Bank fees are multiplying like tribbles on a vintage episode of Star Trek these days.
News this week that Wells Fargo will begin testing a $3 monthly fee for debit card users starting this fall. From the Associated Press:
The San Francisco-based bank said the fee will be applied to checking accounts opened in five states starting in October. The fee would be in addition to monthly service fees ranging from $5 to $30 that Wells Fargo already charges.
Although it's unusual, Wells Fargo isn't the first major bank to test whether customers will be willing to pay to use their debit cards. Chase last year also began testing a $3 monthly debit card fee in northern Wisconsin.
Other major banks have also revamped their lineup of checking accounts in the past year or so, in many cases by hiking monthly fees or adding conditions customers must meet to qualify for fee waivers.
At Wells Fargo, for example, monthly service fees can be waived if customers set up direct deposit or maintain a certain minimum balances.
That last part is key. There's no reason to actually pay fees for checking, since most banks will waive them if you meet one of a few criteria. Failing that, there are thousands of financial institutions in this country who would just love to set you up with a free checking if your current bank can't manage it.
As far as banks' motivation for floating new fees like this, I've written at length about how changes to the federal regulatory regimen for banks has bitten into their existing fee income. In particular, the new limits to debit card fees imposed by the Fed under Dodd-Frank's Durbin amendment will soon be having a notable effect on banks' bottom line, and they'll adjust their fee structure accordingly to restore any lost income. Bert Ely, one of my favorite banking analysts, compared banks' fee income to a balloon: Squeeze it in one place, and it just expands in another.
But I think there's another dynamic at work here: Banks don't really care if you move your checking account.
Stay with me here. Loan demand is sluggish and the economy is offering few venues to a decent return. Meanwhile, banks are sitting on $713 billion -- an all-time record -- of demand deposits, a large part of which is made up of consumer and business checking account balances.
Banks are sitting on so much cash they're starting to charge big depositors to hold on to it. So if Wells Fargo loses a few thousand checking customers to higher fees, but brings in millions or billions of dollars extra through new fees, they're going to consider that a winning proposition.
And ultimately, while folks who read Bankrate and put effort into optimizing their financial situation care about fees like this, a lot of research makes the point that bank customers in general don't really prioritize lower fees when it comes to checking accounts, and would probably barely notice a $3 fee. I'm not saying that's the right attitude, but it is the mainstream one.
What do you think? Is a $3 fee enough to make you add direct deposit or even take your business elsewhere, or would you just shrug it off?