Banks Play Hardball, Even With Richest Customers

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Last week, Bank of New York (BK) told its richest clients that they would have to start ponying up if they wanted the bank to babysit their money.

Granted, the annual fee -- which starts at 0.13% -- isn't likely to cause these customers to bounce checks: It applies to anyone who has deposited more than $50 million in their accounts since the end of last month. Still, it's a sign of the times, and one that's affecting everyone, including those who don't keep a seven-digit balance in their checking accounts.

No More Mr. Nice Guy Banker

It's hard enough to make a buck when times are good. In this lousy economy, it's even more important to keep your eyes on your money -- and to make sure nobody's trying to take it out from under you.

Banks lost billions during the financial crisis and now face new regulations reining in some of their profitable businesses. So they're scurrying to replace lost revenue, and you -- the customer -- are the key part of their money-making strategy. But you also have the power to stop them.

4 Ways to Keep Banks From Dipping Into Your Balances

No matter what the ads say, banks aren't on your side. They sell a useful service, but it's up to you to make sure you don't pay more than you have to for it. Here are four ways banks take your money, and what you can do to hold onto more of your hard-earned cash.

1. Crazy-high credit card interest rates.
One of the most lucrative businesses on Wall Street is trapping customers with credit card debt. As long as you can pay off your balances at the end of each month, then credit cards are convenient and inexpensive. But once you start carrying a balance, the interest charges come fast and furious.

According to CreditCards.com, the average interest rate on a typical credit card was close to 15% last week. If you have less than stellar credit, be prepared to pay even more -- almost 25% at last check. Compare that with the 0.1% you might be fortunate enough to get from your checking account, and you can see why you can't afford credit card debt.

How to protect yourself: The solution is simple: Don't start carrying a balance if you don't now. If you do have a balance, pay it down as quick as you can. Otherwise, credit card debt can send you into a downward spiral that's really hard to escape.

2. Dumb fees for just about everything.
Remember Monopoly's "Bank Error in Your Favor"? In real life, banks never make errors, but they love it when you do -- because it means more of your cash in their pocket.

Bank fees are patently ridiculous in many cases. Even after industry leaders Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C) got sued for allegations of excessive overdraft fees, the typical fee for writing a check for more than your current balance is $35. Often, those overdrafts come in batches -- and you'll end up paying that $35 over and over again. Similarly, lose your checks and you might face steep stop-payment fees.

How to protect yourself: Mistakes aside, you still have a lot of control over most bank fees. For instance, ATM fees can run as high as $5, but usually they only apply if you use an ATM outside your bank's own network. Your bank might charge a fee if you go below a certain minimum balance, but the answer is just to stay above that level -- perhaps by pretending your account has less money than it actually does. There's enough money at stake that it pays to keep an eye on it.

3. Ever-changing fee schedules.
Banks are more creative than ever in charging fees. As mentioned earlier, Bank of New York Mellon didn't think twice about alienating wealthy clients when it sent out notices that said that it would start charging large clients millions of dollars just to keep their money there. Also, thwarted by debit card fee limits, Visa (V) now plans to charge a "network participation fee" to merchants.

How to protect yourself: With banks, you have to stay on your toes. Inside that junk mail you got could be the only notice you'll ever get of a fee increase. Do whatever it takes to avoid them.

4. Paying a pittance on deposits.
Maybe the biggest mistake people make is keeping too much money in checking and savings accounts that pay little or no interest. By doing a little shopping, you can often find other banks willing to pay at least somewhat higher interest rates. And if you invest that money, you might earn a whole lot more.

How to protect yourself: Obviously, don't invest money you need for everyday uses. But if you have way more in your bank accounts than you'd need even in an emergency, get that money working harder for you in a higher-return investment.

Motley Fool contributor Dan Caplinger pinches his pennies so hard they scream. You can follow him on Twitter. He doesn't own shares of the companies mentioned. The Fool owns shares of and has opened a short position on Bank of America. The Fool owns shares of and has created a ratio put spread position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Visa.


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