By Roy Urrico
Finopotamus aims to highlight white papers, surveys and reports that provide a glimpse as to what is taking place and/or impacting credit unions and other organizations in the financial services industry.
New York City-based consumer financial services company Bankrate’s annual checking account and ATM fee study discloses that ATM fees have reached a record high. Meanwhile, overdraft fees and non-sufficient funds (NSF) fees have dropped dramatically compared to years past, but are still charged by most financial institutions.
"ATM fees are biting harder than ever as the cost of out-of-network withdrawals hits a new record high,” said Greg McBride, chief financial analyst at Bankrate. “But with less need for cash and expansive ATM networks that make it easier than ever to stay within network, the fees are easily avoidable and need not be a frequent drain on your bank account."
Bankrate, which has surveyed non-interest and interest accounts and their associated fees for 25 years, conducted its latest survey among 10 banks and thrifts in each of 25 large U.S. markets. The survey took place between June 12 and June 30, 2023 and included 245 financial institutions offering consumer checking accounts – 230 interest checking accounts and 232 non-interest checking accounts. Credit unions were not part of the survey.
ATM Fees
The study found surcharges and the total cost for an out-of-network ATM withdrawal hit new highs in 2023. The average surcharge (a fee levied by the ATM owner) is now $3.15, slightly above last year’s record of $3.14 and marking the 22nd record high in the past 25 years.
Additionally, nearly 2 in 5 (38%) banks offer free out-of-network withdrawals - this is a slight decline from last year’s record of 41%. However, every ATM owning-bank surveyed charges non-customers. The total cost of an out-of-network ATM withdrawal has risen to $4.73, taking over the previous record of $4.72 in 2019.
The cost of combined ATM fees varies by metro area. Atlanta has the highest at $5.33, and Boston has the lowest at $4.24.
Overdraft and NSF Fees
In contrast to the increase of ATM fees, Bankrate’s study found that both overdraft fees and NSF fees significantly decreased. The average overdraft fee fell to $26.61, down 11% from last year’s average of $29.80, while the average NSF fee has reached a record low of $19.94, down 25% from 2022’s average of $26.58.
The report noted this is a drastic shift from recent years, as the average NSF fee was at a record high of $33.58 in 2021. While these decreases are evidence of financial institutions moving away from overdraft and NSF fees, the majority of banks still charge them (91% and 70% respectively).
Overdraft fees also vary by metro area, Philadelphia having the highest ($32.70) and Miami having the lowest ($18.00).
Highest Average Overdraft Fee by Metro
1. Philadelphia - $32.70
2. Pittsburgh - $31.30
3. Denver - $29.45
4. Houston - $29.35
5. Atlanta - $29.05
Lowest Average Overdraft Fee by Metro
1. Miami - $18.00
2. Washington, D.C. - $18.47
3. New York City - $22.53
4. San Diego & Los Angeles (tie) - $23.18
5. San Francisco - $23.38
“Fees for overdrawing an account have waned but are still charged by the overwhelming majority of accounts and can run as high as $38,” said McBride. “Opt out of overdraft protection on ATM withdrawals and small dollar debit card purchases, but check your available account balance before initiating transactions to avoid overdraft fees altogether.”
Interest and Non-Interest Checking Accounts
The report detected interest checking accounts still beset by high fees and balance requirements, but maintaining low yields. The average monthly fee on an interest checking account is $15.33, down 5% from $16.19 in 2022, but is still the 4th highest monthly fee seen since Bankrate started this survey in 1998. That is compared to a monthly fee of only $5.31 on a non-interest account, down 2% from $5.44 in 2022, and within the range of $5.08 - $5.86 observed since 2012.
In addition to having high monthly fees, interest checking accounts also have high balance requirements. The average balance required to avoid the monthly fee is $8,684 for interest checking accounts (down 10%; the 3rd-highest level ever observed), compared to only $469 for non-interest checking accounts (down 13%, the lowest level since 2010). “Given these high costs, the average yield on interest checking accounts is a mere 0.05%, only a slight increase from the record low of 0.03% from the past two years,” according to the report.
Overall, free checking for non-interest accounts is widely available, or easily attainable. Over 4 in 5 (87%) non-interest accounts are either completely free (45%, meaning no balance requirement or monthly fee) or free with eligible direct deposits (42%). This is down slightly from 90% in 2022, when 46% of accounts were free and 44% could become free with the direct deposit waiver.
“Despite a widespread pullback in overdraft fees, free checking has not become a casualty,” McBride added. “Free checking accounts are still widely available, either on a standalone basis or when signing up for direct deposit. Avoid accounts that require stranding a balance to avoid fees when you can get a free checking account and move your excess funds into an online savings account at a time when yields exceed 5%.”
Other Key Takeaways
· High fees, balance requirements still plague interest accounts. The average monthly fee on an interest checking account is $15.33, a decline of 5% from $16.19 in 2022. In comparison, the fee for a non-interest account is a mere $5.31. Additionally, interest accounts also have high balance requirements, with $8,684 the average, a decrease of 10% from last year’s average of $9,658, but still the third highest level ever observed.
· A Bankrate survey from January 2023 found 27% of checking account holders, or 57 million U.S. adults, still paying account fees every month, and nearly half (48%) of them sacrificing their recession preparedness to do so.
Surcharging at the Point-of-Sale
Finopotamus wanted to do a deeper dive on the related subject of surcharging at the point-of-sale. Ted Rossman, senior industry analyst, at Bankrate.com, responded to our query.
“I’d say a small but growing fraction of restaurants and other small businesses are tacking on credit card surcharges. Merchants love to hate the interchange fees charged by credit card companies (the average interchange fee is 2.2%, according to The Nilson Report). Surcharging is a way to push this cost onto the customer without looking like the merchant is raising prices.” Rossman added the pandemic recovery and high inflation seem to be adding fuel to this fire and bringing added scrutiny upon all costs. “I understand that money can be tight and profitability is important, but this strikes me as potentially biting the hand that feeds you.”
There is ample data that customers spend more when they use credit cards, Rossman suggested. “And customers often react negatively to surcharges, potentially taking their business elsewhere and sharing negative comments with friends. I know merchants can be hesitant to raise prices, but I think customers want to be presented with one price and they can decide whether or not that is fair. The surprise add-ons can leave people feeling nickeled-and-dimed and like the business does not value their patronage.”