Wednesday, September 23, 2009

Bank Fees – Competition v. Regulation

In a normal world, competition would force banks to lower/eliminate excessive bank fees. Unfortunately, life is not perfect and neither is competition. Forced by competition to offer "free" checking to just about anyone with reasonable credit and a paycheck, banks have managed to capture income from consumers through the back door:

  1. The banks want you to use debit cards because they capture fees from merchants. When you write a check, no fees for the bank.
  2. While they might pay "interest" on certain checking and savings products, the big banks pay consumers so little that it might as well be zero. For example, one of my banks, Wells Fargo, is paying a whopping .05% interest rate on their money market account in my state. If you go below $3,500 in balance, they charge you $10 per month.
  3. Back-End Fees: Overdraft protection (which you may not want) generates billions of dollars for banks every year. This product is so profitable, they won't let customers "opt out" of the service.

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