We’re living in an era of the rapid adoption of technology in financial services. In 2010, 80% of American households perform their banking online. 30% bank on their mobile devices – leaping up 23% from the year before.
And yet, in a world where digital finance is fast becoming the norm, there is one holdout: cash. In America, a staggering 27% of transactions are still cash.
And what does that mean for American consumers? For one, it means ATM Fees – which in recent years, have been on the rise. From 2007 to 2012, ATM surcharges rose by $0.35, on average to $2.10.
While ATMs are a valuable service offered by banks – and increase in fees has tracked an increase in cost for operating ATMs – we still take issue with the increase. First, they’re not always straightforward. And second, they’re effectively tax on to your capital.
So in this post, we decided to share some ways you can use technology to avoid ATM fees. But first, we review how ATM fees actually work.
The Mystery Fee
There are two types of ATM fees: the Surcharge Fee and the Foreign Fee. Both of these fees arise whenever you use an ATM out your bank’s network.
Most of us are likely to be familiar with the Surcharge Fee. It’s the fee that the out-of-network ATM charges you to access cash at that location. Many of us have can recall a time – happening upon a farmer’s market, or upon discovering a new restaurant is cash-only – where we’ve had to run to another bank or duck into a bodega to grab cash. At the bank, we’re prompted to approve a transaction by first agreeing to the surcharge – which can range from $0.35 to $5.00. According to a GAO study, the average surcharge is $2.10 (although this may vary: if you live in a large city, the suburbs or in the south, the report found you’ll tend to pay more).
The second type of ATM fee – the Foreign Fee – is a bit more clandestine than the first, since it doesn’t appear until you’re reviewing your bank statement. The Foreign Fee, is your bank’s way of punishing you for accessing cash from an ATM machine outside of its network, to put it bluntly. So, in addition to the $2.10 you pay the ATM holder, you can also expect to pay your bank an additional fee, which in 2012 averaged $1.52 amongst traditional banks and $1.29 amongst credit unions. While an out-of-network ATM may disclose that additional fees may apply, we’ve talked to Personal Capital users who said it was not until they began tracking their checking account together with their credit cards that they became aware of the Foreign Fee.
A Tax on Your Capital
If you add up the average Surcharge Fee and Foreign Fee, the average ATM fee is over $3.50 per transaction. While $3.50 may not seem like much, if you’re withdrawing $100, that’s like a 3.5% tax on your capital.
Thankfully, over 85% of cash withdrawals are from in-network ATMs. But for the rest, it seems like the tax on hard-earned capital is steep. Making money is hard enough. Accessing your own money should be simple – and tax-free.
Stemming the Tide, and Taking Action
Fortunately, banks have not gone completely untended. In 2011, JP Morgan Chase tested out a $5 ATM fee (up from $3); public reaction caused this unpopular experiment to be brief.
And for individuals, advances in technology have helped to give us new ways avoid ATM fees beyond just being prepared with a level of cash reserves in your wallet.
1. Your Phone.
These days, some banks have mobile apps with branch locators. You might even want to bookmark the page on your smartphone from your bank’s website so you can easily access. Don’t miss out on going to branch if it’s nearby.
2. Your Merchant’s Phone.
If your favorite vendor only deals in cash, it won’t hurt to try convincing them to begin using one of the many credit card readers that enable vendors to accept payments via their phones. (NB: There’s typically a fee associated with those transaction that the vendor may end up passing along to the consumer).
3. Online Banks
As a means to acquire customers – and make up for their lack of brick & mortar presence – many online banks offer ATM-fee reimbursement. With no brick-and-mortar stores to operate, these types of banks have fewer operational costs and are able to pass on these savings to customers. Particularly if you can find a high-yield checking account, it might be worth opening up a second bank account for your cash needs. But make sure you weigh any other costs associated with opening and maintaining those accounts, and continue to read the fine print.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.