Bank Account Fees Plummeting

After years of bank fee increases—both in type and amount—those fees may be on the decline. “Banks are making less of their money from customer-account fees than at any time in the past seven decades as strict government rules and changing consumer behavior squeeze a major source of revenue,” the Wall Street Journal reported Tuesday (Sept. 2).

The story points to regulatory crackdowns—forced by the financial crisis—as well as sharp growth in mobile and online banking as the main reasons. Why would electronic banking reduce fees? The most popular smartphone bank app function is checking balances and tracking transactions, which is reducing the number of bounced checks—which had been a lucrative fee for bankers. More than half of the account fees on average come from overdraft and bounced-check charges, according to a report from the Consumer Financial Protection Bureau in July, the story said.

“After peaking in 2009, the annual account fees collected at U.S. commercial banks have declined markedly, even as the volume of bank deposits has swelled, according to the Federal Deposit Insurance Corp. The fees have dropped nearly 21 percent to $32.5 billion last year from $41.1 billion in 2009. The total fees had climbed every year since 1942, when the FDIC started collecting the data,” the Journal reported. “As a result, such fees are making up a smaller share of profits. As a percentage of total noninterest income, deposit-account fees dropped to 14.1% in 2013, the lowest level since 1942, according to the FDIC data. From 2000 through 2009, those fees accounted for an average of 17 percent of such income.”

But banks are also pursing new lines of business to deliver alternative revenues. The story quoted David Miller, executive VP for consumer banking for First Tennessee Bank. “Rather than relying on the account fees, First Tennessee is trying to persuade customers to buy stocks, mutual funds or other investment products that can be more lucrative than a simple checking account. Revenue from the bank’s wealth-management business is up about 25 percent over the past two years, Mr. Miller said, and it is bringing in about $80 million a year in revenues. Also, he said, customers prefer the new approach. ‘Even though we didn’t replace overdraft fees with monthly charges, the customers are bringing more dollars to us,’ Mr. Miller said. ‘Customers have to do a little more work to learn about the accounts but the outcome is customer satisfaction is going up.'”