Changes to Bank Account Pricing Structures Are Inevitable
Continued low interest rates and the high cost of technology are causing banks to restructure deposit account pricing. Here is what you have been able to find fairly easily with a local bank:
Free checking with no minimum balance and unlimited check writing, free debit/ATM card, free internet/mobile banking and free unlimited on-line bill payments. Why must that change?
Let’s say you have a checking account with all of the above services and that you average a $1,000 balance in the account. (That is an “average” balance, even after you pay the mortgage, car payment, etc.) For the last several years, the bank has earned as low as one tenth of one percent on this $1,000 but let’s say they averaged earning 3.5%. That is a total of $35 per year, less than $3 per month. A typical community bank will have hundreds of accounts that average less than $250 and earn them 75 cents or less per month. How then do the banks pay all the expenses for the buildings, employees, technology, audits, compliance exams, etc? Historically it was partially from overdraft fees and payments from retailers when you use your debit cards. The banking service and pricing structures are evolving as they do over time in all industries. Why now and what caused it?
In this soft economy, customers have dramatically reduced the number of “hot checks” on over drawn accounts. In addition, new legislation is reducing what banks can charge retailers for processing your debit card. This along with extremely low interest rates has greatly reduced bank revenues. At the same time, customers look to banks to provide increasingly expensive technology (mobile banking, remote deposit capture, on-line payments). Since 2008 community bank costs have also been impacted by additional regulatory mandates. For these reasons, banks simply cannot continue to offer all of their deposit transaction services for free.
The evolution has started and will take a few years to work its way through the banking industry. Pricing will come in a variety of forms. Some banks may continue to offer a “free” basic account but you will pay for each of the additional services you choose to use (debit cards, mobile banking, etc). Other banks may bundle services with a single price. You are also seeing the return of minimum balances to avoid fees. When the changes affect your account, just know your bankers are local business people trying to run a profitable enterprise just like the restaurants, cleaners, farmers, plumbers and auto mechanics. Some well meaning “advisors” will tell you to flee your greedy bank and find one who will treat you better. But do you really expect all of these services to be “free”? Banks will and should keep prices competitive. However, to survive and give you quality service, they must also be fairly compensated. The alternative is that you may eventually lose a valuable asset to your community.
About the Author
Kelly Karns is President of Karns Profit Improvement®, an independent Oklahoma-based financial consulting firm that has specialized in growing the profits of community banks in a multi-state area since 1986.