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Banks Make How Much Income From Fees?!

A couple of months ago, we began a continuing series considering common banking fees, kicking it off with an overview of overdraft and NSF fees, then moving into a more in-depth look at the corresponding numbers, and most recently considering a way to use overdraft protection transfers to the consumer’s advantage. In this article we’ll zoom back out and answer a broader question on bank fees, namely, what percentage of financial institutions’ income is comprised of fees? Research on that question focused on FDIC data and led to some rather interesting findings.

Total Fee Income

Fee income, as defined by the FDIC, is income generated by "service charges on deposit accounts held in domestic offices (e.g. fees related to: the maintenance of deposit accounts with the bank, failure to maintain specified minimum deposit balances, checks drawn on so-called ‘no minimum balance’ deposit accounts, so-called ‘NSF check charges,’ that the bank assesses regardless of whether it decides to pay, return, or hold the check, etc.)."

In other words, though it bears definition, it is as simple as it sounds–the fee income that we’re looking at in this study is simply that which banks generate from any fees charged on their deposit accounts. The total amount of such fee income created by banks in 2015 was a whopping $34.6B. Shockingly, that amount of fee income averages out to about $107 per American (323.6M people), including every man, woman, and child, account holder or not. That would be about $4.75 per person if calculated for the entire world’s population. Those are steep numbers, and that’s just for one year’s worth of bank fees!

Fees as a Percentage of Total Income

Banks generated a whopping $896.1B in overall revenue last year, and whereas the fee income produced by those same institutions is a large number, it actually makes up a relatively small percentage of total income (3.86%):

Percentage of Bank Income Generated by Fees

Not surprisingly, when we broke the data down according to institution size, we found that the vast majority–just over 78%–of fee income was generated by the largest institutions:

Total Fee Income In Banks By Institution Size

That said, because of the equally sizable disparity in overall revenue between these categories of banks, they actually produced very similar numbers as it pertains to the percentage of overall income comprised of fees, showing only a slight uptick in the large category:

Average Percentage of Bank Income Comprised By Fees

Yet still, individual account holders at the largest banks pay the highest amount in fees on average to the tune of a 26% higher rate than the average fees on accounts at the smaller banks:

Average Fees Per Account

As the data shows, the smaller institutions definitely proved to be more consumer friendly as it pertains to fees than their larger counterparts.

Institutions with Notable Fee Income Amounts

The next step in our research was to move from a macro view to a micro view and consider some of the data on the level of individual institutions. We began with a close up look at the banks with the highest total fee income. The following chart contains the top 10 highest fee income generating banks, and some of the banks’ ordering stands out. Take a look:

Banks With highest Total Fee Income

It makes logical sense that larger banks would collect more fee income than smaller banks, because they have more accounts from which to generate it. Notice, however, that the rankings for total fee income do not exactly match up with the rankings by asset size in the chart above. The largest four banks are on the list, but Citibank, the fourth largest bank by asset size, is only the ninth largest producer of fee income. On the other side of that coin, Regions Bank is 19th by asset size but holds the number seven spot for fee income. Certainly, while asset size and fee income do generally correlate pretty closely, some institutions seem to have more of a focus on fee income than others.

With that in mind, another helpful way to dissect the data is to calculate the average fees per account by simply dividing the total fee income by the number of deposit accounts at a given institution. That sort of calculation takes asset size out of the equation altogether, pitting the banks against one another on a more even playing field, in a manner of speaking. The following chart shows fee per account data from several of the banks in the above list plus a handful of other banks of particular interest to many of our readers, including a few prominent internet banks:

Fee Per Account Averages

As you can see from the chart, the internet banks had far lower fees, for the most part. Notice the particularly low fees per account at Discover Bank ($1.06), Ally Bank ($2.24), and CIT Bank ($6.33). The traditional banks, on the other hand, had a much higher fee per account average than the others on the list. Regions led the way with a $106.61 per account average. Notably, Citibank’s average was far less than the other three megabanks at the top of the chart.

A Few Interesting Trends

One reason we conducted this research is the amount of attention that has been given to rising fees in the banking industry over the last several years. While it may be true that new types of fees have arisen and some individual banks may have increased their fees, the main measures we studied have remained relatively flat since 2010. Fees as a percentage of total income has barely fluctuated at all. Total fee income has fluctuated a bit, but it has both risen and fallen, not solely increased. It is also worth noting that total fee income in 2015 was nearly $2B less than it was in 2010:

Total Fee Income December 2010 – December 2015

Fees per Account Over Time

Another interesting trend we noticed while researching these numbers is the movement in average fees per account over that same time period. The average fee per account in banks has risen from a low of $50.46 in 2011 to a high of $59.72 in 2015. The culprit is a fairly stable total fee income paired with a decrease in the number of accounts in banks over that time (659.5M accounts in 2010 vs. 579.2M accounts in 2015). The movement of the average fees total per account is illustrated in the following chart:

Average Fees Per Account December 2010 – December 2015

Non-Interest Income

A third notable trend was in the percentage of non-interest income made up of fees. Non-interest income is defined by the FDIC as "income from fiduciary activities, plus service charges on deposit accounts in domestic offices, plus trading gains (losses) and fees from foreign exchange transactions, plus other foreign transaction gains (losses), plus other gains (losses) and fees from trading assets and liabilities." In other words, it is income generated from activities other than the interest margin earned on the core banking model of borrowing (deposits) and lending (loans). In addition to fees from deposit accounts, those income-generating activities principally include investing, trading, advisory, and wealth management services. Whereas we’ve noted that fees as a percentage of total income has remained rather static since 2010, fees as a percentage of non-interest income has steadily fallen in the same time (from 15.36% to 13.65%). The trend seems to point to the fact that financial institutions are looking to other sources of income than fees to boost noninterest revenue.

The breakdown of the percentage of non-interest income made up of fees according to institution size is as follows:

Percentage of Bank Non-Interest Income Comprised of Fees

The smaller institutions are more dependent on fees for non-interest income, while the larger institutions are able to expand their non-interest income by offering additional products and services that many of the smaller banks do not offer.

Lower Fees Make a Difference

Regular readers of the information on this site are always looking for the best ways to maximize returns from their deposit accounts and minimize losses through unexpected or unnecessary expenditures. One of the best ways to accomplish that is by not only searching for an institution with the best product rates, but also those with low-to-no fees on the same accounts. Unfortunately, for a very large number of Americans, the above analysis indicates that costly fees are still all-too-common.

Previous Comments
  |     |   Comment #1
It's not that we are not aware that many of these larger banking institutions impose a plethora of fees on their customers. What is objectionable are the 'surprise' fees that pop-up on one's statement at the end of the month because they think they can sneak the fees in on the customer.
  |     |   Comment #2
What surprise fees?  If something during the month "happened" that would trigger a fee, why a surprise?  If nothing happened, then why the illegal fee...can you expand?
  |     |   Comment #3
Surprise! Your monthly statement in the mail will now cost you $5.00 which was free before. Of course a revised disclosure was mailed to each customer prior to implementation printed in legalese format. But what the heck, who reads those anyway.
  |     |   Comment #4
Thus, the real question is...then...what did you do?  Argue with them, close the account, increase the balance or....just wait for the next gotcha?
  |     |   Comment #7
Without any "argument" I got a refund of the $5.00 fee and switched to an account that only offers monthly statements online. The customer service representative at the institution stated they should have sent out a separate notice regarding the change instead of the updated disclosure.
  |     |   Comment #6
Come on! You receive a notice and you don't read it, then you blame the bank!
  |     |   Comment #8
It was not a "notice". They sent out a revised "disclosure" pamphlet with the new fee buried in the middle of it. The bank counts on people not going over those disclosures with a fine tooth comb.
  |     |   Comment #9
Should be specific notice on changes...not like what an ins co.just sent me during the policy term, a new declaration page with nothing specifically called out.  My view  No consideration on my part for any changes during the policy term and thus whatever the changes are, they are ineffective.  Suggest you send a notice to the bank on what your terms are, i.e. no changes without specific notice AND no changes to current CDs!  You can then argue later that they had a duty to speak out if they disagree with your notice.  Do the best "we" can.
  |     |   Comment #5
I dont think I have EVER had a fee from a deposit account. I am careful not to.
  |     |   Comment #13
RJM, how much money you get in interest every month from your checking account, I guess $0.00, that is your contribution in hidden fees, being careful is irrelevant.
  |     |   Comment #10
Banks are just like any other business and can charge whatever fees they want......What?........Are they not supposed to make a profit and just cater to your needs?  Banks employ hundreds of thousands of people. How are they supposed to be paid and feed their families?  All of you whiners work for free? You don't take any wage or salary?
  |     |   Comment #14
Don't ask what your bank can do for you, ask what you can do for your bank.  Walk with your feet... to the best Credit Union you can become a member of.
  |     |   Comment #16
I use CU's for my savings when adventitious .  I use Chase for my checking only.  I need a local bank that I have relationship with for signature guarantees and Chase has very convenient branch locations for me and ATM's.  CU's don't pay taxes and banks have to.  Is that fair?  Some easy membership CU's operate almost the same as a bank.  Also,  Thanks to all those who pay fees or credit card interest that help pay for the bank services I use and the credit card rewards I get!
  |     |   Comment #17
I always read the fine print in order to avoid any possible fees but banks can be very sneaky about even the way the terminology is used in the fine print. For example my bank says no monthly fee if you are signed up for direct deposit otherwise you have to keep $1,500 in the checking account to avoid the $12 monthly maintenance fee. Well we have the direct deposit set up but my wife gets paid over 9 months instead of 12 so I got slapped with the fee because even though we have DD we don't have it every month. I called the bank to get the fee waived and explained my issue with the wording on the fine print and they said I would be charged the fee unless I keep $1,500 in a 0% interest checking for the 3 months a year where no DD comes in. High min. balance and stupid rule which has been changed 3 times as it used to be $0 min balance with no DD requirement. Like this article says bank of America has some of the highest fees. They even charge for ACH transfers! Most banks do this for free. I never signed up with BOA as they bought out my old fee free bank. 
  |     |   Comment #18
One thing everyone should be aware of is many times a bank will hit you with a fee for NSF when "they" fail to switch the savings funds into your checking so you can pay your bills.  What you have to do is catch the fee and insist they waive it since it was not "your" error.  I wonder how many people pay fees they don't catch and really need to pay.  Yesterday, I was able to catch and get $55.00 in fees for one month waived due to "their" mistakes!  In our busy world, I think too many customers are paying fees they really don't owe.
  |     |   Comment #21
Our local bank has a $10.00 overdraft fee which I think they are supposed to discontinue in August.  I am not paying them $10.00 to cover a $5.00 overdraft which  is usually due to fees they impose on the account unknowingly to us! I just opted to get alerts for any overdrafts of $5.00 so I can get to the bank which I go to several times a week anyway and cover.  That might work out better for these particular accounts which my name is also on.
  |     |   Comment #22
I highly recommend the book " The Unbanking of America, How the New Middle Class survives", by Lisa Servon.
I learned a lot about who banks, and how they bank, and "debit resequencing", Servon points out that in 2014, Americans paid nearly $32 billion in overdraft fees. She also shares bank history and how they bank, just like any other company hires firms to help them with ways/ideas to make more money. Why so many people are unbanked and underbanked. I personally know people that went from living the dream to nothing left in a year and struggling to just keep up with not being kicked out of apartments. They don't bank anymore because of fees. They also cash their checks received so they can have the cash that moment to pay bills instead of waiting 2-3 days for checks to clear. When people have not been there, they just don't understand the fact that there are some real banking challenges. Not all the fault of the banks, but maybe partially because of certain regulations. All this is in the book. I hope you read it, and help someone in need along the way.
  |     |   Comment #23
Manage your accounts/budget correctly=no fees
Mismanage your account=fees=the bank is stealing from me
  |     |   Comment #24
I have been searching unsuccessfully for over a year to pinpoint the breakdown of the profit realized by these institutions from late fees associate with loan late fees (home, auto, rv, boat, etc). Anyone every nailed down that data? Would really appreciate any help or direction... It appears to be the most closely guarded secret in the industry.

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