Some of the nations biggest banks are quietly testing new checking products and service-fee structures that portend a huge overhaul of basic checking accounts – changes that could quickly slice the “free” out of “free checking.”
Such testing signals a drive to shore up fee income as banks attempt to recover an anticipated drop of billions of dollars in revenue based on pending federal regulations (see the Durbin Amendment), capping debit card interchange fees, or the amount banks can charge merchants for debit transactions. The cap for larger banks (>$10 billion in assets) is proposed at seven to 12 cents, from an average rate of 44 cents currently. That change could drop debit card interchange income by more than 50% at some larger banks. Do the math and it is no wonder product managers are testing new options to make up lost revenue.
It’s no secret banks are setting out to revamp checking products as they seek new sources of fee income. A report late last year by Bank Rate Monitor showed bank fees rose to an all-time high in 2010:
- ATM fees leapt five percent from 2009 to a new all-time high of $2.33.
- Overdraft fees increased three percent to a new record of $30.47.
- Fees increased for both interest and non-interest checking accounts - non-interest accounts increased 40 percent from $1.77 to $2.49.
- The number of banks and thrifts with free non-interest checking accounts - such as no minimum balance requirements or monthly fees - dipped to 65 percent, down from 76 percent last year.
- Minimum balance requirements to avoid monthly fees on non-interest checking accounts are up 34 percent from last year, moving from $185.75 to $249.50.
This month, as reported by the Wall Street Journal, banks such as Bank of America, JP Morgan Chase and Wells Fargo are pilot testing checking account fee structures for new customers, some of which tack on monthly fees from $5 - $15 per month for “bare bones” checking accounts. Another test promotes electronic-only banking, but then could assess a $12 monthly fee if a customer conducts in-branch transactions with a teller. Chase is testing a $3 per month debit card fee, while US Bank recently stopped providing rewards programs to new debit-card customers.
Will this mean opportunity for smaller community banks or credit unions? The results are mixed. According to a survey by the Independent Community Bankers of America, more than 90% of small financial institutions expect to start charging customers for services that are now free, including monthly or annual fees for debit-card use.
Contrast that data with the 2011 Credit Union Checking study by Bank Rate Monitor, which suggests 76 percent of credit unions offer free checking accounts with no strings attached, while an additional 20 percent will waive fees if a member signs up for direct deposit and/or e-statement.
What does this all mean? Personal or retail banking customers, especially those who have or want “basic,” no-frills checking, will need to stay alert to potential product-line changes and new fees in 2011.
In short, “free” checking soon could be a distant memory, just like $2-a-gallon gas.