Lloyd Philip

March 16, 2010

Banking Fees

Filed under: Irrationality — Lloyd Philip @ 7:53 pm

A recent poll in USA Today’s Money section, Ally Bank’s research has found that the following features rank highly among consumers;

Makes absolute sense, right? Let’s take a deeper dive into this logic.

  • 195 million checking accounts in the U.S.
  • 10.1 billion ATM transactions take place every year in the U.S.
  • 40% of all ATM transactions occur at another bank’s ATM
  • The Average ATM fee is $1.78
  • In addition your bank charges you $2 for using another bank’s ATM. Let’s say it’s $1 to be conservative
  • Thus the average fee is $2.78 for another bank’s ATM

Now the Math:

  • Non-Primary Bank Transactions @40% on 10,100,000,000 ATM Transactions = 4.04 billion transactions
  • Amount Spent on ATM transactions @ $2.78 * 4.04 billion transactions= $11.23 billion
  • If we paid $10 a month or $120 per year for each checking account – 195 mm * 120 =  $23.4 billion
  • According to CNN, the amount spent on overdraft fees in 2008 was over $48 billion

As for bill pay, it’s a lot harder to quantify that. If you send out 10 bills @ 0.44 cents a stamp, that’s $4.4 saved. However, not paying your bills can result in high late payment fees. I am a fairly financially responsible and I’ve been late with a payment or two. It’s just hard to keep a track of your meaningful mail from all the junk you get.

So based on the math, we consumers should rank banking features as follows;

I think it’s fairly easy for us to project ourselves as financially responsible. So I don’t think that overdraft fees will be a high priority, even if the facts state otherwise. Also, the forces of FREE are too powerful for us to ignore. We’ve been used to free checking accounts for the past many years; therefore I think it’s hard to forgo the free checking account.  Funny how humans are willing to pay more for free.

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