Bank of America and many other banks around the nation recently tried raising fees in an open way, telling everyone that making purchases with their debit cards would cost $5 a month. That attempt failed. Widespread consumer anger forced banks to drop those fees.
So now some banks are responding by raising fees in quieter ways. To avoid those higher fees, consumers will need to pay more attention to their accounts, and consider switching to smaller banks and credit unions where fees are often lower, says Beverly Harzog, Credit.com’s credit card expert.
“The best recommendation is to read everything that’s coming to you” in the mail, Harzog says.
Lost revenue, new fees
The new fees are one way banks are trying to recoup some of the revenue they’ve lost in recent years. New federal rules capping debit card swipe fees will cost major banks billions of dollars in lost revenue a year. In addition, the struggling economy reduces demands for loans and leaves interest rates at near-historic lows, reducing the revenue banks can reap from making loans.
So banks are looking for new, creative ways to recoup some of that lost revenue, even if it means charging customers to use things like online and mobile banking, which require less staff and fewer costs than traditional banking services -- in other words, services that cost relatively little to provide.
U.S. Bancorp, for example, recently announced that it will start charging customers 50 cents every time they deposit money using their smartphones.
“I’m not surprised that they would start to charge for things that actually save money,” Harzog says. “What a better way to recoup revenue. That’s a double win for them.”
Meanwhile, banks’ costs for operating checking accounts have not gone down. It costs a bank $150 to $200 to open a new account, plus another $250 to $300 on staffing, branches and technology to maintain it, according to the American Bankers Association.
Citigroup will increase its monthly fee for basic checking accounts from $8 to $10. Many Chase customers haven’t paid anything for their checking accounts, but in February the bank will start charging everyone $12 a month. TD Bank will start charging $15 to customers who wire cash to their accounts.
The debit card use fee may have been wildly unpopular, but at least it was out in the open. While banks disclose all new fees to customers, this new breed of fees is much more opaque, and they take many different forms.
“This is a backdoor way of getting fees from people, and that’s not fair,” says Harzog.
It’s in the fine print
To prevent banks from burying new fees in mountains of fine print, Sen. Dick Durbin (D-IL), has proposed a new disclosure form that banks would have to give consumers outlining all the fees and costs of checking accounts. The proposal is based on a study by the Pew Charitable Trusts, which found the median length of bank fee disclosure notices to be 111 pages long. Buried in those pages are overdraft and ATM fees that make basic banking services more expensive, especially for low-income families.
Such practices “put consumers at financial risk, potentially exposing them to high costs for little benefit,” according to Pew.
If you’re worried about increased bank fees, here are some tips on how to avoid them:
1) Read everything. Your bank can’t just start charging new fees out of the blue. It’s required by law to notify you by mail before existing fees increase or new fees start. Those notices are often long, boring and hard to read, unless you happen to have a law degree. Read them anyway, Harzog says. If you have questions, call your bank and ask.
2) Shop inside your bank. Many banks are increasing fees for basic services, like checking accounts. But those fees may be waived if you keep a certain minimum amount in the account, or if you switch more of your accounts to that bank. For example, maybe your bank waives minimum balance fees if you have your checking account, retirement account and mortgage all through them. Check your bank’s website, or call a branch for details.
3) Switch banks. Most small banks and credit unions issue few if any credit cards, so they never had much credit card income in the first place, and smaller banks were exempt from the recent law capping debit card interchange fees. This means now they’re likely not looking to increase hidden fees because they have a business model that works without such revenue. So many small, local banks and credit unions are in a position to offer you a better deal than goliaths like Bank of America or Citi. “You might want to consider switching,” Harzog says.
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Christopher Maag Contributing writer for Credit.com, Chris graduated with honors from the Columbia University Graduate School of Journalism, and has reported for a number of publications including The New York Times, TIME magazine and Popular Mechanics. Reach Chris via email at firstname.lastname@example.org.