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You may have heard recently that banks were planning to boost income by instituting monthly fees for debit cards.
In the face of public outrage banks backed off that proposal but they may have tipped their hand. One way or another, consumers will pay more for banking services in the future -- and that could come at the expense of CD rates and interest paid to other deposit accounts.
According to a recent study by Market Rates Insight, a pricing consultant to financial institutions, banks could have avoided alienating customers and doubled their take simply by lowering interest rates by as little as 1 basis point. A basis point it one hundredth of one percent.
The analysis found that banks stood to gain $875 million in monthly debit card fees if every adult banking customer in the U.S. ponied up five bucks a month.
"A decrease of 0.01 percent in the national average deposit interest rate reduces interest expense for banks by about $1.5 billion a month, which impacts the bottom line in the same way as earning this amount through fees," the press release from Market Rates Insight reported.
By skimming a little from already-low interest rates, banks could have avoided the PR hassle caused by the debit fee fiasco. The question is: would you rather pay a monthly fee or earn even less on deposits?
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If the choice has to be made, I vote for no monthly fees, even though all my money was safe from that in credit unions and online banks in the first place. I would not tolerate paying the bank to have them hold my money. If the bank chases those profits by lowering interest rates even further, there are plenty of other safe places to put that money that earn higher rates. We should not feel beholden to any institution. As the saying goes, "money talks, BS walks!"
Not playing by the bank's rules is an option. I know that is one point my colleague here has mentioned several times over on the banking blog: if you don't like the terms you can vote with your dollars and take your business elsewhere.
I don't pay bank fees.
I'd rather invest my money somewhere with a better return than get a .5% CD for a year with (Insert bank name here).