Banks are ramping up their ATM and overdraft fees to generate more income, bringing them to new highs, according to a recent survey conducted by Bankrate.com.
Consumers who opt out of using an ATM within their network are faced with hefty fees, placing an increasing burden on people living on strict budgets. The out-of-network ATM fee is now $4.52 on average, and the fee has risen rapidly by 21% over the past five years. The average overdraft fee has reached $33.07.
The survey comprised of 10 banks and thrifts in each of 25 large U.S. markets examining one interest and one non-interest account at 243 institutions that offer checking accounts. In total, Bankrate.com, the Palm Beach Gardens, Fla.-based financial content company, researched 237 interest and 233 non-interest accounts between July 9 and August 5, 2015.
Free checking accounts are becoming more difficult to find – the survey found only 37% of non-interest checking accounts that are completely free, down from 76% in 2009.
“Since people are getting smarter about how they use ATMs, fewer people are making out-of-network transactions, so they are now low hanging fruit for banks to increase their fee income,” said Greg McBride, Bankrate.com’s chief financial analyst.
Atlanta is the most expensive city to make an out-of-network transaction with a fee of $5.15 while and San Francisco is the cheapest with a fee of $3.85. Both fees combine the ones charged by the ATM operator and those charged by the consumer’s own financial institution.
Consumers should plan ahead on where they are making withdrawals by using their bank’s website or app.
“If you are really in a pinch for cash, use your debit card at the point of sale and get cash back,” he said.
Overdraft fees are increasing also to a new high of $33.07, having risen 9% since 2010. The highest overdraft fee is an average of $34.79 in Milwaukee while the lowest fee of $30.35 is in San Francisco.
Banks continue to give consumers the option to have a free non-interest checking account if they utilize direct deposit or meet other requirements of daily balances with 58% that offer this choice. The average service fee rose to $5.86, an 11% increase from 2014, for people who do not able to obtain a waiver.
“Both of these fees are completely avoidable,” said McBride.
Many banks also have a tiered structure for their fees, so the ensuing second or third overdraft in 12 months will increase, he said.
“Consumers should also link their savings and checking accounts, so that their money covers any shortfall,” McBride said.
Banking executives have learned that customers care less about the monthly maintenance or upfront fee than they do compared to ATM or overdraft fees and are less “sensitive” to them, said Malcolm Wardlaw, an assistant professor of finance and managerial economics in the University of Texas Dallas Naveen Jindal School of Management.
“Banks often refer to these as non-shopped fees, because customers don’t pay attention to them when they shop for bank services,” he said. “The increase in ATM fees and overdraft fees are simply an effort by banks to squeeze as much revenue out of customers as possible in areas which they are not price sensitive to.”
Planning ahead by using the smartphone app from your bank or credit union or setting up email and text alerts when the balance falls to a certain level can help consumers save money.
“Limiting the number of visits to out-of-network ATMs and keeping a close eye on checking and savings activity can help people save hundreds of dollars throughout the year,” said Bruce McClary, spokesman for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization. “Even if your checking and savings accounts come with maintenance fees, see if there are options to have the fees reduced or waived based on how you maintain the accounts.”
