The business of banking has changed dramatically over the last decade. Because the cost of doing business the old-fashioned way is no longer effective, banks are interested in changing their customers' behavior by encouraging electronic banking alternatives whenever possible. They have done this by charging high fees for services that were once free. If you pay $200 or more in annual fees for banking, it's time to do some competitive shopping.

Before becoming furious with your bank, it may be that the products you're using no longer meet your personal needs. If you have an established relationship with your bank, inquire about the other types of lower-cost checking and savings account products.

Understanding the rationale for why a bank charges different fees for different services will allow you to be a savvy banking customer. If human contact is required to serve you, such as a teller or personal banker, this is very expensive for the bank. The incentive is for banks to encourage more high-tech, "low-touch" methods of meeting your needs. This is accomplished by servicing as many customers as possible with automated telephone services, cash machines, and online self-service banking.

Since the bank needs to train their employees, provide a paycheck and benefits, pay for the branch building, and in some cases, supply uniforms, it is conceivable that your one banking transaction per pay period could cost the bank $3 or more.

If you conduct your banking via an automated telephone system, the cost of this type of transaction is much less expensive. However, if you then require assistance from a telephone banker, the price goes from $1 for the automated process to as much as $2 for human contact. For the same reasons stated above, the training, location, computer equipment, etc., becomes more expensive when human interaction is needed.

Now it is clear why electronic banking methods are preferred by financial institutions. In fact, most banks are rewarding their customers with lower fees the more the customer does his/her banking electronically. For example, even though Automatic Teller Machines (ATMs) cost the bank around $100,000 each, plus the cost of the computer network and maintenance, the cost of these type of transactions drops to 50 cents to $1 each. Not only are these machines more cost effective, the 24-hour availability to customers is very convenient.

With the ease and convenience of Automatic Clearing House (ACH) payments, this "checkless" process drops the price to around 25 cents each. And finally, the Internet drops the expense even further — to less than 10 cents a transaction. I realize that there is still some fear of banking electronically, but the security that banks have instilled with computer technology far surpasses the current security of traditional banking methods. If you lose your checkbook and wallet, the cost and worry of canceling these checks is very tedious. It's very possible that a thief could forge your name and deplete your accounts in a matter of hours. The sophisticated computer technology, however, although not perfect, has a far more secure system to protect you and your money.

Avoid being the bank's best customer. Attempt to cut your annual bank fees in half by educating yourself. Inquire about the options and products available to you with your banker. By asking about the alternative banking methods, you may find that your bank fees will drop considerably.

Kimberly A. Griffiths | July 18, 2004

This article is an excerpt from One Paycheck at a Time, a 200-page workbook by Kimberly A. Griffiths (ISBN: 1591133327). For more information, visit www.onepaycheckatatime.com.

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