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Stricter rules governing how much banks can charge for overdraft and credit card swipe fees have eaten into the profits of big banks, but they have an answer: raise the bank fees their customers pay.
Banks blame increased regulations that limit fees and other charges for wiping out an estimated $12 billion in yearly income. Now it costs banks between $200 and $300 a year to maintain a retail checking account, but they only take in about $85 to $115 in fees per account per year.
In fact, more than half of all checking accounts are unprofitable for banks, according to a study released in 2010 by consulting group Marsh & McLennan Cos. Inc. (NYSE: MMC).
Banks also have lost money on cash they're holding due to few investing or lending options, depriving them of as much as $8 billion in income.
Banks have had to become more creative in finding ways to compensate for their lost income. Free checking is increasingly more difficult to find, and a slew of other bank fees have been added.
"Banks are closely examining what costs they can eliminate and where they might be able to charge, and what the market will bear and not drive customers away," Beth Robertson, director of payments research for Javelin Strategy & Research in California told Consumer Reports.
Avoiding these myriad new bank fees is difficult, if not impossible, for most consumers.
Fees are "rising across the board," Richard Barrington of MoneyRates.com told Marketplace Economy. "And the least you'll need to keep in your account to get free checking has jumped, on average, by more than 800 bucks."
Barrington said that in addition to the growing bank fees, the average balance requirement has jumped to $4,400 -- far more than most people keep in their checking accounts.
Bank Fees Up in 2012
Bank fees increased in almost every category in 2012, according to a survey of 50 of the country's biggest banks. Among the increases:
- The minimum amount to open an account soared from $391.41 on average to $408.76, according to Moneyrates.com;
- Monthly service fees rose from $11.28 last year to an average $12.08;
- The average minimum account balance needed to avoid monthly fees spiked from $3,590 to $4,446.57 (a 24% increase);
- The monthly non-interest checking fee per month has leapt to $10.27;
- Overdraft fees inched upward to $29.83 from $29.82;
- The average fee banks charge non-customers to use their ATMs rose to $2.40 from $2.33;
- Some banks, such as Bank of America Corp. (NYSE: BAC), charge $5 to replace lost debit cards and $20 for a rush replacement. BofA also charges e-banking customers $8.95 every month they use a teller to place a transaction;
- Toronto-Dominion Bank (NYSE: TD) charges $15 for incoming domestic wire transfers. Other banks have similar fees;
- Several banks charge if you close an account too soon after opening it. U.S. Bancorp (NYSE: USB) and PNC Financial (NYSE: PNC) charge $25 if it is closed within 180 days;
- Online bill payment, once free, now costs an average of $6.95 a month;
- Stop-payment fees have surged to an average $31.09;
- Insufficient fund charges now average $34.48;
How to Avoid Bank Fees
Customers who don't want to pay all these new bank fees can seek alternatives.
Credit unions are one option, although some of them have raised fees as well.
According to BankRate.com's Greg McBride, among the nation's 50 largest credit unions, the number still offering free checking with no minimum balance has dwindled from 76% in 2011 to 72% in the latest survey.
Still, that's not a big jump. McBride said their not-for-profit status means they don't feel the same demands as the big banks to wring revenue from customers. He expects many to continue providing free checking, lower balance requirements or whatever is needed to skirt monthly fees
Aside from credit unions, there are small community banks, which tend to be more customer-focused.
Yet another choice is virtual (or Internet) banks. These online banks are not saddled with extensive overhead that weigh on the bank behemoths, so they can offer cheaper accounts and/or higher interest rates.
As bank fees become increasingly burdensome, it's likely more consumers will want to sever relationships with the big national banks.
Barrington urges such consumers to seek out the best deals. With some 70,000 FDIC-registered banks, it should be easy to find plenty of good alternatives.
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Bank accounts: More fees are coming. How to fight back-or flee.