Do Banking Fees Make Sense?

For years and years, free checking accounts were the rule.  Any bank that charged a monthly fee was the exception.

Now, it seems the tides are turning.  Lately, many banks have been rolling out changes to where free checking gets eliminated without meeting certain conditions, usually by keeping a combination of an average daily balance or having a certain amount of money direct deposited every month.

People who don’t meet these requirements (and even some that do) are understandably upset.  After all, it sucks to have to pay for something that you didn’t used to have to pay for just a month ago.

But, does it actually maybe make sense?

One example I saw is that a bank will offer free checking if you have an average daily balance of $1,500.  This seems like a lot of money, and it is, but put it in perspective:

Would the bank rather handle one customer that has $1,500 balance or fifteen customers that each have a $100 balance.

In either case, the customers require resources from the bank.  They have computer entries.  They require statements to be sent out in some fashion.  Though much of the work done to manage accounts is automated, there are still computer resources that add up when you consider the hundreds of thousands of accounts that some banks manage.

At a certain point, the costs to the bank for a small balance customer may not make sense.  In fact, my guess is that the bank actually counts on a certain percentage of those smaller balance customers to close their accounts after they institute the changes.  From the banks perspective they come out ahead.

Let’s go back, then, to why would a bank have offered them at all?

I think back in the beginning it was to build loyalty.  The hope was that a free checking account could be, in essence, a loss-leader.  They could then use that money losing checking account to offer credit cards or other services that could lead to money making opportunities.  They could build loyalty so that when the customer started making more money, they could offer investment services, mortgages, etc.

That actually makes sense, too.

But, let’s face it, the days of loyalty when it comes to banking are over.  People leave banks for better rates or lower fees.  The web allows people to shop around for the best mortgage rates, the credit card with the lowest interest rate or the better rewards program.  In other words, the business model behind luring a customer in with a free checking account to make money down the line…is probably gone.

And so, then, appears to be the free checking account.

Have you been affected at all by free checking account changes?  Would you be able to meet the requirements if your bank instituted such a change?

12 thoughts on “Do Banking Fees Make Sense?”

  1. The reason banks offered Free Checking was because they made money off the overdraft fees many people paid on their debit cards.

    The new financial rules forced the banks to only give over draft protection to those who ASKED for it.

    Anticipating the reduced income from those fees, they instituted service fees instead.

  2. Yep, one of the unintended side-effects of financial reform is an increase in banking fees on the average consumer. The banks need to earn their way out of the financial crisis and the soft housing market. The Govt is making that more difficult to do with their new regulations and the Feds monetary policy… the twist that flattens the yield curve. Banking customers are going to get hit with more fees.

  3. I would never pay a bank fee. They make sense for the bank, but as long as there are free accounts, customers will move around.

  4. I've always had free checking and so far our bank has not begun to charge fees…my fingers are crossed that it remains this way! It is extremely difficult to get consumers to pay for something that they feel should be free because they haven't had to pay for it before.

  5. Credit Unions are great for free checking — that's what I use.

    In other outrageous news, Wells Fargo is starting to charge customers $3 every time they swipe their debit card — their DEBIT CARD!! It's rolling out the $3 charge in the state of Georgia (my state) and a handful of other states before they decide whether or not to take it nationwide.

  6. I work for a financial institution. We recently replaced our consumer checking accounts with three new types – Free eChecking, Everday Checking, and Plus checking. The "Free" one has only one requirement – sign up for online banking and eStatements/eNotices. We did that because it's actually saving us money for each person that we don't have to snail-mail out paper statements and notices. The other two types have min bal requirements and fees. However this is only for new accounts. People who had our old accounts are grandfathered in and can keep their free checking accounts – but they do have limitations on #free checks cashed per month, etc. One caveat though, we are enforcing our requirement to sign up for electronic services otherwise they will be switched to the Every Day checking with monthly fee. 😛

  7. I have a few accounts and my accountant actually told me that for business accounts, the service fees are tax deductible. One more reason having a home based business can help! But not for personal accounts necessarily (unless your operating under your own name).

  8. Haven't had a problem with free checking yet. Though Bank of America came out today saying it's going to charge a $5 monthly fee for debit card purchases. Time to start shopping for a new bank.

  9. Bank of America, Wells Fargo, Suntrust and others are instituting these fees. My guess is that, within two years it will be commonplace to have a "usage" fee for debit transactions assessed monthly.

    In BoA's case, I think they clearly are trying to regain lost revenue with their ill-timed purchase of the Countrywide brick, and now the new interchange debit rules. They are coming out with the biggest fee to date (that I'm aware of).

    I don't believe the large banks are trying to push aside small customers. They deal in volume. Small customers represent many small transactions, fees, and credit accounts.

  10. Fortunately, banks here in the UK have not begun charging fees for checking account (current accounts). They are making money from the plethora of people who are using the overdraft facility.

    Usually they also receive a percentage of the shopping cart if a credit or a debit card is used.

    Take care,

  11. I had been a customer with Bank of America since I was a child and brought my husband over with me upon our marriage. About 6 years ago we got tired of banking through the ATM (they charged teller fees) and switched over to a local Savings and Loan. We have a "Better Than Free Checking" account that pays us a tiny bit of interest on any balance over $1k and a "Preferred Checking" account that pays around 1% on balances over $5k. We also have our mortgage through them and while we paid a slightly higher rate (about 1/4%), there was no funny business with the paperwork, they don't do subprime lending, and (my favorite part) they don't SELL your mortgage! When I walk in they call me by name and ask about my kids.

    If my bank instituted maintenance fees I would stick with them if these fees could be avoided through minimum balance requirements, however, if the fees were unavoidable, I would not hesitate to switch to a bank that did not have these fees.

    Regarding debit fees, I would hate to pay any sort of fee for these services and would most-likely revert to cash. Cash is king and often times I've gotten additional deals and discounts for using cash. Still, it would be a shame!

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