Recent changes in regulatory rules for financial institutions are causing some banks to revise their current fee structure for checking account holders. Along with many other banks across the nation, Bank of America has begun to test new tiered-pricing in some markets in an attempt to determine how best to phase out their free checking program. Other banks are likely follow suit in the coming months.
U.S. banks hold more than 200 million checking accounts at an estimated cost of $250-$300 per account annually. More than half of these accounts are currently unprofitable for banks. Usually the costs of these accounts are paid for with overdraft fees or other charges to customers. However, recent legislation now limits the fees that banks are allowed to charge their customers (see Credit CARD Act).
For example, banks are now required to get permission from their customers if they wish to charge them overdraft fees. Bank of America has been progressive on this front and announced that it plans to eliminate their overdraft program entirely and, according to bank estimates, they will lose close to $600 million annually by doing so.
Such legislation has caused many banks to create new fees as they adjust to the lost revenue. One new charge will be a monthly checking account usage and maintenance fee. Bank of America’s tiered pricing for this fee will be based on the customer’s banking activity level each month. Using an account frequently brings new relationships to the bank, making the account profitable; therefore, the account holder will not need to pay a fee. Individuals who only want a “low-volume” checking account will likely have to pay this monthly maintenance fee.
The account balance will also be taken into account when banks are determining whether or not to charge the maintenance fee. Some banks already place minimum account balance restrictions on free checking accounts and many more are expected to do so in the coming months. Customers who maintain high balances and use other bank services, such as bank-issued credit cards or investment services, will likely have their fees waived.
Industry reports show that low-income individuals may be pushed out of the system should higher fees become the norm on low-balance accounts, but most banks seem willing to take the risk. These reports also warn that banks must hold onto their loyal checking account holders if they want to stay profitable and do their best not to alienate good customers.