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One of the Risks of Rate Chasing - Inactivity Fees

I looked into many considerations for rate chasers in this post from last year: Internet Banks and Rate Chasing - Is It Worthwhile?. With rates continuing to fall, this is still a reasonable question to ask. This same question was asked recently by Flexo in his blog post at Consumerism Commentary. Flexo also mentioned several important issues to consider.

One rate chasing issue Flexo mentioned that I didn't mention in my last year's post is the risk of inactivity fees. I have been hit twice this year by inactivity fees. One was a $10 fee at my local credit union, and the other was a $5 fee at Patelco Credit Union. Both were due to having no activity on the share savings account after one year. It's also important to note that these fees keep getting applied month after month until you have activity in the account (they don't count the fee debit as an activity). I noticed these fees pretty quickly, and I was able to get these reimbursed by contacting the service reps. If you don't catch them soon, it gets harder to have the old ones reimbursed.

Another fee to watch out for is a low balance fee. There have been cases when internet banks have added a minimum balance requirement or increased the minimum. Amboy Direct added a minimum balance to its online savings account last year. They now require a $100 minimum to avoid a monthly fee. They notified customers of this change in the statements, but with e-statements, it's easy to overlook changes like this.

My experience does show that you need to keep an eye on all of your accounts. If you don't have time and don't want to close the accounts, you may want to consider services like Mint.com (see my review).

One way you can prevent inactivity fees is by setting up automatic monthly or quarterly transfers initiated at a bank like Ally. Each month or quarter, money will be automatically transferred to or from your bank account that you're not using. Just be careful that you don't go over the 6-per-month withdrawal limit on savings accounts.

I became members at both of these credit unions in hopes that their CD rates would remain competitive. Unfortunately, that hasn't been the case in the last year. Thus, I've just kept a little bit in the share savings accounts to maintain membership. I'm sure if I closed these accounts, they would soon be offering some great CD deals ;-)

Related Pages: savings account
  |     |   Comment #1
The two pitfalls are: Inactivity Fee and Account Closure fee; one can not win either way (to close or not close account). 

The first issue one has to address is whether to close an account that is of little present value (i.e., in terms of rate and T&C).  My position on this is to always close accounts when not used due to low rate, etc.  This action makes things a lot simpler in terms of tax reporting, account management, as well as inactivity fee.  However, I still keep some RCAs due to potential furture usage.  For example, I still keep West Bank (Iowa) for its slightly higher limit (4%, $30,000). 

The second issue is, if account is to be closed, when and what to do.  There is often account closure fee (within 90-180 days) for RCAs.  Thus, one has to keep those accounts open for that minimum period, then also watching out for inactivity fee.  If there is a balance, better close it right after the monthly cycle. 

If one has multiple accounts, transferring among the accounts (within one bank) usually does the trick.  Recall inactivity fee is imposed usually after six months, thus one has to worry about it only after that period.  Another way is to do BillPay vs. ACH.   
  |     |   Comment #2
Banking Guy,


You mentioned that you were hit with a $5.00 inactive fee from Patelco Credit Union. I opened a CD with them when they were offering a 7% new member's special. I have since closed the CD. I am wondering now if they will hit me up for an inactivity fee for the $1.00 that they automatically put into an account for me to become a member. Is this what happened to you or do you have other accounts with them?  Thanks.
  |     |   Comment #3
Yes, I've had the inactivity problem. If you have e-statements you aren't costing them anything, but they still charge inactivity fee.

Now, I keep a few dollars above the minimum in the institution and bounce the extra back and forth between savings account and free checking account every six months.
John C
  |     |   Comment #5
I'd been holding onto some old, unused regular savings or checking accounts (from the good ol' 5-6% era) for the past year or two, figuring I might use them again when interest rates recover.

But this last week, particularly after the latest news reports from the Fed about the future of interest rates, I gave up on several of them and closed 3 or 4 different ones that I'd only kept a couple bucks in just as placeholders. One reason was I didn't want to begin getting hit with inactivity fees, or have to hassle with doing pointless ACH transfers in and out of those accounts just to keep the banks happy.

Even if interest rates do recover in the next year or two, for me, I'll be likely to keep any of my free, non-CD cash in rewards checking accounts heading into the future, not regular savings or checking any more. I don't think there were many rewards account back two to three years ago when I first opened accounts at places like FNBO... But there are now.

Unless there's some significant structural changes in the banking marketplace, it seems likely that rewards accounts will continue to outpace regular savings and checking accounts -- no matter how low or high overall rates go.



  |     |   Comment #6
I had opened a checking account with a $200 bonus with stipulations, which I had no trouble meeting. I was using the account for bill pay as well. When things got too muddled from having too many accounts opened, I consolidated all my bill paying from one checking account, of which I also got a bonus last spring. I still have the [USAA] account and am keeping it for good. I can't say the same for Chase checking, because after one month of inactivity I got slapped with an inactivity fee. I immediately closed it.

I, too, have a rewards checking account that offers 2.51% as long as the three requirements are met. When I had first opened the account with them, they were offering nearly 7%. But shortly thereafter the rate plummeted continually. I've decided to keep the account, which I use as my "Freedom Account." It's where I have a column for house supplies, car repairs, vacation, Christmas and "10 Debits" where I make the required signature-based purchases. But unlike many others, I am not afraid to spend more than $1.00 per transaction.

It will be interesting to see if rates offered on reward checking will go back up again. I'm also wondering what the next marketing technique will be to corral new customers. First it was reward checking, then the large bonuses with plenty of stipulations.....next? Any guess, anyone?
  |     |   Comment #7
This is one reason why I dislike the "paperless" method of communication with banks.  An account could sit silently and pile up fees when you don't monitor it for a long period of time.  This is one reason why I avoid brokerage accounts with those trading minimum requirements.  Yuo also have to watch out for "dormant" account fees too if the account sits with no activity for several years.  I am a bit surprised that they reimbursed you back the fees since they were imposed based on their fee schedule that should have been available when you opened the account.  As for making a transfer periodically to avoid getting hit with these fees, I have one checking account where I got a notice of inactivity when the 1 year inactivity period was coming up.  About four months before I got this notice, I had an EFT deposit made to the account.   I sent a letter asking why my account was considered inactive since a deposit had been applied several months earlier.  I got no reply.
  |     |   Comment #8
Same thing happened to me with a $5.00 inactive fee from Patelco Credit Union. I opened a 7% new member's special CD with them. I closed the CD, they hit me up for an inactivity fee for the $1.00 that they automatically put into an account for me to become a member.
Mike H.
  |     |   Comment #9
Thanks for this information.  My girlfriend checked her account at Patelco today, and sure enough, 2 account inactivity fees of $5 each.  And, she didn't just have a little amount of money in there.  She had over $1200 dollars in the account.  Without your blog, she may have let that go for many more months. 

She was able to talk to the bank manager and have the fees reversed, but, if this had gone on much longer, I bet they would not have been so "nice". 

She is closing the account asap.

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