What is a service charge on your bank account?

Understanding Service Charges on Bank Accounts

Banks often impose monthly fees on checking and savings accounts as part of the terms and conditions of maintaining an account. These charges are known as service charges and are typically triggered by insufficient average monthly balances.

Average Monthly Balance

An average monthly balance is calculated by adding the daily balances in an account over a month and dividing the total by the number of days in the month. Banks establish a minimum average monthly balance requirement for each account type. If the average monthly balance falls below this requirement, a service charge is applied.

Debit Memorandum

Service charges are detailed on a bank statement as a debit memorandum. This document provides a breakdown of the following information:

• The date and amount of the service charge
• The reason for the charge (e.g., insufficient average monthly balance)
• Any other relevant details, such as the minimum average monthly balance requirement

Avoiding Service Charges

To avoid service charges, account holders should maintain an average monthly balance that meets or exceeds the bank’s requirement. This can be achieved through:

• Making regular deposits
• Maintaining a higher account balance
• Setting up automatic transfers from another account
• Using mobile banking apps to track your balance and make payments

Impact of Service Charges

Service charges can have a significant financial impact over time, especially for accounts with low balances. They can reduce the available funds in the account and make it more difficult to budget and save.

Negotiating Service Charges

In some cases, it may be possible to negotiate with the bank to waive or reduce service charges. This is typically possible for long-standing customers or those who receive direct deposits or other benefits through the bank.

Conclusion

Service charges are a common feature of bank accounts. By understanding the minimum average monthly balance requirements and taking steps to maintain these balances, account holders can avoid the unnecessary expense of service charges and maintain control over their finances.