Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
Average out-of-network ATM fees set a record in 2014 for the eighth straight year by rising 5.3% to $4.35 per transaction, well above a 1.5% increase in 2013 but close to their 17-year average, according to Bankrate Inc.’s annual study of checking-account fees. Overdraft fees set a record for the 16th consecutive year at an average of $32.74.
Out-of-network ATM fees are comprised of surcharges, which the ATM owner charges to non-customers using its machines, and foreign fees, which a financial institution charges its customers when they use ATMs it doesn’t own. Bankrate says the average surcharge this year is $2.77 per transaction, up 6.5% from $2.60 last year.
The average foreign fee is now $1.58, an increase of 3.3% from $1.53 a year ago. After holding at $2.00 for eight years, the most common foreign fee is now, by a wide margin, $2.50, according to Bankrate.
North Palm Beach, Fla.-based Bankrate gathered its data by reviewing checking-account pricing from 10 leading banks and thrift institutions in each of 25 large U.S. metropolitan areas in July and August. In all, the research firm examined pricing for 242 interest-bearing demand-deposit accounts and 238 non-interest accounts.
Average out-of-network ATM fees are up by 23% over the past five years. A Digital Transactions News analysis of Bankrate data going back to 1998 shows that out-of-network costs have increased 5.2% a year on average.
Greg McBride, chief financial analyst at Bankrate, tells Digital Transactions News that consumers are getting smarter about using ATMs owned by their own banks or credit unions, which rarely charge customers usage fees. That means financial institutions have fewer opportunities to generate ATM fees, thus driving the out-of-network price increases. “The cost of maintaining the ATM network is amortized over fewer out-of-network transactions,” says McBride.
The most common surcharge is $3, and every ATM-owning institution Bankrate surveyed assessed surcharges on non-customers. Surcharges have risen by an average of 7.6% a year since 1998, almost three times the 2.6% average annual increase in foreign fees, Bankrate data show. From a banker’s perspective, the disparity is unsurprising. “Nobody is worried about alienating a non-customer,” says McBride. “The surcharge is low-hanging fruit in terms of boosting fee income.”
Bankrate’s review of overdraft fees, also known as non-sufficient funds (NSF) fees, covered charges triggered by virtually any transaction that took the customer’s account balance below zero, including a debit card purchase, check payment, ATM withdrawal or automated clearing house transaction. The average NSF fee in 2014 is up 1.7% from $32.20 last year. Over 17 years, NSF fees have risen by 2.7% annually, a tad higher than ATM foreign fees.
Besides consumer behavior, checking-account pricing also is heavily affected by government regulations. The Durbin Amendment, a part of 2010’s Dodd-Frank Act, imposed a price cut of about 50% on big banks’ debit card interchange beginning in late 2011. Also putting pressure on financial institutions’ consumer fee income were the Federal Reserve’s changes in Regulation E, effective in 2010, that required banks to get explicit customer approval for overdrafts, greatly reducing their NSF fee income.
Bankers blamed the new regulations for precipitating a plunge in the number of free checking accounts, but it appears the effect is mostly played out. Free checking peaked at 76% of non-interest-bearing accounts in 2009. This year’s survey found 38% of non-interest checking accounts were completely free, unchanged from last year and a shade below 39% in 2012. “It was Durbin and Reg E, but that seems to have run its course,” says McBride.
While financial institutions have to work harder for revenues, consumers still have plenty of opportunities to reduce their banking costs by using their financial institution’s ATMs or a surcharge-free ATM network, and free checking is still widely available, especially from small banks and credit unions, according to McBride. Some accounts also become free when the consumer signs up for direct deposit. “For all the complaining that consumers do about it, both overdraft and ATM fees remain completely avoidable,” he says.
