A pair of banking studies tell a tale of two fee models: banks are jacking fees and raising requirements, while credit unions desperately try to avoid following suit.
Checking Fees at Banks Continue Upward Climb
Checking and ATM Fees are on the rise at banks, according to a survey from MoneyRates.com. The study finds that checking accounts and ATMs became more costly to consumers in virtually every way possible during the second quarter, with online banks and smaller banks charging lower fees than their traditional and larger counterparts.
When the same study was fielded in late 2011, some bank fees were falling, including monthly service charges. But in the first half of 2012, nearly every fee included in the study went up or conditions stiffened.
“Previous surveys have tended to show more of a mixed bag, with some fees rising and others falling,” noted Richard Barrington, senior financial analyst for MoneyRates.com. “But the latest survey shows a comprehensive trend toward checking accounts becoming more expensive.”
Free checking keeps getting harder and harder to find. Contrary to many reports, free checking is not dead (yet), but it is becoming more scarce. The proportion of checking accounts with no monthly service fee fell to 35.3%, down from 38.8% just six months earlier. Among banks that charge a monthly fee, the average cost was $12.08, up from $11.28.
Average monthly, ATM and overdraft fees all rose. The average monthly maintenance fee was $13.88 at large banks (more than $25 billion in deposits), while it was only $9.87 at small banks (less than $5 billion in deposits). At medium-sized banks, the average monthly maintenance fee came in at $11.17. The average minimums to open an account and to qualify for a fee waiver were higher among the large banks surveyed too.
Minimum balances shoot way up. The amount consumers have to keep in their account to get checking fees waived skyrocketed in 2012. The data revealed an average of $4,446.57 to get monthly fees waived, up from $3,590.83. That’s a jump of more than $850.
Minimum required to open an account. The average amount required to open a checking account was $408.76 in this survey, up from $391.41 in the previous.
Bigger banks, more fees. Smaller institutions, fewer fees. Researchers say consumers are most likely to find lower fees by choosing either an online bank or a smaller bank (less than $5 billion in deposits). Checking accounts with no monthly fee were offered by more than two-thirds of online banks in the survey, compared to only 34% of traditional banks. 45.8% of smaller banks offered checking accounts with no monthly fee vs. only 21% of the accounts offered at larger banks (more than $25 billion in deposits) followed suit.
The cost of overdraft is going up. Overdraft fees continued rising for the second straight quarter to an average of $29.83, up 60¢ from $29.23.
Can Credit Unions Keep Checking Profitable?
72% of America’s 50 largest credit unions offer free checking accounts without a minimum balance requirement, down from 76% last year, according to Bankrate.com’s 2012 Credit Union Checking Survey.
An additional five of these large credit unions will waive monthly fees if accountholders maintain a minimum balance ranging from $100 to $750.
According to Bankrate’s study, only 45% of banks offer free checking without minimum balance requirements, and among those with balance requirements minimums tend to be much higher — $585 for noninterest-bearing accounts and a staggering $5,587 for interest checking accounts.
Overall, 98% of the credit union checking accounts Bankrate surveyed are either free or can become free if the accountholder meets minimum balance, direct deposit and/or e-statement requirements.
Ron Shevlin, a senior analyst for Aite Group, says credit unions can use the disparity in bank fees as marketing leverage.
“I think they’re looking at this as competitive differentiation,” Shevlin told Fox News. “They’re saying, ‘Hey, if these big guys are going to get rid of their free checking, we’re going to keep our free checking account as a way of being able to say we’re different.’”
Shevlin also thinks credit unions may be shooting themselves in the foot by not implementing fees for various checking services.
“I think there are a lot of CEOs, CFOs and CMOs out there in the credit union marketplace that are looking at the economics of their business and saying, ‘This makes no sense. We really should be charging for this.’ And the board is saying, ‘No, this is what we’re all about. We position ourselves as being better and different.,” Shevlin explains.
The number of credit union checking accounts grew 4.4% between the first quarter of 2011 and the first quarter of this year, according to data provided by research firm Callahan & Associates.
How Credit Unions Compare on Specific Fees & Conditions
Monthly Fee – Among the top 50 credit unions, Pentagon FCU charges the most ($10/month), followed by Visions FCU ($8/month). Among the 13 credit unions charging monthly checking account fees, the average was $4.15.
Interest/APY – The majority of the credit union checking accounts that Bankrate surveyed (68%) do not pay interest. Those that do only yield an average of 0.12%, down from 0.17% last year, which is consistent with the ongoing declines seen across all cash investments.
Overdrafts – The average cost of the first overdraft is $26.65, up from $26.05 last year, compared to $30.83 at banks. The most common fees assessed are $25.00 and $30.00, compared to the most common fee of $35.00 at banks. State Employees Credit Union charges the least for overdrafts ($12), while ESL Federal Credit Union charges the most ($37). 15 of the top credit unions charge $30 or more for overdrafts. (Note: If you’re going to charge $30 for an overdraft, why not price it at $29.95?)
ATM fees – 96% of credit unions surveyed will charge a non-member for using their ATM. The average ATM surcharge is $2.08, almost identical to $2.10 last year, versus $2.40 at bank-owned ATMs. The most common surcharge is $2.00, compared to $3.00 charge by banks.
30% of the credit unions that Bankrate surveyed have either no ATM fees outside the network or provide at least one free withdrawal per week before the fee kicks in, comparable to 29% of banks.