Bank fees were a little more affordable over the past six months with several charges dropping slightly, according to the latest MoneyRates Bank Fees survey of 100 banks. However, the real potential savings for consumers comes not from waiting for the industry to change its high-charging ways, but for consumers to change their banking habits, including looking for the best checking accounts that offer no monthly fees.
All major types of checking account fees had been rising since early 2013, but in the six months since the last MoneyRates Bank Fees survey, the average fee actually fell in some categories. That's great news - bank fees are not cheap, so any reduction is a break for consumers. However, consumers who are really looking to save money on their checking accounts can take their own steps to gain much bigger savings.
In the aftermath of the financial crisis and the Great Recession, a number of factors combined to push bank fees steadily higher. New regulatory burdens and balance sheet requirements caused banks to re-evaluate their cost structure and account mix. A clampdown on overdraft fees induced banks to make up the revenue elsewhere. A drop in the profits of other business lines, such as lending, made banks require more profitability from checking accounts rather than just viewing them as loss-leaders for attracting new customers who could be sold other products.
As a result, since MoneyRates first conducted the current form of its checking account survey in February 2013, several bank charges have increased. These include monthly service fees, overdraft fees, the minimum balance required to avoid service fees, ATM surcharges for non-customers and fees for customers using an out-of-network ATM have all risen steadily.
Overall, the percentage of banks offering free checking (meaning checking accounts with no monthly service fee) has dropped from 36.62 percent to 28.48 percent. In short, checking account fees have not only been getting more expensive over the past few years, but they have been getting harder to avoid.
The most recent Bank Fees survey is something of a ray of sunshine for consumers. In contrast to the trend of recent years,monthly service fees have fallen over the past six months, as has the minimum balance required to avoid a monthly service fee. The percentage of banks offering free checking has even risen slightly. On the negative side of the ledger though, overdraft fees increased again over the past six months.
The good news is, since the previous survey, the average monthly service fees among accounts charging such a fee dropped by 3 percent, to $12.83.
Avoiding monthly service fees should be a priority for cost-conscious checking account customers because they are assessed month after month no matter how you use the account. At an average of $12.83 a month, these fees add up to a total of $153.96 over the course of a year.
The percentage of accounts that do not charge these fees rose a little, from 28.11 percent to 28.48 percent. Free checking has become a fairly rare exception among traditional accounts, with just 25.41 percent still not charging a monthly fee. However, online bank accounts more commonly offer free checking than traditional accounts.
Besides finding a bank that does not charge monthly service fees, bank customers can often avoid these charges by maintaining a certain minimum balance in their checking accounts. To avoid fees, the average minimum balance requirement is $10,812.03. This is $657.22 lower than the average such requirement six months ago.
The news on bank fees is not all positive, as overdraft fees rose yet again since the previous survey. They now stand at an average of $32.63, some 29 cents higher than they were just six months ago.
What makes overdraft fees especially troublesome is the $32.63 average represents a charge for each occurrence. If you have overdrafted your account, you may run up several transactions before you realize it, resulting in multiple overdraft charges. Most banks do cap the amount of overdraft fees you can be charged in a single day. But at an average of $171.61, even a cap on charges can mean that a single bookkeeping mistake or mistimed deposit can result in a serious chunk being taken out of your account before you realize the problem.
Besides fees routinely assessed to their checking accounts, bank customers frequently rack up extra fees when they use ATMs that are not owned by their own bank or are part of a network to which their bank belongs. This can be an expensive habit.
The average bank now charges $1.67 each time a customer uses an ATM outside its network. That's not the end of it though. ATM owners charge an average of $2.88 when non-customers use their machines. Between the two fees, that means it costs an average of $4.55 to use an out-of-network machine. That would represent a charge of more than 11 percent on a $40 withdrawal.
That $1.67 fee banks charge their own customers for out-of-network ATM usage held steady in the most recent checking account survey, but the $2.88 average for non-customers using ATMs represents a 5 cent increase since the last survey.
While increases or decreases in bank fees tend to happen gradually, over time a huge gap has developed between the cost structure of online checking accounts and their traditional, branch-based counterparts. This gap is what cost-conscious consumers should focus on in trying to reduce their checking account costs.
Compared to the 1 in 4 traditional accounts that do not charge monthly fees, over two-thirds of online accounts - 69.57 percent - offer free checking. Also, overdraft fees for online accounts are an average of $6.48 lower than for traditional accounts. ATM fees are a little lower as well.
Besides lower fees, online accounts typically require a lower minimum deposit to start an account. That minimum is an average of $121.43 for traditional banks, but only $26.39 for online banks.
There has been a great deal of concern in recent years about so-called "unbanked" members of the population - people who don't have access to the banking system because they can't afford to open an account and often live in areas that are not served by bank branches. Between their low minimum balance requirements, lower fees and online accessibility, online checking accounts may be the solution for many previously unbanked consumers.
Though less dramatic than the difference between online and traditional banks, the size of the institution also generally makes a difference in the cost structure of checking accounts. The average minimum account size at small banks (those with less than $5 billion in deposits) is less than half the minimum at large and medium-sized banks, and the average monthly fee at small banks is $1.50 cheaper than the overall average.
Better yet, small banks are more likely to offer free checking than their larger counterparts. About 40 percent of small banks surveyed provide free checking accounts, compared with 24.55 percent of large banks and 27.55 percent of medium-sized banks. The one exception to this lower-cost trend is that overdraft fees at small banks were found to be $1 higher than the overall average.
Lower fees and minimums are especially important for customers who maintain relatively low checking account balances, so the rule of thumb seems to be this: If you are a small depositor, look for a small bank.
Adding up checking account fee conditions leads to some simple rules for reducing how much you pay:
The reduction in some categories of bank fees over the past six months is certainly a welcome development, but for now it is just an isolated data point rather than a new trend. Even if banks do start to head steadily in the direction of lower fees, they are likely to do so very slowly and in small increments.
In contrast, consumers have the option of earning more dramatic reductions in their fees by becoming more selective about how and where they bank. Unless you have money to spare and enjoy the thought of turning it over to your bank, you should think seriously about taking steps that will keep more of your hard-earned dollars in your account, where they belong.
This checking account survey is based on the MoneyRates Index, which is designed to represent a cross-section of U.S. retail banking conditions. It consists of 50 of the largest banks in the country, along with 25 medium-sized banks and 25 small banks. The MoneyRates checking account survey is conducted every six months, so keep an eye out to see which way bank fees are headed then - and where to find the best bargains.