A few major banks rolled out new checking account fees for their customers last week as they continued to look for ways to cover revenue lost to new regulations stemming from financial reform laws.
Big banks used to cover the expense of operating consumer checking accounts--estimated at $300 to $350 a year per customer--by charging their customers high overdraft penalties and late fees on credit cards. They also made a lot of money by charging merchants a swipe fee every time someone used a debit card in their store.
Their freedom to charge those fees has been severely restricted by Congress and the Federal Reserve in recent months, so banks are doing everything they can to make up for that lost revenue. They're even selling ads in some online statements for their customers' checking accounts.
The latest charges to start hitting the American consumers' bank statements include:
- A fee from Bank of America for customers who receive images of their canceled checks in the mail with their statements.
- Chase doubled some of its monthly fees in February, according to the Wall Street Journal, bringing the annual cost of one of its checking accounts to $144.
- TD Bank reversed its promise not to charge an ATM fee, and starting in March TD customers will pay $2 to withdraw from another bank's ATM machine.
Banks say it costs them about $300 to $350 a year to administer a customer's checking account. That's the cost of branches, ATM machines, monthly statements and someone to answer the phone when you call. New fees in many cases will recover only about a third of that.
The cost of higher fees
Banks realize they will start losing customers with the new fees. Most credit unions and small, regional banks still offer free checking accounts, and many customers will explore other options, such as keeping their funds in savings accounts or money market accounts that allow limited checking. Most savings accounts and money market accounts only allow six or so transfers or withdrawals a month, but they do pay higher interest rates.
Some brokerage firms, such as Charles Schwab and Fidelity, are offering free interest-bearing checking accounts, provided you also open an investment account. These accounts, according to the Journal, require no minimum balance and have no ATM fees.
An online checking account is another option if you don't mind not having access to a living, breathing bank teller. Online banks save money that way and they pass those savings along to you by paying interest on your checking account. But you typically have to deposit checks by mail and that might get tedious after a while.
How to avoid bank fees
While the big banks will see their portion of the checking account market drop - the Los Angeles Times reported last month that their share would drop from 45 percent of the total market to 33 percent - they are tirelessly reminding customers that there are ways to avoid the fees. Requirements vary, but here are some of common ways to avoid checking account fees:
- Maintaining minimum balances
- Having a certain amount of money directly deposited each month
- Promising not to visit a bank teller
- Getting online statements instead of paper ones
According to the Sarasota Herald Tribune newspaper in Florida, a survey last summer by a research firm in Illinois found that nearly 73 percent of all financial institutions still offer free checking. But that number is down from 83.5 percent in 2009. The number of Wall Street banks offering a free checking account dropped from 93 percent to 64 percent.