When I arrived at college and opened my first non-credit union account with a big national bank, I was hit with a rude awakening. The monthly service fee quickly whittled away at what little spending money I was able to save up each month. As soon as my credit union from back home offered E-deposit via smartphone, I closed my account with the national bank and never looked back.
I was surprised to learn recently that fees and commissions (in all the various forms they may take) are an integral part of the business models of commercial banks, they can account for upwards of 20% of net revenues. As a potential customer, I am weary of bank fees and their effect on my personal bottom line. As a potential investor, I view a bank with a good fee structure as a good possible investment. Why? It is easy money for the bank; they get paid for the privilege of using your money to make themselves more money.
Dude, where’s my fee?
Banks generate fees from providing services like mortgage banking, asset management, and investment banking. Depositors also pay fees for things like of cashier’s checks, wire transfers, credit card applications, and monthly maintenance charges on accounts. Finally, the bank can impose penalty fees for things like overdrafts, excessive activity, inactivity, lost cards, or missed payments. It’s all there in the fine print.
To illustrate, below is a chart plotting some common fees associated with the most basic checking accounts offered by Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC), and JPMorgan Chase & Co (NYSE:JPM). The monthly service fee can be avoided by maintaining a $1,500 average daily balance or a minimum monthly direct deposit amount. With some sacrifice in convenience and careful planning, these other fees are avoidable, too; however, as an, uh, low-income college student, that is often easier said than done.
|Bank Fees-Basic Checking||BAC||C||WFC||JPM|
|Monthly Service Fee||$12.00||$10.00||$9.00||$12.00|
|Non-Branch ATM Withdrawal||$2.00||$2.00||$2.50||$2.00|
*Prices vary slightly from state to state.
The card cash cow
A huge contributor to fee related income comes from credit cards. Fees for things such as the application to get the card, annual service charges, late payments, balance transfers, and cash advances all add up to contribute significantly to a bank’s bottom line. It is difficult to compare these fees across different banks because often, they are only expressly written in the fine print of the terms of the credit card or bank account. For this reason, they can also sneak up on unsuspecting consumers who didn’t read through the many pages of documents associated with their accounts.