Fee Revenue: Does a Higher Overdraft Fee Make You More Money?

In strategic planning meetings, new ways to increase fee revenue are often discussed. One option that inevitably comes up is raising overdraft/NSF fees. Does raising the fee by 10% add 10% to the bottom line? The answer is a resounding “no!” Raising your overdraft and NSF fee amount will impact you in three areas:

1. Attrition – The higher the price, the greater the attrition. Banks and credit unions charging less than $25 average an attrition rate of 12.27%, while  financial institutions with prices between $25 and $35 average an attrition ratio of 14.6%.

2. NSF Frequency – The higher the price of an NSF item, the lower the NSF frequency (number of occurrences the average customer experiences per year).

3. Collected Fee Income – The decline in frequency more than offsets the increase in price.

Bottom Line: Increasing your price per NSF item may lead to less fee income per customer and attrition rates will rise. That will result in even more negative impact on overall profitability.

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