Most people don’t spend much time thinking about how banks make their money. We deposit our paychecks, pay bills, use our debit cards, and expect our accounts to work without thinking much about it.
But banks earn money in several ways that customers may not notice right away. Monthly account charges, ATM fees, credit card interest, and low savings rates can chip away at your finances over time. Many of these costs are listed in the account terms, but they’re easy to overlook until you see them on a statement.
Knowing what banks charge for can help you avoid unnecessary expenses and keep more of your money.
Hidden Fees That Slowly Drain Your Account
Bank fees are easy to overlook because many of them are relatively small. Monthly maintenance charges, out-of-network ATM fees, paper statement charges, and other service costs may not seem like much at first.
Those amounts can add up month after month. A few out-of-network ATM withdrawals or a recurring account fee could cost you quite a bit over a year.
How to stop it:
Review your bank statements regularly and ask whether you can waive any current fees. Compare accounts from different banks, and look for options with no monthly maintenance charges or ATM fees.
Related: 8 Foods Food Banks Usually Can’t Accept
Your Savings Earn Less Than Your Bank Does
When you put money into a savings account, your bank pays you interest for keeping your funds there. The bank can then lend that money to borrowers at higher interest rates and profit from the difference.
This gap between what banks pay depositors and what they collect from borrowers is one of their main sources of income. If your savings account pays very little interest, your money may be earning far less than it could elsewhere.
How to stop it:
Compare interest rates at different banks and look into high-yield savings accounts. For money you won’t need for several years, you could also consider investment options, keeping in mind that investments carry a risk of loss.
Credit Card Interest Can Keep You Paying for Years
Credit cards make everyday purchases convenient, but carrying a balance can become expensive. With high interest rates, a purchase that seemed affordable at the time can cost much more if you take months or years to pay it off.
Making only the minimum payment can keep you in debt for a long time because much of each payment may go toward interest rather than reducing what you owe.
I’ve been using the Capital One Venture X, and it’s easily one of my favorite travel cards right now. If you apply through my referral link and get approved, you can earn up to 75,000 bonus miles plus travel perks like a $300 annual credit.
How to stop it:
Pay your credit card balance in full each month whenever possible to avoid interest on purchases. If you already have several balances, focus on paying down the one with the highest interest rate while making at least the minimum payments on the others.
Related: 14 Things to Avoid Charging to a Credit Card
Overdraft Fees Can Pile Up Quickly
An overlooked automatic payment or a small balance-check mistake can leave you with less money than expected. If a transaction pushes your account below zero, your bank may charge an overdraft fee, which can be $30 or more depending on the bank.
Several transactions processed before you notice the problem can lead to multiple charges in a short period. A small balance mistake can turn into a much larger expense.
How to stop it:
Set up low-balance alerts so you know when your checking account is running low. You can also link a backup savings account or opt out of overdraft coverage if that works better for your needs.
“Free” Checking Isn’t Always Free
Some banks advertise free checking accounts, but the offer may come with conditions. You might need to maintain a minimum balance, receive regular direct deposits, or meet other requirements to avoid monthly charges.
If you miss one of those conditions, the bank may begin charging fees. Review the account details before signing up to avoid an unpleasant surprise later.
Related: 14 Things You Should Never Purchase on a Credit Card
How to stop it:
Read the account terms and check what requirements apply before opening a new account. Compare banks that offer checking accounts without minimum-balance requirements or monthly maintenance fees.
Capital One Shopping makes it easy to save with automatic discounts and rewards at thousands of retailers. Sign up through my link to get an $80 bonus, no purchase required.
Everyday Banking Services Can Cost More Than Expected
Some banking services come with charges that customers don’t think about until they need them. Wire transfers, cashier’s checks, foreign currency exchanges, and certain account transfers may all carry additional fees.
If you use these services often, the costs can add up. A transaction that seems inexpensive on its own may become a recurring expense.
How to stop it:
Check your bank’s fee schedule before requesting a service. If you regularly send money or need cashier’s checks, compare banks that charge less or include certain services at no extra cost.
Credit and Loan Offers Can Lead to Costly Debt
Banks regularly send customers offers for personal loans, credit cards, and lines of credit. These products can help cover expenses or manage cash flow, but borrowing money means taking on interest and possibly other fees.
A high-interest loan can cost much more than the amount you originally borrowed. Long repayment periods may also leave you making monthly for years.
How to stop it:
Borrow only what you need and compare interest rates, fees, and repayment terms from several lenders. Before accepting an offer, calculate your total cost and make sure the monthly payments fit your budget.
Low Interest Can Cost You Purchasing Power
A savings account is a good place to keep emergency money, but the interest rate matters. If your account earns less than inflation, your balance may grow while its purchasing power declines.
That means the same amount of money may buy fewer groceries, household supplies, or other necessities in the future. Leaving all your savings in a low-interest account for years can make that loss harder to keep up with.
How to stop it:
Keep emergency savings somewhere safe and easy to access, but compare rates to find an account that pays more interest. For money you won’t need for several years, consider other savings or investment options that fit your comfort with risk.
Paying Just to Keep an Account Open
Some banks charge a monthly maintenance fee just to keep certain accounts open. A few dollars may seem harmless, but it can add up to hundreds over several years.
Many customers keep paying because they’ve had the same account for a long time and haven’t checked what other banks offer. You may be able to get similar banking services without the recurring expense.
How to stop it:
Review your accounts once a year and ask your bank whether you qualify for a fee waiver. If the charges continue, compare other banks that offer similar accounts without monthly fees.
How Banks Earn Money Overall
Banks make money from several sources, including interest on loans, credit card balances, account fees, overdraft charges, and other financial services. They also earn money from the difference between the interest they pay depositors and the interest they collect from borrowers.
These business practices are part of how banks operate, but customers don’t have to accept every fee or settle for every account rate. Knowing how banks earn money makes it easier to spot charges that may be costing you more than necessary.
