How to Avoid or Minimize Bank ATM Fees

July 14, 2007

There are a growing number of banks that rebate ATM (Automated Teller Machine) fees charged to their customers who withdraw money from their accounts using the ATM machine of another bank or ATM owner (ATMs themselves can be owned and operated by businesses other than banks).

Most ATM transactions are what is known as convenience transactions which are transactions offered by the bank as a service necessary to retain the customer. While the transaction itself results in additional costs to the bank, it adds no revenue to the bank.

Allowing customers of other banks to use their ATMs for transactions increases the costs further and benefits the hosting bank only in the sense that the other banks are reciprocating and providing the same service to its customers.

Historically, most banks have allowed their own customers to access their accounts with the bank for free while charging non-customers for use of their ATM machines.

This gave banks with a large branch network a competitive advantage as banking with that bank offered the convenience of a greater number of free ATMs around town.

However, branches are expensive to build and maintain and banks with few or no branches soon found that by reimbursing the fees charged to their customers when the customers use ATMs belonging to other banks, they could gain the same competitive advantage at a much lower cost.

Further, this cost could be contained by capping the amount of the fee reimbursed per transaction and/or the number of transactions per month.

I do the majority of my banking with USAA Federal Savings Bank which from its beginnings a few decades ago has had customers world-wide but only one office at the USAA headquarters in San Antonio, Texas.

Originally, deposits were made via mail or wire transfer and cash withdrawals through other bank ATMs with USAA reimbursing the ATM fees charged by these banks. Other banks, especially online banks, have since followed suit and many now offer reimbursement of ATM fees.

Here is a list of some of the banks that I have found which offer reimbursement of ATM fees:

Bank of the Internet - rebates up to $6 per month in ATM charges by other banks

ING Direct - its Electronic Orange account provides free ATM withdrawals in all 50 states when using ATMs that are on the AllpointTM Network. In this case there is no charge rather than a rebate.

Founder's Bank and Trust of Grand Rapids, Michigan - has brick and mortar offices in Grand Rapids area as well as full on line services which include opening accounts from anywhere. Their ATM card can be used anywhere in the world and they rebate ATM fees incurred when using another bank's ATM. Customers are allowed 4 such free ATM transactions per monthly account cycle.

First Internet Bank - rebates up to $6 per month on its interest bearing checking accounts, money market savings accounts and regular savings accounts.

E*Trade - this is an on line securities company that also offers online banking services. Their Max-Rate checking account and some of their other accounts come with unlimited ATM surcharge rebates. There is a 1% fee imposed by E*Trade banking for ATM transactions in currencies other than the U.S. dollar, but other charges by the hosting bank are rebated.

Charles Schwab Bank - this is an Internet bank that is part of the Charles Schwab Investment Company. They have a checking account that offers unlimited ATM surcharge rebates subject to some restrictions.

NetBank - An online only bank that rebates ATM surcharge fees up to $3.50 per statement cycle. Since this is an online bank, there are no branch offices in which to do business.  As a result all transactions have to be conducted either through their banking online services via the Internet or through ATMs. This is true of other online banks as well.

The list above is but a sample of banks that offer ATM surcharge rebates. As you can see by the examples I have given, the number and amount of the fees vary.

Also, there may be additional conditions (such as a minimum balance that must be maintained in order to qualify for the rebates) or other charges such as minimum balance fees, statement fees, per check fees, etc. which can easily wipe out or exceed any savings obtained by having the ATM surcharge fees rebated.

Also, keep in mind that most of these are REBATES in which the fee is charged to your account and money withdrawn at the time of transaction. These amounts are then rebated back to you at the end of the month with your statement. In my case, USAA Federal Savings Bank will rebate fees on up to ten withdraws per month but no more than a total of $15 per month.

Every time I use an ATM to withdraw money I subtract both the amount withdrawn and the fee from the balance in my checkbook. At the end of the month the rebate fee amount shows up on my statement as an end of the month deposit. Since, by my calculations, the fee amounts have already been spent, I take the rebate amount, along with the interest and rebate I receive for using my Credit/Debit card for purchases and transfer them to a savings account thereby turning the ATM fees into a savings plan.

Here are a few other options, if the only problem you have with your current bank is the fact that you have to pay fees on ATM withdrawals

Debit Card cash back - many banks give customers a choice of an ATM card which can only be used in ATM machines or a Debit/Credit card that can be used for ATM transactions as well as for purchases (when used as a debit or credit card the cash is withdrawn almost immediately from your checking account rather than being advanced to you by the bank and then billed at the end of the month as with true credit cards.)

When you use the card as a debit card to make a purchase at a grocery or other store you are often given the option of receiving additional cash back. The cash back is usually in multiples of $20 and is, in effect, an ATM cash withdrawal without a fee. By planning ahead for most of your cash needs, you can pay with your debit card rather than a check and make a free ATM style withdrawal at the same time.

Make a few large withdrawals rather than many small ones - another cash management trick is to make a few large withdrawals rather than many small withdrawals For instance, if you find that you stop at the ATM machine to withdraw $20 each day when traveling to or from work, why not make one withdrawal of $100 at the beginning of the week?

Since the ATM fee is a flat fee per transaction, you pay the same whether you withdraw $20 or $400 (which is generally the maximum allowed per day for security reasons). At $2 per transaction, your ATM fee charges in this instance are cut from $10 per week (1 transaction per day for five work days) to $2 (one transaction per week).

Open a separate account just for ATM usage - find a bank that provides a no fee account option and rebates ATM fees but lacks other features that you want, and open a checking or savings account solely for the purpose of getting free ATM transactions.

If the bank is local and convenient, simply stop by once a week and deposit a check from your regular bank checking account into this account for the sole purpose of being able to withdraw it as needed and without fees in the coming week or two.

If your current bank offers a free on line money transfer service to accounts at other banks you can make the deposit electronically on your computer (you may need to wait a couple of days for the deposit to show up at the other bank but that can be done on line as well).

Use your Credti/Debit Card in place of cash - The final suggestion is to use your Credit/Debit card for most of your spending. Practically every vendor takes credit and debit cards now days and many banks are extending their cash rebate and/or reward point programs to the Credit/Debit cards when used as a credit card (a few are even beginning to extend them to debit card transactions as well) so you have this as an added benefit.

Since USAA rebates one half of 1% of the total amount charged when using the Credit/Debit card as a credit card, I use that for almost every purchase and can often go a week or more without spending any cash.

People are different in terms of their likes and dislikes, their circumstances, as well as their needs and wants so one size fit all solutions rarely work. The great thing is, the market offers nearly unlimited options, the only problem being that we continually need to shop around to find the best deals for own personal needs. Hopefully, the information provided here will make that job a little easier.