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Chart: Why banks are raising fees

By Claes Bell, CFA · Bankrate.com
Wednesday, September 5, 2012
Posted: 9 am ET

Ever wonder why large national banks continue to abandon free checking accounts even though it's causing some of them to hemorrhage customers?

The Federal Deposit Insurance Corp.'s most recent quarterly report gives us some clues. One of the things FDIC-insured banks have to report is their income from service fees. That category covers most all of the fees on deposit accounts you love to hate, including overdrafts, monthly fees and out-of-network ATM fees.

As you can see in the chart, banks did pretty well on service fees in the second quarter. By the end of the very next quarter, though, fees had registered a $1 billion quarter-over-quarter drop.

Banks are trying to fill a big hole in their fee income. Will you help them?

Banks are trying to fill a big hole in their fee income.

So what happened?

On July 1, 2010, a Federal Reserve rule requiring banks to get customers to affirmatively "opt in" to checking account overdraft protection programs went into effect. While that probably prevented lots of accidental overdraft charges, which average more than $30 a pop, it also created a nearly $7 billion hole in annual bank revenues that banks are still trying to fill.

Now, with $34.5 billion in quarter two earnings, banks aren't exactly in the poorhouse these days. But, like most businesses, banks aren't going to take a big drop in revenues lying down. Right now they're betting people won't take the time and trouble to migrate their checking accounts to another institution to avoid their push for new fee income. Only time will tell if they're right.

What do you think? Will banks be successful in getting customers to help them fill that big hole in their fee income? Would you be OK paying an extra $5 per month for your current checking account?

Follow me on Twitter: @ClaesBell.

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