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%):
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:
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:
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:
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:
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:
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:
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:
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:
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.