There aren't many necessary evils in life, but banks seem to fit the bill pretty well.
According to a survey conducted by Ebiquity on behalf of public relations and communications firm Makovsky in May, of the 225 banking executives the study examined more than 80% believe the financial crisis in 2008 is still negatively affecting their reputation. Scott Tangney, vice president of Makovsky, in an interview with CNNMoney stated his belief that banks lost 27% of their revenue within the past two years because of reputation problems.
Yet, turn to ACSI, which releases an annual survey of customer satisfaction, and you'll see a slightly different story. ACSI's annual report analyzes 10 different aspects of banking to determine consumers' overall satisfaction with the industry and its biggest players. In 2013, banks' satisfaction score improved to 78 from 77, tying the highest satisfaction score since the index's inception 20 years ago.
So, in effect, people hate banks, but their satisfaction with banks in general (i.e., financial services offered, friendliness and help from staff, and so on) is improving. Confusing right?
By now you're probably wondering what the "X factor" is that creates this discrepancy. It's none other than the two most feared words in the English language next to "death" and "taxes." The answer is "banking fees."
Pummeled by banking fees
Based on data from the Federal Deposit Insurance Corporation, since peaking at $41.1 billion in 2009, fees collected by U.S. commercial banks fell to "just" $32.5 billion in 2013. This signals that consumers are being smarter about avoiding unnecessary fees, but that banks still have the upper hand as they managed to collect $32.5 billion in fees last year from consumers!
Digging deeper into this story behind banking fees is Bankrate with its 17th annual "Checking Survey". This recently released survey examined 10 of the nation's largest banks as well as 25 of the biggest banking markets to establish trends on various fees such as ATM withdrawal fees, non-sufficient funds (also known as overdraft) fees, and interest checking account fees. Unsurprisingly, most fees continue to be on the rise, primarily as a knee-jerk response to consumers growing smarter by purposefully avoiding these fees when they can.
ATM surcharges – the fee for using an out-of-branch ATM – jumped for the 10th consecutive year to a cumulative average of $4.35 per transaction, up more than 5% compared to last year. Remember, not only does the out-of-network ATM hit you with a fee, but your own bank often hits you with a second fee. This fee is easy money for banks, and if anything it only helps to encourage frequent users of an out-of-network ATM to consider opening an account with that bank.
Overdraft fees were also on the rise, jumping to an average of $32.74, up 1.7% from the previous year. As Bankrate notes this year-over-year jump is lower than the rate of inflation, but it's also one of the highest fees that banks charge, so it often gets instant attention whether it leaps bounds or inches higher.
Finally, Bankrate found that interest checking account fees for banking customers climbed a minuscule 0.8% to a record high of $14.76. Even worse, consumers risk this fee for an average yield of (get ready for it...) just 0.4%, a record low! As icing on the cake, Bankrate points out the average account balance across its survey to qualify for a no-fee interest checking account rose a whopping 7% to $6,211. Though 97% of interest checking accounts can technically be free if customers meet all of the requirements, getting there can be difficult.
Flee the fee
The good news, as I alluded to above, is that consumers are finding ways around ever-rising bank fees. With regard to avoiding ATM surcharges some simple planning tends to do the trick. Understanding where your in-network ATMs are by locating them via your mobile device or personal PC, or utilizing a debit card that can allow you to get cash back at grocery stores are simple ways of avoiding out-of-network ATMS altogether.
Overdraft fees are particularly easy to avoid these days as you can advise your bank that you want to opt out of overdraft protection. The goal would be to have transactions on your debit card that would overdraw your account be declined. Even if this wasn't possible and you still overdrew your account you may not be on the hook for the extra overdraft fee.
Finally, many consumers are now realizing that interest checking accounts are probably a waste of time with high minimum requirements and interest fees that'll have you underperforming the inflation rate by a long shot. The remedy? Open a noninterest account and put your money to work in a number of other ways.
Banks walk a tightrope
Put simply, banks are in a precarious position that's similar to a Catch-22. They need to boost fees in order to recoup lost revenue from customers becoming more aware of existing fees, but if they boost fees too quickly they risk alienating their core customer.
For instance, ATM surcharge hikes continue to sneak under the radar as out-of-network ATM fees have been around for more than two decades. In other words, consumers have grown accustomed to the fee and don't feel vitriol toward their bank when they're charged for it.
On the other hand, surprise fees from utilizing a service that's been free for as long as consumers can remember is a good way to tick off your customer base. Bank of America (NYSE:BAC) did just this in Sept. 2011 when it announced that it would begin charging its customers for using their debit cards. Whether you used your debit card once a month or 50 times, and regardless of whether you hit the "debit" or "credit" function on the point-of-sale pad, you were on the hook for a $5 fee. Ultimately, just five weeks later, Bank of America announced it would not proceed with the fee as consumers expressed intense opposition to the idea, to put it mildly. In fact, the National Foundation for Credit Counseling conducted a survey around this time that showed 62% of customers that had to pay a debit card fee would leave their current bank!
Of course, Bank of America wasn't alone. Though it was the first to suggest the debit card fee, and essentially the last to pull the idea from the public's eye, SunTrust (NYSE:STI) and Regions Financial (NYSE:RF) had laid out plans to charge $5 and $4 per month, respectively, with JPMorgan Chase (NYSE:JPM) and Wells Fargo also tinkering with pilot programs that would have introduced debit card fees. All four of these banks scrapped their debit card fee plans well before Bank of America pulled the plug on the idea at the start of November 2011.
But, don't think that's stopped banks from thinking of new and innovative ways to charge you money. U.S. Bancorp (NYSE:USB), for example, charges customers a $0.50 fee to use its DepositPoint mobile check depositing service. Customers can snap a picture of their check and have the money deposited into their account as soon as the next day without having to set foot in the bank. Based on the amount of time it could save it sounds like a good deal until you note that rival JPMorgan Chase will allow its customers to use Chase QuickDeposit to deposit their checks via their mobile device for free!
This is but one of many subtle fees banks will be expected to turn to in the coming years if consumers continue to wise up. The big question will be whether large banks can offset their lost revenue without chasing its customers to smaller credit unions. That's one question that I, nor anyone for that matter, has the answer to as of yet.