Banks' new fees, low rates put savers in the hole

It's getting tougher for U.S. savers to find a bank where they won't end up paying to keep their money safe. Average interest on savings, checking, money-market and certificate of deposit accounts fell to 0.99 percent in July, the first decline below 1 percent in a decade, according to researcher Market Rates Insight. Banks also have been raising fees and adding new ones, most recently in response to the financial-services overhaul bill that became law July 21. The result is that an increasing number of savers are seeing their deposit earnings eaten up by charges. That's frustrating people like Ken Ward, who recently passed on a savings account with a 0.01 percent interest rate at the Chase bank branch near his home in Wantagh, New York. “We went to Chase because of the convenience,” said Ward, 57, a stock-loan trader who was helping his daughter find a place to tuck away $10,000. “But with those rates, we might as well put it in the mattress and then at least we won't be charged any fees.” Had they gone with the Chase savings account, it would have paid about $1 in annual interest. Potential fees included $4 if the balance fell below $300, $2 for each non-Chase ATM withdrawal and $3 for each withdrawal after making more than four withdrawals in a monthly statement cycle. Ward said he and his daughter settled on a 13-month Chase CD paying 0.75 percent, and will look for a better alternative when it matures. Following Fed Lower Chase's interest payments reflect the low-rate environment created by the Federal Reserve, according to Greg Hassell, a spokesman for the bank's New York-based parent, JPMorgan Chase & Co. The Fed has kept the overnight interbank lending rate target near zero since the end of 2008 to stimulate the economy after the collapse of Lehman Brothers Holdings Inc. Unattractive rates and new fees may drive consumers to smaller banks and credit unions. Big banks such as Bank of America Corp., the largest lender in the U.S. by assets, No. 2 JPMorgan and No. 4 Wells Fargo & Co. may lose about 1 million checking accounts each, based on estimates by Moebs Services, an economic-research firm in Lake Bluff, Illinois. The average interest rate offered on a checking account by a credit union is 0.21 percent, according to Bankrate.com, the North Palm Beach, Florida-based website that tracks bank products. That compares with 0.12 percent at the five largest banks and five largest thrifts in each of the 10 largest markets. Almost 80 percent of the 50 largest credit unions offered free checking as of April, Bankrate.com data show, while unconditional free checking is no longer offered by Bank of America, Chase, Citigroup Inc. and Wells Fargo. Online Banks Consumers looking for higher rates may also turn to online banks. DollarSavingsDirect.com, a division of Emigrant Bank, offers 1.2 percent for savings accounts with account balances of at least $1,000. Another option, money-market funds, which aren't backed by the Federal Deposit Insurance Corp., were averaging 0.04 percent as of Aug. 24, according to iMoneyNet Inc., a research firm in Westborough, Massachusetts, which tracks money funds. Investors can also lock up their money for longer periods in U.S. Treasuries or savings bonds. Ten-year notes fell below 2.50 percent on Aug. 24 for the first time since March 2009, according to data compiled by Bloomberg. For investors buying now, the EE savings bond is paying a fixed 1.4 percent, according to savingsbonds.gov. These bonds can't be cashed for one year and there's a 3-month penalty on interest earnings if redeemed within five years. Overdraft Impact The Fed's low rates have allowed U.S. commercial and savings banks to reduce their deposit costs. They paid $4.38 billion in interest on transaction, savings and money-market deposit accounts in the first quarter of 2010, a decline of 74 percent from the first quarter of 2007, according to SNL Financial, a bank-research firm in Charlottesville, Virginia. Another reason banks are cutting the interest they pay out is to recoup losses from federal legislation that limits overdraft fees, estimated to be about $15 billion annually, said Dan Geller, executive vice president of Market Rates Insight, which is based in San Anselmo, California. Average interest rates have been decreasing since the third quarter of 2007, when they were 4.23 percent, he said. When the overdraft provisions took effect for new accounts last month, there was “a sudden and accelerated drop,” Geller said. The rules require consumers to consent before banks automatically cover them when they have insufficient funds for debit or ATM transactions. Annual Checking Costs Changes such as caps on fees banks charge merchants for debit-card transactions and the creation of a consumer financial protection agency to regulate products such as credit cards and mortgages will decrease banks' profits and lead to new fees for consumers, said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “The days of 10 percent of customers subsidizing free checking for 90 percent of customers are over,” Plath said. Higher fees have driven the average annual price of a checking account to $301, an 11 percent increase in the past five years, data from Moebs Services show. “If you're a restaurant and you can't charge for the soda, you're going to charge more for the burger,” JPMorgan Chief Executive Officer Jamie Dimon said on a conference call with analysts July 15. For Chase customers, charges may come in the form of monthly fees and higher credit-card rates, he said. Wells Fargo customers will bear some of the burden for new financial regulation, CEO John Stumpf said in a July 22 interview. The bank, which is based in San Francisco and has the biggest U.S. branch network, introduced a new checking account in July with a $5 monthly fee, which can be waived if customers meet certain conditions. Savings Account Rates Brian Moynihan, CEO of Charlotte, North Carolina-based Bank of America, has said he's looking for ways to soften the impact of new regulations on revenue. Bank of America ended overdraft services Aug. 13 and is considering a tiered structure of charging for checking accounts, according to Anne Pace, a spokeswoman for the bank. Bank of America's rates for savings accounts currently range from 0.01 percent to 0.85 percent, Wells Fargo pays from 0.05 percent to 0.40 percent and Chase's go from 0.01 percent to 0.75 percent, company spokesmen said. Rates may vary based on location, the size of the account and if other accounts are held at the bank. Fewer Waivers Some financial institutions will charge monthly maintenance fees for checking accounts unless customers do certain things such as maintain a minimum balance or make a specific number of debit transactions, said Chris Gill, director of the banking and professional services group at SNL Financial. Banks may charge customers for expedited payments or use of debit cards for online bill payments. They may also tighten fee waiver policies and reduce the costs of existing programs, such as debit rewards, Gill said. That doesn't mean customers are just paying banks for storage, said Gill. The convenience of making payments using various methods and the backing of the FDIC are part of what consumers receive in exchange for putting their money in bank accounts, he said.