Bank Profits

Author:     Wednesday, December 18, 2013 12:00 AM

At the center of much debate is the amount of money that banks charge their customers in fees. Customers may see fees on their bank statements for many activities, even normal use of their account. These fees may seem small on their own, but when added up, they culminate in billions of dollars worth of income for banks each year.

So, what are some of the fee types that retail customers may see from their banks? The following are just a few types of fees that are charged:

* Monthly fees for each account;
* Low balance fees;
* Overdraft fees;
* Debit card usage fees;
* Account maintenance fees;
* ATM fees;
* Card replacement fees;
* Paper statements;
* Wire transfer fees.

These fees add up to millions per year for banks, and in some cases comprise the bulk of a bank's income. But just how much are banks making off these fees each year?

It is estimated that banks need to make $15 to $20 per month off each customer to enjoy the high profit margins that they were seeing before the changes in overdraft fees. A basic checking account costs a bank $200 to $300 per customer per year, so low balance accounts yield no profit and can sometimes even cost a bank money. As a result, banks are finding more things to charge seemingly minimal fees on. Some banks charge as much as $12 per month in maintenance fees; these fees are basically a charge for having an account.

A few years ago, governmental regulations were passed that put a ceiling on the amount that banks could charge customers for overdrafting accounts. This legislation aimed to stop "usurious" and unfair overdraft fees. According to a news piece published in the New York Times, these fees amounted to more than $12 billion per year. This helped banks offset the income that is lost by lending money at the recent low interest rates that consumers enjoyed. The lowering of interest rates alone culminated in an $8 billion per year loss of income for banks. Even with new legislation changing the amounts and methods banks can use to charge fees to customers, banks still made $32 billion in fees off customers in 2012.

Source: BFI