Bank Fees Still on the Rise

Flush with their $700B in bailouts from taxpayer dollars, are your banks showing you the love?

Quite the contrary. Banks continue to increase their non-interest fees and charges as a way to mitigate the huge investment and loan fees suffered as a result of the financial crisis and by all indications this is unlikely to change any time soon, with or without an economic recovery.

Banks like to point out that these charges are completely avoidable as long as you pay bills on time and don’t spend any money that you don’t have. Whether you take the banks at their word or not, there are indeed ways to avoid fees such as
unnecessary service charges, insufficient funds (NSF) and overdraft charges, late payment fees or getting your interest rates raised.

With new regulations looming in Congress, America’s financial institutions are paying close attention to squeezing every dime onto their bottom lines, so you need to pay attention too.

So when was the last time a $1.25 espresso actually cost you almost more than $100 when it triggered a cascade of bounced payments?

A new study by Bankrate.com shows banks are continuing to boost bottom lines at your expense by racking up record fees and charges—before new Federal Reserve rules, expected by year’s end, force them to reduce or eliminate such penalties.

Every time you bounce a check, overdraw with a debit card, dip under a minimum balance, or use another institution’s ATM, banks clean up. The cost of careless banking has risen to an all time high. Based on a survey conducted in August, Bankrate found that, compared to last year:

· NSF charges on bounced checks increased 2.1% to an average of $29.58.

· Tiered overdrafts, which increase charges at the second or fifth bounce over 12 months, now average $33.88 and $36.19. (Some banks admit to processing the largest of multiple payments first to rack up more charges.)

· ATM surcharges rose 12.6% to an average of $2.22. (Banks increasing the fee outnumbered those reducing 7-to-1.)

· Monthly service fees for interest bearing accounts were up 5% to a record average of $12.55.

· On a positive note, Bankrate found that 76% of non-interest bearing accounts are now free of monthly service charges or minimum balances.

“Take steps to avoid fees,” suggests Bankrate senior financial analyst Greg McBride. “Note any fees and balance requirements of your account, request a link between your checking and savings accounts, and keep track of the available account balance so that your money stays your own.”

The FDIC calculates banks will earn as much as $43.6B from non-interest income related to deposit accounts in 2009, which apparently doesn’t even include non-network ATM surcharges. According to economic research firm Moebs Services, 44.5% of banks and credit unions earn more on non-interest revenue such as fees than on interest income.

Bankrate’s Laura Bruce suggests six tips to avoid getting stung by fees:

1. Visit bank websites to investigate your options

2. Choose a checking plan that has only the features you need

3. Know your balance and don’t risk a bounce

4. Plan for cash needs and only draw cash from your bank’s ATM

5. Consider interest checking only if it’s high-yield and you can maintain the required minimum or meet other requirements such as direct deposits

6. If necessary, connect checking to overdraft protection with a savings account or credit card. (Otherwise, be sure to tell your bank to turn off automatic overdraft protection on you ATM and debit card transactions).

Banks claim that mechanisms such as clearing checks against insufficient funds amount to a service rendered—and indeed, it’s only about 25% of Americans who “take advantage” of these services. On the other hand, the FDIC characterizes such charges as unregulated lending that often costs consumers the equivalent of thousands of points of annualized interest. On that basis, even the typical interest charged by payday lenders pales in comparison.

Last month, a number of major banks, including Wells Fargo, JPMorgan Chase, and Bank of America already promised to scale back their assessments for overdrafts, especially when the shortfall is less than $5 or $10. But as one Daily Mail writer quipped when UK banks finally lowered their rates last year (from overdraft charges as high as £38), “If charges are fair, then why lower them?”

Steve Barth blogs about work, play, society and politics at Reflexions.