Understanding bank fees

Paying bills used to be pretty cut-and-dried: Each month, you'd sit down with your checkbook, write a bunch of checks and drop them in the mail. Once in awhile you might accidentally bounce a check because of a math error - or in hopes that a deposit would clear first. The bank would deny payment; then you'd pay a fee and learn your lesson.

Today's payment landscape has changed considerably. Debit cards, automatic deductions and electronic bill payment are rapidly replacing paper checks as the preferred payment method. And banks are offering a whole new crop of services - and related fees and penalties - you should know about.

Here are a few tips for traversing the bill-payment landscape:

Balance your accounts. Tracking your account's incoming and outgoing money is more important than ever. Checks used to take several days to clear so you'd have a little wiggle room. Now many transactions post immediately. Make sure you've got enough money in your account to cover a purchase or payment or it could cost you.

Get in the habit of checking your account balances every day at your bank's Website or toll-free number. It only takes a moment and can tell you when a deposit or automatic deduction has posted. It's also a great way to spot a check or debit payment you forgot to enter in your check register - and to notice any fraudulent activity on your account.

ATM surcharges. Many banks charge a fee if you use another bank's ATM; and, they usually charge non-account holders to use their ATMs. A few suggestions: Choose a bank with ATMs convenient to where you live and work; join a credit union that waives fees for affiliated institutions' ATMs; or use your debit card to get cash back on shopping transactions. Just be sure to faithfully enter all transactions in your check register.

Be aware of overdrafts. Overdraft protection is where your bank covers your check or transaction so it doesn't bounce. Some banks will cover overdrawn checks and then charge you an overdraft fee. As of July 1, 2010, customers must opt in to receive overdraft coverage or be charged related overdraft fees on debit purchases or ATM withdrawals.

This protection against bounced checks often comes with a price tag, however. You may be charged up to $35 per item - and an additional daily fee for being overdrawn. Consider signing up for overdraft protection linked to another account, which may come with a small annual fee. And try to maintain a small cushion in your account to protect against arithmetic errors you might make.

Sign up for alerts. Ask if your bank provides free phone or email notices that alert you when your balance dips below a certain level, when a check or deposit clears, or when a payment is due. These alerts can help reduce what you pay in fees.

Bankrate.com has posted numerous articles explaining how overdraft and other banking fees work, as well as advice for how to avoid or minimize them (www.bankrate.com). The site also includes a tool to compare fees and other checking account features at different banks.

Another good resource for learning about managing your checking account and debit card is Visa Inc.'s free personal financial management site, Practical Money Skills for Life (www.practicalmoneyskills.com/learn/financial_institutions).

Consult a financial professional about which type of account best suits your particular situation. If you don't know one, www.plannersearch.org is a good place to start your search.