Bankrate checking study: Fees rise again
Monday October 30, 6:00 am ET
Greg McBride, CFA
Punitive fees continue to climb while the contrast between interest and noninterest checking accounts grows starker. Those are the main findings in the Fall 2006 Bankrate.com Checking Account Pricing Study.
Bankrate.com surveys one interest and one noninterest checking account at the largest banks and thrifts in each of 25 large U.S. markets. Bankrate.com gathers data on the fees, balance requirements and ATM charges pertaining to each of the accounts. A total of 248 institutions offering checking accounts were surveyed, with 247 interest accounts and 215 noninterest accounts evaluated.
There were a number of new milestones achieved, both record highs and record lows, in this edition of the checking survey.
Bankrate's fall 2006 checking study findings:
* Bounced-check fees hit a new high.
* Average ATM surcharges set a record high.
* Opening deposit requirements on interest, noninterest accounts: highest yet.
* Balance requirements on interest accounts are at a new high.
* Monthly fees on noninterest accounts are at a record low.
* Fewer banks are charging their own customers for using another bank's ATM.
It is the punitive fees that are taking the biggest bites out of consumers' wallets.
Bounced-check fees
The average bounced-check fee, often referred to as a nonsufficient-funds fee, or NSF fee, by your financial institution, is now at a record high of $27.40. This is up from $27.04 in the spring edition of the survey. Bounced-check fees were on the move, even more than normal. There were 85 accounts posting increases in the bounced-check fee and just 32 decreases, compared to 39 increases and 19 decreases in the past survey.
ATM surcharges
ATM surcharges, the fee charged by ATM owners when you don't have an account with them, hit a record for the third consecutive survey. The average ATM surcharge is now $1.64, up from $1.60 and $1.54 in the spring 2006 and fall 2005 surveys, respectively. The trend toward higher surcharges is unmistakable: Since the last survey, 22 banks boosted these fees, six reduced them.
It's not only the increased amount of the fee, but the increased frequency with which consumers encounter the fee. Just how prevalent is the practice of ATM surcharges? Of banks owning ATMs, the percentage that assess surcharges is the highest on record -- 98.3 percent. To put that in context, the survey found the same percentage of banks, 98.3 percent, provide their account holders with online access to their accounts. So ATM surcharges are as commonplace as online account access during the Internet Age.
Let's move away from the fees that penalize consumers for a certain type of behavior and focus on the nuts and bolts of checking accounts.
Interest-bearing accounts a poor choice
A sharp contrast between interest and noninterest checking accounts will soon become apparent. But let's start with the most obvious difference between the two -- interest earnings.
Here, there is good news and bad news. The good news is that the average yield is the highest in more than three years. The bad news is that, at 0.34 percent, the average yield is still dreadfully low. In other words, despite the sharply higher interest rates of the past two years, if you're holding money in an interest-bearing checking account you're likely still waiting for the winds of interest rate fortune to blow your way.
Minimum balances up, too
While the minimum opening deposit for both interest and noninterest accounts increased to new highs in this edition of the survey, the fact is the requirement is a lot higher for interest-bearing accounts. The threshold to get what passes for interest earnings shot higher to $615.41, a 43 percent increase from the spring survey. While the average minimum opening deposit for a noninterest account also increased by a notable percentage, up 21 percent since the spring, the average is still a very reasonable $87.67.
We're just getting started.
The balance requirement to avoid fees on interest bearing accounts rose to a new high -- again. Account holders must now strand an average of $2,660 in an interest account, at a pitifully low yield of 0.34 percent, just to avoid fees. Noninterest accounts are a different story, with the average just $209.72, the second lowest level ever found in the survey.
Average service fees flat or lower
And about those fees you're trying to avoid? For interest accounts, the average monthly service fee remains within a well-established range at $10.74. But for noninterest accounts, the average monthly service fee hit a new low of $2.52.
Let's recap. Interest accounts pay very little in the way of interest but require an initial deposit that is 7 times that of noninterest accounts just for the privilege of earning interest. You'll also need to strand more than $2,600 in the account to avoid fees, and if you don't, expect to be relieved of an average of $10.74 of your hard-earned money each month.
By now, you're probably asking yourself why in the world you'd want to trouble with an interest checking account in the first place. That's a fair question. After all, you'd be better-served looking for a free checking account, one that has no fees or balance requirements regardless of how many checks you write, and devoting the balance that would otherwise be stranded at low returns toward a high-yield money market or savings account. You'd still maintain access to the money when needed, would earn yields exceeding 5 percent on your savings, and not be faced with a flurry of fees and balance requirements each month.
Noninterest accounts bearable
Noninterest accounts are the place to look. More than 60 percent of noninterest accounts surveyed have no balance requirement or monthly service fee, two key markings on the trail toward finding free checking accounts.
There is good news on the ATM front. Although surcharges cost more, banks are increasingly cutting their own customers a break on certain accounts by eliminating fees when using someone else's ATMs. As a result, the percentage of banks assessing other-banks'-ATM fees fell for the third consecutive survey, plunging to the lowest level yet, 77 percent. Ironically, the waivers on these fees popped up only on interest accounts, so you can bet that more often than not, the break comes with a downside -- a sizable balance requirement.
The results of the Bankrate.com checking account survey can be summed up this way -- consumers continue to encounter stiffer fees and higher balance requirements. Fortunately, there are several lines of defense.
How to avoid those fees
To avoid bounced-check charges, consumers must be very diligent about recording transactions in their check registers, particularly routine purchases made with debit cards. And with the prevalence of online account access, it is feasible to reconcile your account balance before writing a check or making a payment that could potentially overdraw the account. Signing up for overdraft protection, ideally linked to a savings account, is a low-cost way to avoid the embarrassment of bounced checks.
There is no need to maintain a large balance in a low-yielding checking account when so many accounts come without balance requirements or fees. So what if they happen to be noninterest accounts? Who is going to sweat about missing out on an average yield of 0.34 percent?
Instead, devote your excess savings to a high-yield savings or money market account where you preserve the ability to access money when needed, but earn substantially higher returns than those offered in checking accounts.
While more banks are permitting customers to go to another bank's ATM without charge, those transactions don't come without a cost. ATM surcharges are higher and more prevalent than ever, and even the "deal" some banks give by allowing free nonbank-ATM withdrawals requires maintaining a large balance in a low-yielding checking account. By settling for average interest earnings of 0.34 percent instead of the 5 percent returns available in a savings or money market account, an account holder forfeits more than $100 per year in interest earnings on a $2,500 balance.
It takes a lot of ATM withdrawals to make up for that, and you'll still have a hard time avoiding surcharges. Instead, it pays -- literally -- to manage your ATM withdrawals more proactively. Plan to take money out of only your bank's ATM, planning ahead so the withdrawal can take place in the normal course of a workday or weekend when you'd otherwise be near your bank's ATM. This sure beats waiting until you're really in a pinch for cash, then having to make the withdrawal on another bank's turf.
To find the best checking account in your area, compare using Bankrate's search engine.
You can also search on Bankrate for checking account offerings available at Internet banks.
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