Sometimes you can gain as much by cutting seemingly insignificant costs that add up over time as you can by earning additional income. Banking costs are a good example. Banks charge so many different types of fees, some of them hidden, that you may not realize what your real costs are.

With minimum balance requirements, ATM fees, overdraft charges, and other fees, even your basic checking and savings accounts might be costing you more than they should. When your money could be earning more somewhere else, you're paying opportunity costs. You may not be paying any fees directly, but you've lost an opportunity to make money elsewhere. For example, the balance that you maintain in your checking account to avoid a monthly fee could be earning more than the monthly fee if invested in a money market account or certificate of deposit (CD).

Service Versus Cost

Be aware of your banking costs and make intelligent tradeoffs to get the services you use for the lowest overall cost. If keeping a minimum balance in your checking account costs you $5 a month in opportunity costs but saves you $7 in fees, it makes sense to go with that option. If you have savings and checking accounts at the same bank, keep only as much money in the checking account as you need to pay bills that are due immediately. Let the rest of your funds go to work for you by earning interest in your savings account. When interest rates are very low, the earnings may be minimal, but when rates are higher, the savings can be substantial over time.

Minimizing Fees

Bank fees may seem like small potatoes, but they are big business. Banks make billions of dollars annually on various fees, and the amounts are growing each year. You probably accept bank fees without question, but why pay more than you have to when it's relatively easy to minimize fees?

Banks use several methods to calculate your average daily balance and interest. This might seem like a minor concern, but if you usually keep a significant balance in an interest-bearing bank account, it's to your advantage to keep it in a bank that uses the average daily balance method for calculating your minimum balance and interest. This reduces the chances of incurring fees if you dip below the minimum balance during the month (as long as your average daily balance for the entire month is not below the minimum). You also earn interest on all your money.

When you borrow money, the costs are stated in terms of interest rates, so it seems fairly easy to choose the best deal, but it's not always as simple as it appears. A lower interest rate will not necessarily save you money if fees and other charges are added in. Be sure to read the small print.