Synchrony's rates are nothing stellar when compared to the pre-2007 crash era, the rates clearly trounce Chase's meager rate. There are still ways to get fee-free checking with traditional banks, but they usually require direct deposit or account minimums, which are things usually never required with online banks. Another common feature that online banks have is interest-bearing checking accounts, which are hard to find in traditional banks. Even these rates are usually between 20 to 50 basis points, it is still better to have your money earning some kind of interest in a checking account rather than sitting idle.

Online banks also have varied ATM networks with many different options depending on the bank. Some allow a certain number of ATM uses from other banks and some even refund any ATM fee you pay at a different bank.

Conclusion
There is simply no excuse for continuing to pay any fees to your bank anymore. Switching to an online bank is the best way to reduce your fees. If not that, at least look into a local credit union which can sometimes have lower fees. You are also voting with your dollars, which means you won't be supporting the big banks anymore. A more comprehensive review of the best online banks in the US can be found below.
https://www.nerdwallet.com/blog/banking/nerdwallets-top-online-checking-accounts/
http://www.thesimpledollar.com/best-high-interest-savings-accounts/

*This post is not intended to be financial advice and is for informational purposes only.

References:
http://time.com/money/4182413/atm-overdraft-fees-big-banks/
https://www.chase.com/savings/savings-account-rates
https://www.chase.com/savings/bank-cd-rates.98230.html
https://www.synchronybank.com/banking/products/cd/
https://www.synchronybank.com/banking/products/high-yield-saving/?UISCode=0000000
http://business.time.com/2012/11/16/can-a-payday-lending-start-up-use-facebook-to-create-a-modern-community-bank/
http://www.clark.com/look-online-banks
http://www.headstuff.org/2016/02/25593-the-big-short/