Savings Tip- Charge Yourself Exorbitant Bank Fees
Sun 18 Nov 2007, Written by Eden
Categories: Emergency fund, Saving
If my bank charged me a 10% fee to transfer money between accounts, I would promptly be seeking a new bank. However, if those fees were being paid to me, it would help my savings to build up over time. That is the premise behind my simple idea to help increase my emergency fund.
We have all heard the advice ‘pay yourself first’ and I do that, but I am intentionally keeping my savings rate low while I work to get out of debt. I started a basic emergency fund with $1,000 and I set up an auto transfer of $25 each month to slowly build that up.
It seems that starting an emergency fund is all you have to do to start creating financial emergencies in your life! Only a couple of months after making the fund I have accumulated nearly $1,000 in ‘emergency’ type unexpected expenses. I have put back all of the money I have used from the account, but when I have to tap into that $1,000 balance it always makes me start to wonder if that is really enough- even while I’m in this debt repayment phase.
To help build the balance a little faster I decided to implement a rule that I would repay any withdrawals from the emergency account plus a flat 10% fee, rounded up to the nearest dollar. It’s unlikely that an extra 10% would negatively effect my budget in any way and it will help to build up a more comfortable cushion of cash. It is also a smart system because it responds to my actual emergency fund needs- if I am making a lot of emergency withdrawals, then it makes sense that I need to be saving more for emergencies. If I rarely touch the account, then it makes sense to keep it low while I am working on getting out of debt. This month, I had to spend $170 from the emergency fund to get our oven fixed, so when I get my paycheck next week I will be transferring $187 back into the account.
This is a simple idea, but it goes along nicely with my philosophy of small steps and slow changes that add up to big progress over time.
November 18th, 2007 at 5:29 pm | SingleGuyMoney said:
That is a good idea. I may need to use that one.
November 19th, 2007 at 1:11 am | debtdieter said:
I LOVE this idea! I know my fund is going to be decimated with my impending move expenses, but paying it back with the extra 10% will be a satisfying challenge once I’m in my new place.
November 19th, 2007 at 11:30 am | Frank said:
Hey SingleGuyMoney and debtdieter,
I’m glad you like my idea. It does make the emergency fund seem extra rewarding. Just think of most people who handle their emergencies by using a credit card and then paying interest too. By using cash and paying ourselves we are turning our emergencies into a positive experience.
December 10th, 2007 at 3:51 pm | Llama Money said:
This is one of the best ideas I’ve seen in awhile. By paying a “penalty” each time you withdraw money that you shouldn’t, you’ll be less inclined to do so. Even though you’re paying yourself, it’s still money that’s being put away and not available for use. I love it.
December 16th, 2007 at 8:30 am | glblguy said:
Wow, very original idea. Something I do and I should probably write about actually is charging myself interest when I pull from my emergency or savings. Similar concept I guess.
December 16th, 2007 at 9:34 am | Eden said:
@Llama and glblguy -
Thanks for the feedback. I’m glad you like the idea.
December 18th, 2007 at 7:16 am | jr said:
I started doing this a few months ago. The trap I was getting into was that I would put small purchases on my credit card when I was low on cash, knowing I would have enough cash to cover it from my next paycheck. The problem was that paying the credit card balance left me short of cash, causing me to borrow again.
now I borrow from my savings (instead of the cc) at a ridiculous interest rate and pay it back when i get paid. works well
December 18th, 2007 at 8:23 am | M Cooper said:
I’d always check what is really an emergency…
Flat tires: Emergency
Disabled car: Emergency
Car Wreck: Emergency
Video Game: Not an emergency
New T.V. that I could afford with a little from my emergency fund… : Not an emergency.
I’ve tapped into mine twice, both times for emergency car repairs ($800/$1200) two years apart. Be careful not to get drawn into tapping it for things you don’t *need*.
December 18th, 2007 at 8:47 am | Credit Union Warrior said:
What a great idea! It’s all about discipline and systematic savings - you’re displaying both in big time way with this strategy. I have no doubt that you will be successful in your savings efforts.
December 23rd, 2007 at 5:36 pm | Lynnae @ beingfrugal.net said:
I love this idea! I used to be really bad about dipping into my emergency fund. I’ve been a little more disciplined in recent months, though.
January 5th, 2008 at 3:42 pm | Brandon said:
I set up my emergency fund at a different bank than my primary account and I don’t have an ATM card with it. That forces me to actually go to the bank when I need to tap my emergency fund. I figure if I can take away some of the convenience, maybe I won’t get into it as much.
January 6th, 2008 at 4:02 pm | Eden said:
I’m starting to come around to the idea that I’m using my emergency fund too much and it has become more of an ‘irregular expenses’ fund. I think this little trick of charging yourself a fee still applies, but I also think that if you have to make frequent withdrawals, it is likely a sign that you don’t have a true emergency fund. I am working on building up a bigger emergency fund in 2008, look for more information to come.