Protecting Members from Bank Checking Fees

While banks appear to be lowering checking account fees on average, the numbers do not tell the whole story.


While banks are lowering checking account fees on average according to a spring 2006 survey of 248 banks and thrifts, the numbers do not tell the whole story.





% 12-Mo.






Bounced-check fee





Monthly service fee (interest account)





Monthly service fee (non-interest account)





ATM surcharge






While the bounced-check fee declined 0.3 percent to $27.04 from spring 2005, several financial institutions are switching to a tiered fee structure. For example, bouncing one check may cost a customer $25, but the cost quickly ramps up to $30 or even $35 per additional bounced check. The reported bounced-check fee only reflects the first bounced check. Wachovia Bank and Bank of America count all “slip-ups” that have occurred in the previous 12 months when charging fees. For members who bounce more than one check, the cost could increase dramatically. In comparison, the average bounced-check fee in fall 1998 was $21.57. Banks are increasingly relying on NSF fees to boost their non-interest income and in turn their bottom line.

The monthly service fees for both interest and non-interest bearing accounts fell slightly to $10.85 and $2.80 respectively, although fees on interest-bearing accounts were up marginally from the fall 2005 survey. With customers earning an average rate of 0.29 percent on interest-bearing accounts, there is little incentive to place money there with the explicit purpose of generating interest. Meanwhile, the average minimum balance requirement on interest-bearing checking accounts rose to $2,465. How much are customers actually earning with a comparatively low interest rate and high monthly fees?

While interest rates on checking accounts remain low, ATM surcharges that banks charge their customers for using foreign ATMs increased 14.3 percent to its highest level of $1.60 per transaction. 98 percent of the surveyed banks owning ATMs now charge a fee, in contrast to 89 percent two years ago. While it is not realistic for members to always withdrawal money from ATMs within a credit union’s network, credit unions should continuously remind members where they can access their funds. National credit union surcharge-free ATM networks have grown in prominence over the last several years to address the issue of accessibility. Members are able to recognize the value of the credit union even more so when the network expands beyond the branches.

A New Model for Checking?

In contrast to the traditional bank approach, online banks are offering high yielding savings accounts. ING Direct and Emigrant Direct are currently paying 4.0 and 4.5 percent APY respectively on their regular savings accounts. ING Direct is planning to introduce a high-yielding checking account named “Electric Orange” this summer that offers 3.0 percent APY with no minimum balance or fees, according to a recent Wall Street Journal article. Customers will be issued a debit card instead of paper checks. While ING Direct will not charge customers to use other banks’ ATMs, the company announced it will pass along fees that other banks charge, which is on average $1.29 per transaction according to the survey.

How Do Bank Fees Affect Credit Unions?

While banks are charging significant monthly checking account fees, many credit unions have introduced or are introducing free checking products. South Carolina Federal Credit Union named its checking account “Zilch Checking” in 1996 and has since advertised the member benefits. Not only does it not charge a monthly service fee, but also it does not have ongoing minimum balance requirements other than an initial $25 deposit. If members maintain at least $2,500 in a regular savings account, they receive a free box of checks, free travelers checks, a free 3x5 inch safe deposit box, 0.50 percent loan discounts if payment is set up for auto-pay and a 0.25 percent bonus on CD rates. As a result, South Carolina Federal Credit Union’s share draft penetration rate has dramatically risen from 31.4 percent in 1998 to 77.5 percent as of December 31, 2005.

The survey indicates an opportunity for credit unions. While most credit unions charge a standard NSF fee for a bounced check, some are waiving ATM fees to encourage new account openings. It may be conducive to attract new members by marketing the differences between your checking account products and those of the local competition.




April 24, 2006



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