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5 of the Costliest Banking Mistakes

Motley Fool - Fri Nov 24, 2023

A stressed person looking through papers and sitting in front of a laptop at a kitchen counter.

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Bank accounts are the best place to keep your money safe. While investment accounts make sense for long-term financial goals, the value of investments can fluctuate. For money you don't want to risk, bank accounts are the way to go.

Banking should never cost you any money, but it can if you're not careful. Here are five of the most common and expensive banking mistakes, so you know what not to do.

1. Settling for a low interest rate

Interest rates on savings accounts are through the roof right now. But you need to know where to look, and it's not at the big banks with branches everywhere. They offer some of the lowest rates. Bank of America and Chase have savings accounts with APYs that start at 0.01%, and Wells Fargo savings rates start at 0.15% to 0.25%.

High-yield savings accounts are currently offering APYs of 4% or higher, and some even offer more than 5%. If you have $10,000 in savings, choosing the right savings account can be the difference between earning $1 in interest per year and earning $400 or $500.

Savings account rates can fluctuate. If you'd like to lock in a high interest rate, you can do that with a certificate of deposit (CD). CDs are currently offering rates similar to or even a bit higher than high-yield savings accounts.

RELATED:Best CD Rates

2. Paying a monthly fee

Many banks charge a monthly maintenance fee, with fee amounts often ranging from about $5 to $15. That adds up to between $60 and $180 per year. Normally, a bank will waive the fee if you meet certain requirements, such as maintaining a minimum balance or receiving a minimum number of direct deposits.

It only makes sense to have an account like this if you can always meet the requirements to get the fee waived. If not, choose a bank account that doesn't charge any monthly fees. There are plenty of banks offering excellent checking accounts and savings accounts with no fees.

3. Overdrafting your account

Overdraft fees have been declining, and many banks have gotten rid of them. But they're not completely gone, and the average overdraft fee amounts to $26.61, according to Statista.

If you've been charged overdraft fees before, you may want to pick a bank that doesn't charge them. It's also smart to take steps to avoid overdrafting your account. Leave a buffer in your account so it has more than enough to pay your bills, and keep an eye on the balance. Budgeting apps are an easy way to manage all your accounts in one place.

4. Not reviewing your statement

While it may not be the most exciting thing in the world, reviewing your banking transactions is a must. You can do this monthly when you receive your statement or review transactions regularly in your online banking account.

By doing this, you can catch any errors or fraud quickly. Hopefully, you don't run into these too often, if at all. But if it happens to you, time is of the essence.

For example, with fraudulent debit card transactions, your liability depends on how soon you report it. If you report the fraud within two business days, then by law, you're liable for a maximum of $50. If you report it within 60 calendar days of receiving your statement, you're legally liable for up to $500. Wait any longer than that, and you could be liable for the full amount of the fraudulent transaction.

5. Paying for purchases with your debit card

A debit card usually isn't the best way to pay for purchases. You're much better off paying by credit card, for a couple of reasons:

  • You can userewards credit cards to earn cash back or points on your purchases. It's possible to earn 1% to 6% or more back with credit cards. Most debit cards don't earn rewards. And the ones that do typically earn far less than what credit cards offer.
  • You're less likely to be a victim of debit cardfraud. Card data can get stolen online by hackers and in person with skimming devices. If someone gets your debit card info, they could potentially steal money from your bank account, and you'll need to file a fraud report. It's not as problematic if your credit card number gets stolen, because it's not connected to your bank account.
  • Manytop credit cards offer complimentary protections. You can get benefits including purchase protection that covers new purchases against damage or theft, extended warranty protection, and much more.

The good news is that all these banking mistakes are easy to avoid. Now that you know about them, you can make sure they don't cost you any money.

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