Fees Higher as Banks Seek Additional Revenue

It will still pay to shop around, but finding free checking and other services will get harder.

Most banks will implement some sort of new fee or increase existing fees in the next year. Executives say recent laws banning or capping fees on credit cards and overdraft services leave them no choice but to look for ways to recoup what is said to be millions in lost income.

Most of the large banks are raising the ante on checking accounts, requiring direct deposit of paychecks, higher balances, electronic statements and more to get free checking. Bank of America is testing tiered pricing on its checking accounts, for example. The North Carolina bank launched a new eBanking checking account, which will cost $8.95 per month if customers don’t receive their statements electronically or need to visit a branch. Since the account launched in August, half of new checking accounts fall into this category.

Wells Fargo changed its free checking to value checking, charging $5 a month for customers who don’t have direct deposit or maintain a minimum balance of $1,500. It will charge $2 for check images on paper statements and $10 for transfers to cover overdraft transactions. Banks are also charging 4% for cash advances and balance transfers, up from 3% last year.

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Expect smaller banks to follow their larger brethren down this path of higher fees. For the moment, though, small banks, which don’t have resources to do extensive market testing, are watching closely to see how bank customers react to higher fees. They’ll have to balance the need for revenue against the fear of losing customers.

Nearly 20% of small and medium companies are considering shifting their banking business in the next year, according to Greenwich Associates’ latest MarketPulse survey. Half of those who are looking to change banks cite fees as the biggest reason. Better service and access to credit are also big reasons small and medium-size companies are looking to switch banks.

"Unfortunately, it seems that this high level of activity is being driven as much by negative factors associated with the recession and credit crunch as by positive developments such as an increased demand for capital in step with an economic recovery," says Greenwich Associates consultant Chris McDonnell.

For consumers -- individuals or companies -- it’s worth exploring what differing banks offer because the requirements for fee-free banking will vary from bank to bank. One package may still work for you.

Karen Mracek
Associate Editor, The Kiplinger Letter