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Why Your Checking Account Cost What it Does?

Why Your Checking Account Cost What it Does?

There’s so much fuss about fees. People are irate, saying they are paying too much. Financial institutions are looking for ways to make up for paltry profits, so they hear the din of the Occupy Wall Street crowd, as well as the complaints of grandma and grandpa.

Such debate requires a bit of dissection. Who’s paying for what why?

There’s an enlightening bit of info on the American Bankers Association website, The Cost of a Checking Account fact sheet is revealing for sure. According to the ABA, the cost of opening an account runs between $150-$200 and the yearly cost of maintaining an account runs between $250-$300. Where’s all the money going? The expense of processing transactions, providing monthly statements, investing in payment system technology and software, paying the cost of tellers, ATMs, and online banking, staffing call centers, complying with regulations, ensuring privacy and data protection, and preventing fraud and covering fraud losses. It is estimated that about half of checking accounts are unprofitable in a “good year,” and with more regulations on the horizon and business environment changes that number is expected to jump to 75%.

To dig deeper, consider the cost of convenience. You want access to your money 24/7, well that means branches, tellers, ATMs, they might just stand there but they require set up, maintenance, then there are the debit card, online and mobile-phone banking systems. And while technology is grand, because it is ever changing, banks efforts to keep up don’t come without a hefty pricetag, there is continued maintenance and upgrades. It’s not hard to imagine the costs involved in staffing and the legal and compliance areas, but what may not be top-of-mind is what it costs for banks to battle with scamsters.

A recent survey by ABA this fall looked at bank fees and concluded that 71% of bank customers are finding ways to avoid paying any fees, and 82% of customers spend $3 or less in monthly bank fees for services such as checking account maintenance and ATM fees.

Not seeing eye-to-eye

While the banks have their perspective, the people have theirs. Nearly three-fourths of Americans with checking accounts support regulations that would require banks to better disclose the terms, conditions and fees associated with their checking services, according to a poll this summer commissioned by Pew Health Group’s Safe Checking in the Electronic Age Project. In fact, those surveyed said they wanted the newly minted Consumer Financial Protection Bureau to put checking accounts, which 9 out of 10 adults have, safer and more transparent. What were the requirements people cried out for?

Eighty three percent said they wanted to require banks to provide a summary of information about the overdraft options they offer, how the options work and a description of fees;

Seventy-five percent thought banks should be required to offer a one-page summary of information about their checking accounts’ terms, conditions and fees;

Seventy-five percent wanted banks to have to process transactions in the order in which they are received, instead of processing them from highest dollar amount to lowest dollar amount, which can up the odds of incurring an overdraft fee;

Sixty-nine percent would like to see banks limit overdraft fees based on how much it costs the bank to provide the overdraft.

According to a recent Bankrate.com Checking Account Survey, free checking is on the way out in 2011. In its recent survey, just 45% of non interest checking accounts were free, down from a peak of 76% two years ago. More banks are also charging maintenance fees for checking accounts, and those fees are rising. In Bankrate’s survey, the average account maintenance fee rose from $2.49 last year to $4.37 this, an increase of 85%.

Fee furor not likely to fade

For the time being, the debate over fees isn’t going away. Afterall, as Time magazine says, the person of the year, is The Protester. Don’t expect them to give up the spotlight, but to carry on and take on more issues. Speaking up, complaining is en vogue. Banks and any other institution with a bit of blemish, should expect to continue to be whipping boys of sorts.

Fight back

But smart consumers will go beyond getting mad. Face it, there’s no free lunch. Get savvy. There are a few strategies for beating those fees that get you all hot and bothered. For one thing, many banks still offer free checking for meeting conditions, such as signing up for direct deposit. Generally you’ll save yourself a bit of fee angst by using your banks ATMs or those affiliated with your bank. Be mindful of any minimum balance requirements and if you watch your spending and don’t zero out your account, you can avoid overdraft fees.

What’s the bottom line? Each side can work a little harder to come to a compromise, no?

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Anonymous   |     |   Comment #3
There's no way the 82% who pay less than $3/month is an accurate statistic.  The study was done by banks to show that banking services are cheap.  If they wanted accurate information, they have plenty of more accurate internal data to mine.  I work with plenty of people on financial matters, and I see the $103 ATM transactions, foreign transaction fees, and $6 monthly fees all over the place.  Plenty of customers don't notice or don't count how those fees add up.
Anonymous   |     |   Comment #4
I agree that it costs a bank or credit union something to process the application and to investigate me at Chexsystems and/or a credit rating service.  But once I am in and getting e-statements, all I cost is a little space on their hard drive.
Anonymous   |     |   Comment #5
If they are not making any money - then why are all their ceo's paid millions of dollars a year.  And the poor teller is making $7.00 if they are lucky.I use to work for a bank.  Lasted 6 months.  That was enough for me.
51hh   |     |   Comment #9
I will join all the Anon. "debates" one week before Christmas; :D

The banks/credit unions are making money, or else, they will close their shop.  So, don't worry about them.  For example, there are millions of people who trust banks with their life savings at zero return.  There are millions of people who borrow from credit cards; treating that money as their own (paying 18% ot higher interest regularly).  There are numerous hidden means that banks make huge money.  Checking account is just one way to attract people to the money trap; not the ultimate goals.

The prudent depositors know how to make the best of checking accounts, without being bitten by all the "side effects/fees."  So don't worry about them/us, either.

Happy holidays and enjoy the joy and peace, folks.:-) 
Anonymous   |     |   Comment #12
To all those poor, destitute bankers, I have one word: "Waaaaaaahh!" Tell me... how much was (insert ANY bank)'s CEO pay this year?

It's interesting (and telling) to note that you don't see a rash of credit unions (who typically don't charge these checking fees) going under. My main "bank" is a credit union (been with them for 20 years) and I also "bank" with two other credit unions. I've never once paid a monthly monthly or upkeep fees for checking, and even looking at their health ratings here on depositaccounts (and Bankrate and Bauer), they seem to be mighty strong and healthly. So gee, how could that be, without them charging their customers all those "necessary" checking fees?

Could it perhaps -- just perhaps -- be that maybe part of it is the CEO of a Credit Union doesn't take home $11 million a year just for starters?

Once again, everyone together: "Waaaaaaaaahhhh!"

Anonymous   |     |   Comment #13
Ok, let me slap myself and say something I particularly prefere about banks.  THEY give me an actual CD with everything written out on paper!  At my bank, I am considered "a premier customer" so they are not allowed to charge me any fees for anything.  A cu I recently joined does not send out any paperwork or ducuments on CDs even in the "jumbo" size!  I was told to go on the internet and print out what I need!  Is this usual with CUs?  They may give higher rates but I don't like this "long distance" relationship.  Just my opinion.
Rita's Mom
Rita's Mom   |     |   Comment #14
Let me put my opinion in here.  All banks are not "bad," all credit unions are not "good."   We just closed our 7 different accts. at a credit union (locally) where we were "members" for 23 yrs.  Why?  Because their rates are awful and they have 'quietly' raised their fees.  Plus, every week I get an e-mail or junkmail from them about "GREAT RATES!" but they are talking about car loans, home equity loans, etc.  I could care less if they will give me an auto loan at 1.99% (no kidding!) -- I don't need a car or an auto loan.  What I need is more than 0.54% on my money market acct. or 1.70% on my long-term CD. That's what I need.   We moved our accts. to a medium-sized community bank that has better service, lower fees and slighlty higher deposit rates. In my opinion, a lot of the chatter about how great CU's are is overblown.  You have to look at it on a case-by-case basis.  Exception is PenFed, which we do have some CDs at and which is great.  Just my opinion.
rj   |     |   Comment #20
I guess I am just abnornal.  Dont use ATMs or debit cards other than the mandatory 12 per month for each oy my 3 reward checking accounts. Soon to be 2.

I have never paid a "fee" for a checking account in my life. Although often the accounts required a minimim balance.


I still think we have FAR too many banks & credit unions.  Need to reduce the number of them a great deal.


Im pleased with my ING checking which I combine as a high yield savings account. (Can less than 1% really be callied high yield ?)


I agree, we've got one or more TROLLS here that should probably be banished.
scottj   |     |   Comment #21
Any account a bank opens has costs for them, thats why I would think we should see tiered rates coming back more. Lets say it costs a bank $100 to open and maintian a CD, So it costs them $1,000 to open 10 $10k CDs and still just $100 for a $100k CD. Here's to hoping we start seeing a come back in Jumbo's
me1004   |     |   Comment #22
Its no surprise that data came from the banking group. 

This article supposedly is about fees on checking. That data is about cost of ANY type of bank account, not simply checking. And mind you, all those things it is talking of costing the bank money apply to ALL accounts, not just to checking. But the fees are being focused on checking only. Why would that be, unless the argument for them is specious?

Now, the bank makes money by taking my money cheap and the turning around and lending it expensive. That applies to a checking account no differently than any other account. And while I'm sure there are some people who maintain ONLY a checking account with a bank, I am sure that would be only a very few people, hardly any. So, what I have at a bank is a package of money. Sometimes I might withdraw it by going in and involving a teller at the counter. That is free even as it involves actual staff time and requires maintaining cash on hand, security from bank robbers, printing and using withdrawal slips, and all else. On the other hand, I could withdraw without involving a teller, security from bank robbers, maintaining cash on hand, and all else by merely presenting my withdrawal slip through the ACH -- and that we call a check. 

Seems to me the bank should pay me to write a check instead of going in and using a teller -- because of all the money I would be saving them by doing so, no differently than when I use an ATM machine instead of a teller. In fact, the routine is that I pay them, because nearly all checking accounts get lower interest rates, or NO interest, than a savings account, and that difference amounts to a payment form me to the bank. That is, I'm already paying a fee to the bank for my checking account! They now want me to accept less than zero interest for my account!

The bank is holding a package of money of mine, and there is no realistic difference whether it is in a checking account, a savings account, or a CD, because it is the overall package that matters, spread out among all those things. I pay for those parts of the package that are used more often for deposits and withdrawals by getting a lower interest rate, or no interest rate, as compared to the CD -- the banks are not giving me anything for FREE. 

They lend out MY money to borrowers at quite a bit higher an interest rate than the CD rates, even if it is my checking account money they are lending -- far, far more than it costs to handle my account. That difference is how much I am paying the bank -- Yes, I am paying that by accepting the lower rates offered by the bank, rather than lending it myself. 

These fees they are pushing are just double dipping. They are just greed. We have bank CEOs out there making 10s of millions of dollars a year, and they want to continue to pocket that much and ever more, rather than accept a more legitimate pay level. That is all the fees are about. And all they are trying to do is trick the public into thinking they have been getting something for free -- and that is just a lie.
nashir   |     |   Comment #23
I think Checking Account Cost is overor higher to collect from customer.
ImperialMatt   |     |   Comment #24
One other thing to keep in mind is that for every dollar you deposit, the bank gets to "magically" turn it into nine dollars to lend out. So they are collecting interest on money that was created out of thin air, or rather your gracious deposit.