Bank Fees Headed for the Stars
From ATM surcharges to financial planning fees, biggest banks will be the worst offenders.
By Renuka Rayasam, Associate Editor, The Kiplinger Letter
November 20, 2008
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The cost of banking will skyrocket in 2009. One of the painful downsides of the banking crisis: Fees on everything from maintaining a checking account to wealth management services will go up between 5% to 20% next year.
Banks have been steadily increasing fees for years, but now investment profits have fallen precipitously and so fees increases will rise more sharply next year. Soon, banks will have to pay more for federal deposit insurance protection and keep higher provisions for loan losses. Plus tightening credit means fewer loans to generate revenue. Because such interest income accounts for the bulk of a bank's balance sheet, "they are looking to make up lost revenue and fees are one way to do that," says Charles Wendel, head of Financial Institutions Consulting.
Overdraft and credit card charges pull in a big chunk of banks' fee revenue. Those could go up 5% next year, up from a 2.5% increase last year. Minimum balances will rise, boosting the number of such charges. Late fees for missed credit card payments will also soar. Be careful of bank practices, such as clearing bigger checks before smaller ones to generate more overdraft income. "Bank pricing is an art form," says Bert Ely, principal of financial consulting firm Ely and Company. "
ATM surcharges could rise 20% in 2009. Where does that figure come from? The surcharges tend to rise in 50 cent and $1 increments. For example, they rose 11% last year, on average. Banks will charge more to look at statements at ATMs and to use another company's machines, and banks will tack on additional costs for foreign branch or bank withdrawals.
Wealth management, trust services and other financial planning will cost more, as well as charges related to handling loans. Branches will have less authority to waive fees for money orders, traveler's checks, etc. "Their discretion will be limited," says Wendel.
The biggest banks will be the worst offenders. "Big banks charge the biggest fees," says Edmund Mierzwinski, consumer program director at the U.S. Public Interest Research Group. Industry consolidation gives them the clout to make such changes. Fewer competitors mean more pricing power. And customers are going to be willing to pay to stay with a bank they know and trust. Banking with a familiar name gives them security that the bank won't fail and a lifeline for future loans.
Still, consider switching to a credit union or community banks for a better deal. And if you're a cost-conscious consumer, be sure to shop around and to be vocal about unfair charges. And always watch your monthly, quarterly and annual bank statements closely for unusual charges.
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Reader Comments (4)
Posted by: Bob at 11/21/2008 10:24:08 AM
Every time I read an article like this I wonder whatever happened to the consumer protection our government should be providing. While financial institutions whine about restrictive regulations,it's obvious that there aren't nearly enough to protect the customer. It wouldn't be hard to set standard limits on fees and charges and the practice of processing the largest checks first to increase overdraft charges is nothing less than theft. In the past year I have received letters from banks,a credit union,and my credit card companies about increased fees. The rules were complicated and I needed a magnifying glass to read the fine print. The most insidious thing was the credit card company changing billing dates. Anyone used to paying the credit card on the same date every month would almost certainly be caught if they hadn't read the notice very closely. One company even issued a new credit card with a new number a year earlier than the expiration date on the old card. Supposedly,because of a system change, the first month's payment on the new card would be on a different date and revert back to the old payment date after that. (An opportunity for two late fees in a row.) With our aging population, fine print should be illegal and the rules should be simple with no confusing legalese that many people can't understand. The elderly seem to be targeted with increased frequency by many businesses. One elderly lady told me that if she received a bill, she MUST owe the money. She couldn't believe that a business would try to over bill her. I have been helping her check her bills over the past four years and have found more than sixty overcharges totally over $12,000. These were from two local hospitals,three local doctors, two insurance companies, and one credit card. Every business that I called for her brushed it off as a billing error. Worse yet, these businesses tried to use privacy laws and HIPPA to keep this lady from getting any assistance.
Posted by: rdzins at 11/21/2008 12:09:03 PM
I agree with Bob, something needs to be done with the fees, and corruption that a bank hands out, I would say fire the big bank and go find yourself a local community bank or credit union that actually wants and values your business.
Posted by: Helen at 11/23/2008 10:32:35 AM
Bob, Try reporting this abuse to the Commissioner of Banking. It seems once they get involved initially (not they favor the consumer in most cases)but I've experienced the Bank initiating the abuse is a little more willing to work directly with you on your issues after the Commissioner's office contact them.
Posted by: Bob at 11/24/2008 11:26:35 AM
Helen,i f it were only that easy. State banks,national banks,credit unions,and others all fall under different laws and jurisdictions. Twenty years ago I personally knew almost every bank president in town. Now almost all of these financial institutions are owned by larger ones out of the area. On more than one occasion when trying to help an elderly person, I have sent a local banker running to the phone for legal counsel from the home office. One local credit union now demands that a POA list EVERY possible type of financial transaction individually or they won't honor it. They are basically challenging anyone with a complaint to take them to court. So Helen, not only are there not enough specific regulations to protect the customer but these megabanks are using their political clout and legal departments to fleece every dollar out of every loophole. These techniques increasingly seem aimed at preventing those that need help the most from getting any,especially the elderly. In years past ,if a dispute came up, I would simply close my accounts and move to another bank but they ALL have recently doubled the penalties for early withdrawals. Like every other definition being reversed these days, a bank robbery means that the bank did the robbing.