It’s was nice to feel like we won, at least for a short period of time.
Banks are once again dreaming up new fees to recoup losses that have come from tighter financial regulation as a result of the 2008 and 2009 financial collapse but until now it’s only been a dream.
What the Fees Are For
Happy March 1st to Bank of America (BAC:NYSE) customers who may have read the reports that the nation’s second largest bank is piloting a program in Arizona, Georgia and Massachusetts that would charge $6 to $9 for what they are calling the Bank Essentials program.
Taking away the marketing lingo, this means that customers will pay a monthly fee to have a checking account at Bank of America and it doesn’t stop there.
Other fees being tested by BAC include fee structures of $9, $12, $15 and $25, a price sure to turn off many customers.
Why Do They Need a New Fees Structure (or Why Are Customers Leaving?)
A recent survey by J.D. Power and Associates found that the number one reason that customers leave their bank for another is because of fees. This proves that customers don’t want to be charged by a bank that may be using their money to add to their own revenue stream, but that may not be entirely true.
New legislation severely limits a bank’s ability to use existing deposits as a way to make money.
That, along with the closure of many banks’ proprietary trading desks, have made consumer checking and savings accounts a net loss. Bank of America’s 2011 net revenue was $26.2 billion, a drop of 22% from its 2009 levels and other banks aren’t much better off. [source: http://www.forbes.com/sites/mickeymeece/2012/03/01/big-banks-are-on-the-hunt-for-new-fees/]
As Bank of America CEO Brian Moynihan said,
“The issue is when people flip their relationship and use our convenience and access…and online banking product and all that and have the relationship elsewhere that’s tough for us…”
His comments speak to the idea that in today’s economic environment, it’s unrealistic to think that a customer who uses a bank for nothing more than a checking and savings account will produce enough value for the bank that they can make that customer’s experience fee-free.
Perhaps major banks have their hands in too much these days to produce enough value in checking and savings for the customer to stay?
There’s Hope for Customers
Although BAC, and other banks, will ultimately charge fees for their services, BAC notes that for customers who use other products offered by the bank and keep a minimum balance on deposit, these fees will be greatly reduced or eliminated entirely.
Many customers may not see any fees due to the accounts and balances they already have. But for others, they will need to keep track of minimums or open up new account products to avoid the fees. Or they can pay the monthly fees.
This a la carte banking model may preserve some of the customers who would have gone elsewhere due to these new fees but history has shown that when a bank introduces new fees, community banks and credit unions pick up new customers.
According the same JD Power and Associates survey, “Acquisition of new customers by smaller banks and credit unions has increased by 2.2 percentage points, to an average of 10.3 percent in 2012 from 8.1 percent in 2011.”
This would seem to indicate that very soon, websites like Change.org may once again go to work encouraging people to boycott the mega banks and take their money to the small community banks and credit unions. [source: Forbes]
What do you think?
If Bank of America and others institute a new round of fees, will you take your money to a community bank or is it reasonable to ask customers to pay the fees if they can’t satisfy the terms that would allow them to avoid the new costs?
Is it reasonable for banks charge fees for products that essentially lose them money? Or should they step aside and let smaller banks take up personal savings and checking accounts?
Has basic banking become a service we have taken for granted? Or do you think savings/checking customers are taking the brunt of poor bank decisions as well as being the scapegoat for legislation limiting what banks can charge?
Let us know below.
Thad P @ thadthoughts.com says
What large banks try to do to generate revenue doesn’t surprise me, but what I don’t understand is why individuals continues to bank with large banks? What advantage does it, ostensibly, give that a smaller bank or credit union doesn’t?
Glen Craig says
I think for a lot of people changing banks is a major pain they don’t want to deal with. They get so entrenched with direct deposit and automatic payments and such that it’s too much trouble for them.
Not a great reason, but that’s the reality of it.
There are some convenience reasons, but you are right, most can find much better options to paying fees at smaller banks that are more focused on customers rather than business.
Thanks for the heads up Glen! I am not surprised about these fees, especially because banking is one area where people do have a lot of options, and I am sure larger banks have lost a lot as a result – especially with the rise of online banks like ING . You are absolutely right that being used to the online banking experience I’m used to is one of the reasons I haven’t shopped around, but I have no problem leaving if they start taking my money.
Glen Craig says
It seems like BofA, and other big banks, are in a perpetual tailspin. They say they are losing money so they raise rates. What happens? Bad press and customers who don’t want to pay the fees leave. Then they have less customers and aren’t making as much money. So they raise fees…
Unless what they really want is to weed out the small fish?
Money Beagle says
They just don’t know when to quit with the greed. Fact is they’re making money but apparently someone thinks it’s not enough money so they keep coming back to the well.
Glen Craig says
When a credit card charges an annual fee you are usually getting some kind of service or reward in return. With these bank fees you don’t get any premium you didn’t have before. Maybe if they said something like ‘yeah, it’s going to cost you $X a month but you aren’t going to pay ANY ATM fees’ then maybe it would be something people considered. Instead, people see the fees and get upset.
Big banks like Bank of America do not care about the little people. They only care about their middle market and large customers because that is where they make their money.
I remember representing a Fortune 100 company with Bank of America and how they literally fell all over themselves to accomodate what ever I asked for. They knew there would be millions of dollars in demand deposits for years. It is all about the money.
Glen Craig says
You know what? If they want to be a corporate bank then so be it. I have no problems with that. They should just say that. Or split off the personal banking into another company or division.
A corporation’s sole purpose is to make money. That’s it. If the powers that believe that this is a profitable position, long term, then I say all power to them…it is the responsibility of the people to revolt to a different bank.
Glen Craig says
Absolutely agree with you that it’s up to the people to leave if they don’t like it.
BUT, I’m also for a bank failing in a free market if they prove they aren’t profitable too. I’m not saying they owe people no fees for being bailed out. But it does seem like a poor choice on their part. At least that’s how I see it.
Stock Tips Investment says
In practice, this ends up being an increase in the effective interest rate paid for the services offered by this bank. I would argue that we must spread transparently expenses, commissions and other items that charge ALL banks. In this way, people can work with the bank that best suits our needs. Until recent years, people looked big banks mainly for three reasons: 1. – Security (to be very large very solid)? 2. – Multiple services. To be very large, they can usually offer more different services. and 3. – Because they were cheaper. Being very large, the economy of scale allowed them to charge less.
I wonder. Today some of these reasons still valid?
Julie @ Freedom 48 says
There’s a few different banks out there with no monthly service fees – so it’s easy enough to pack up and move to them in order to eliminate those pesky monthly fees. I’m surprised the big banks haven’t followed suit though – you’d think they’d be losing a TON of customers! Perhaps that’s why a lot of them have resorted to raising their monthly fees?
Glen Craig says
Well, I think many people DON’T leave their banks when fees are increased. And I think many people don’t understand or ignore the disclosures that come in the mail when banks announce their fee structure changes to customers. Not everyone but a lot of people.
Then you have those who don’t want to go through the trouble of trying to figure out all the different accounts that may be linked to their bank and they end up just not bothering.
Is that a great reason or answer? No. But I think it’s the reality unfortunately. It’s why back in the day a bank could give away a toaster ovens and such – they knew once they had a customer they would probably stay. It was worth it to give something like that away.
For me, the number one reason for not switching banks is because banks do a credit check just to open a new checking account. That is outrageous.
Otherwise, I’d skip banks in a heartbeat.
Young Professional Finances says
The only reason I’m still with BoA is because it’s just such a hassle to change banks now – like Glen said above, it’s just a pain in the butt now that I have direct deposit/automatic payments set up.
However, if they are seriously going to charge fees, I’ll be out of there the next day. I bank with ING also and I’ll just move all of my stuff over there instead. I might just do that soon anyway since it does seem like this is the path that BoA is heading down.
Glen Craig says
They do seem to keep coming back to it, don’t they?