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Reports show that the economy is growing stronger and the unemployment rate is slowly going down. However, despite all these positive developments, the majority of Americans still struggle financially. In fact, according to surveys, about 60% of all Americans won’t be able to come up with $1,000 in case of an emergency. Therefore, finding ways to save money is essential for everyone. And one of the ways to do this is to cut your banking fees.
This particular expense is often overlooked because we don’t really “see” it. Many of the bank fees are charged without you actually knowing anything about them. But overall, they amount to a rather significant amount, and so do investing fees.
Luckily for every frugal family out there, today online services allow you to avoid wasting money this way.
How Much Money Does the Average American Spend in Fees?
Banking fees are extremely varied. But one thing that all of them have in common is that they are unreasonably high. According to MoneyRates, the average checking account costs you about $170 a year. However, that’s only the tip of an iceberg. Depending on how you use that account and whether you use any other banking services, your expenses can go well into hundreds.
It’s the worst for those who want to make investments or transfer money internationally. The latter can cost you around 3-7% of the transfer amount. This will depend on the destination. If you need to send money to some remote developing country, transfer corridors there might cost over 10%.
As you can imagine, this puts a damper on any global small business ambition you might have as well. There’s hardly a point to sell your handmade goodies online if you are going to lose all the revenue in banking transfer fees while trying to get money from your clients.
The situation is even worse for investors. As you should already know, a frugal person is someone who uses what little fortune they have wisely. Investing is one of the best money-related decisions you can make is to start investing. It’s a good way to obtain some financial security and build up your fortune passively. However, all expenses considered, you might be losing up to 40% of your investment returns every year. This will include the fees of buying and managing ETFs and stocks.
All in all, traditional banking is a huge money drainer. Therefore, finding an alternative is a must for any frugally-minded person.
Is Online Banking a Frugal Alternative to Traditional Banks?
Online banking is the solution that effectively resolves the problem of high fees. It may not be completely free. But using specialized online services for money transfers and management as well as for investment transfers can save you a small fortune.
The best thing about these services, aside from the fact that they are cheap, is their versatility.
Today you can find a solution for any type of banking and even investment operation. You can create a fee-free online checking account to manage all your regular transactions. This will mean you save $170 a year already.
If you need to send money to family abroad or if you want to do business globally, you can use a variety of apps to use for international transfers. You should choose one depending on the country where you want to send or receive money from. This will allow you to save hundreds of dollars. The exact amount depends on both locations as well as the size and frequency of transfers.
When choosing this type of app, you need to consider not only the fees, but also foreign currency exchange rate markups. In fact, the majority of these companies don’t charge any fees at all, so this shouldn’t be a concern. And it’s usually the biggest, oldest, and most reliable companies on the market that offer the best FX rates. Remember this if you want to avoid being scammed on online money transfers. This industry is poorly-regulated, so you might not be able to get your money back even through the court if it gets stolen.
As investing is complicated, it’s no wonder that you can use many tricks to cut investment fees. Even the aforementioned money transfer apps can help with this. It’s because they offer hedging services and FX consultations. And these services are much cheaper than the ones coming from local investment brokers.
Online Vs. Traditional: Why Is There Such a Difference in Banking and Investment Fees
One might say that the reason why traditional banks charge such high fees compared to online services is that they have higher costs. And it’s an absolute truth because their expenses, even on things like rent and office supplies, are exponentially higher. However, there is also another layer of explanation for this phenomenon, which people often overlook.
Banks want you to be in debt.
Debt means overdraft fees and high interest fees, and other ways that banks can use to draw money out of you. Sadly, a huge part of the money banks make comes exactly from these charges. Therefore, it’s not surprising that banks are working so hard to put you in debt.
Online services, on the other hand, usually make money from direct payments. For example, the money you pay a broker for a consultation. Their revenue might also be tied to the volume of the money they process. This is true for money transfer companies, which make more money as they get more transactions.
Online banks, on the other hand, are platforms that usually don’t handle your money directly, unlike traditional banks. Instead, they act as a platform for some specific banking purposes. The easiest example is a fee-free checking account. You can use it as you would your regular bank account. In fact, you can use it instead of opening a more expensive account in a local bank
Because they have much lower running costs, they are cheaper overall. They can also be faster and even more secure. For example, online money transfers don’t put your actual banking account at risk, yet they are protected by bank-grade encryption.
In Conclusion: Live Frugally with the Help of Online Banking
To be frugal means to be wise in managing your money. Using online banking and stock broker services are a big step in this direction. If you aren’t using them yet, be sure to research the topic to learn how many opportunities for saving you are missing out on.