Get Ready For New Bank Fees

Transcription: Hello and welcome to Your Money 2.0, I'm Thomas Fox community outreach director at Cambridge Credit Counseling. Banks have been the focus of criticism since the end of the Bush administration when a few institutions receive bail outs from you and me. The US government provided more than seven hundred billion dollars to help stabilize banks and many have since recovered, that bailout worked but rather than adopt favorable lending policies toward the taxpayers who bailed them out they gone in a different direction. That's also because the government capped a few of the banks favorite cash cows including overdraft fees and merchant debit transactions. Recently consumer anger reached a fevered pitch, culminating on bank transfer day. During which millions of dollars were transferred from for-profit banks to nonprofit credit unions. Now there are actually a number of new fees that consumers have to contend with which seems to beg the question, are banks that greedy or do they function like a traditional business? It's almost too easy to criticize banks; after all, they played a significant role in the collapse of our housing market and our subsequent economic woes. It must always react in knee-jerk fashion toward earning reports and most CEO compensation is tied to short-term stock performance. As a result, many executives turn a blind eye to the risk of their real estate products as it look forward to record bonuses, and yet the banking community really does have a lot to worry about when it comes to earnings. The new overdraft and debit card transaction fee caps may cost industry as much as 12 billion dollars. Let's look at how bank fees and interest rates impact one another. According to report by the financial consulting firm Oliver Wyman it costs most banks between 200 and 300 a year to maintain a checking account. These costs cover staffing, overhead and FDIC insurance premiums. Until recently banks could offset these costs with fees collected from overdrafts and merchant account transactions. Today banks are expected to earn on average between 85 and 115 dollar in fees per year per account but that's hard to do if the customer maintains a low balance. When that's the case a bank may actually lose between 85 and 185 as per year per account. Imagine you were a bank facing a reduction in revenue; you have three choices to offset those losses. You can: A close your doors, B introduce new products and services, or C raise fees and lower interest rates on money kept on deposit. What would you do? Unfortunately, many banks quickly chose option C. In years past, most of us might have accepted the increases, no questions asked. That's no longer the case, as you may recall Bank of America abandoned its five dollar a month debit card fee in late October amid a firestorm of criticism driven by news stories and an outpouring of negative sentiment. So, what can Bank of America do to meet customer needs and satisfy the expectations of its shareholders? Once again, your answer seems to be option C raise fees and reduce interest rates on deposits. You may not have realized it but the average interest rate for deposits fell to 0.74 percent from 0.8 percent during the first six months of 2011. This translated to a savings of almost 1.5 billion dollars a month industry-wide; some banks have also adjusted their minimum deposit requirements. For example, you formally may have avoided monthly fees by maintaining a modest account balance, but you may soon be required to keep as much as fifteen thousand dollars on deposit at certain banks. A few banks are also testing charges for lost debit card replacement, five dollars or twenty dollars for rush delivery. For those of you that make deposits via your mobile phone, you may soon receive a 50 cent fee for every transaction or if you withdraw too much from your savings account you can incur an excessive withdrawal fee of nine dollars. Finally, some banks will even charge you to speak to a teller, an average of a dollar; So much for new products. If you're encountering new fees you should know that you have options. Bank transfer day has put a spotlight on credit unions and how they can save their members a considerable amount of money. According to the Credit Union National Association, or CUNA, 650,000 people transferred more than 4.5 billion dollars to credit unions in the month leading up the bank transfer day. Until next time, I'm Thomas Fox for Cambridge Credit Counseling.