Millions of Americans rely on traditional banks to handle their everyday money needs, with checking and savings accounts still playing a prominent role in the financial arsenal of the average consumer. Yet banks haven't hesitated to squeeze as much profit from their banking services as possible, and the latest annual survey of the industry from Bankrate shows just how successful banks have been in boosting fees on the most popular services.
Before you can take action to avoid paying unnecessary fees, you first have to know the areas banks focus on to drive revenue growth. Trends in the banking industry have focused on some key products and services to bring in fee income, and while you probably use those services, you can still usually take action to minimize or eliminate the annoying fees so many account holders pay.
Banking fees are on the rise
The Bankrate survey found that one of the biggest targets of higher fees was ATM transactions. In 2014, the typical ATM fee that banks charged to users from outside their networks jumped to $2.77, which marked the 10th straight year of increases. Over the past 16 years, ATM fees have nearly tripled, with average surcharges in 1998 amounting to less than $1 per transaction.
But the real problem is that when you use an out-of-network ATM, you usually end up paying twice. Not only do you pay a use fee to the bank that provides the ATM, but your own bank also adds on a customer charge for going out of network. That second fee also hit a new record of $1.58, and the total charge of $4.35 for both fees was up 5% from year-ago levels.
Fees for spending more than you have in your checking account also rose again. Overdrafts will now cost you $32.74 at the average bank, although Bankrate notes that the 1.7% increase in that figure was actually less than the inflation rate over the same period.
Monthly maintenance fees also climbed slightly, hitting a record of $14.76. And if you want to avoid those fees by keeping a minimum balance in your account, you'll have to set more aside than before, with the average required to avoid fees rising 7% to more than $6,200.
The tug-of-war over banking fees
One reason banks have so aggressively raised these fees is that past regulatory efforts have hampered their ability to collect fee income from other sources. Since 2009, total account fee income at commercial banks has dropped more than 20%, costing banks more than $8.5 billion in lost revenue. Moves like the Federal Reserve's requirement four years ago that customers have to opt in for overdraft protection services helped limit the amount of fee income banks could generate.
Moreover, regulatory action might not be over. Earlier this year, the Consumer Finance Protection Bureau said it would consider new rules aimed at limiting overdraft fees, citing the outsize amount of the fee compared to the overdraft amount in question. In many cases, the CFPB found that the overdraft itself was smaller than the fee, and having multiple overdrafts hit an account all at once underscored the lack of clarity on rules about how and in what order banks process deposits and withdrawals to an account.
How to avoid bank fees
Despite regulatory efforts, it's really up to you to make sure you don't pay more in bank fees than you have to. Consider these steps to reduce your fee burden:
- Check out a local bank. Less-extensive ATM networks and a less-recognized brand name make some customers wary of going with a community-based bank, but they often give customers a better deal on fees. In fact, some bank experts believe community banks are too willing to give customers a break on fees, to the detriment of their own bottom lines. That shouldn't stop you from taking advantage of those deals when you find them.
- Pay attention to whose ATM you use. If you consistently find yourself using a particular out-of-network ATM, it could be worth it to open an account there or even shift your banking relationship entirely. Weighing any new fees with a new account is crucial, but you could still end up ahead, even if you pay a monthly maintenance fee at the new bank.
- Know your spending habits. If you routinely overdraw your account, think about using debit cards and opting out of overdraft protection. That way, if you don't have enough money for a purchase, the transaction will simply be declined. Otherwise, you could rack up repeated overdrafts -- and the associated fees -- without even knowing it.
As important as banks are to most Americans' daily financial lives, they're also in business to earn a profit. Smart customers recognize that and take steps to avoid paying any more in fees than is absolutely necessary.