For the last few years, savers have been punished by banks offering low interest rates. If that weren’t enough, banks now want depositors to pay for the privilege of putting money in a bank. In the world until recently, banks sought depositors because they used the public’s money to increase lending to borrowers who were willing to pay for the privilege of using someone else’s money. The tables have been turned. Rather than borrowers paying for the bank’s services, depositors are paying through an increasing barrage of fees.
A number of banks have been testing debit card fees. Bank of America is moving beyond the testing phase and will begin charging all debit card users a $5 monthly fee soon. Citi found another path towards customer-generated revenue. Until now, the Citi checking account (called the “Citibank Account”) has featured a $20 fee for customers who haven’t maintained a $6,000 balance. With the introduction of the new fee structure, the new minimum balance to avoid the $20 fee will be $15,000, combined across savings and checking.
Another Citi option, the “EZ Checking” account currently has no fee, but the bank will now be charging a $15 fee to all customers who have this account with a balance lower than $6,000. The “Basic Checking” account will receive a fee increase from $8 to $10 for accounts with less than $1,500.
In order to make the $20 fee for the Citibank Account easier to swallow — and the fee may not be significant to customers who do keep that $15,000 minimum balance — Citi is offering a few perks for new customers. At the same time Citi is changing the fee structure, they are introducing a promotion to acquire new customers. I’ll write about the promotion in a separate article. For most customers, the $20 monthly fee outweighs any possible rewards.
This is the new state of the banking industry. It’s easy to blame increased fees on new regulations that limit the industry’s ability to generate revenue from merchants, as banks turn to customers to become the next cash cows. Other reasons for the industry’s desire to find new fees include Basel III compliance which requires banks to increase their financial strength and new SEC regulations for money market funds which require banks to make safer (and less lucrative) investments with their own money. Banks are eager to jump at the chance to punish customers and blame the government. No one is forcing banks to turn to customers to keep profiting, but without banks profiting from offering loans either, it’s the only untapped source.
As public companies that answer to shareholders, banks are obligated to find as many methods as possible to profit — even to earn outsized profits while taking advantages of customers who feel they have no option other than sitting back and taking it and customers who aren’t paying enough attention to know they’ll be paying more fees.
The more I see the banking industry’s path, the stronger I believe in the importance of credit unions. Find a credit union and move your money before banks find more ways to part customers from their money. If you can’t find a convenient credit union for which you qualify, take a look at PerkStreet’s checking account with a 5% cash back debit card.
Updated October 6, 2011 and originally published October 5, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.