Banks may soon pull back on fees
Pay down cards now
US banks are finally talking about huge breaks on fees paid by retail customers — and some experts see these sharp cuts in the coming year on everything from overdraft and ATM fees, to penalties and miscellaneous handling and service charges.
“It should be a win for customers who need to borrow and not get nickel-and-dimed to death, and a win for banks, and a win for the economy,” bank industry analyst Mike Mayo of CLSA told The Post.
Mayo said this welcome scenario for bank customers currently paying through the nose for overdraft protection, ATM withdrawals and a head-spinning smorgasbord of hidden charges could potentially come this year because of rising interest rates and a more favorable regulatory environment.
“We think that banks can earn their cost of capital, create value for the first time in over a decade, without the relief of fees,” Mayo added, referring to how banks have ratcheted up fees in the past decade to offset revenue losses from traditional lending practices as a result of near-zero US interest rates.
Analysts say a faster pace of rate increases by the Fed this year augurs well for the old-fashioned bank business to make money from the “spread” in lending and deposit activities.
And one of the nation’s bank bosses agreed last week with that outlook.
“I do see relief,” Kelly King, chief executive of North Carolina-based BB&T bank, said on the sidelines of a fintech industry gathering, when pressed by a reporter on the outlook for fee reductions for customers.
Mom-and-pop bank customers know the specific pain:
These fees add up fast, with US households spending $290 in overall bank fees a year, a 2016 study revealed. America’s big three banks — JPMorgan Chase, Bank of America and Wells Fargo — raked in more than $6 billion from ATM and rising overdraft fees alone in 2015, another study showed. That comes to $25 for every US adult.
“Banks have to make a little money,” King said. “Clients should [also] recognize that we need to make a little money to stay in business so we can still provide services,” he added.
Rising interest rates spell fatter returns on credit cards for banks this year — but not for customers trying to save for a rainy day.
Americans have entered 2017 groaning under $992.4 billion in credit card debt. Following the Federal Reserve’s December interest rate hike of 0.25 percent — and with up to three more similar rate increases expected this year — the cost of that debt is spiking.
That’s great news for banks and credit card issuers, whose stock prices have rallied. For consumers, however, it’s bad in two ways: higher interest rates on credit card debt, but no gains in savings yields.
One reason for the imbalance is that most credit card deals are structured to allow banks to pass along any rate hikes to card holders, but the banks in turn aren’t wooing depositors with higher interest rates.
“Banks are protected in terms of ... profit margins when their cost of funds goes up,” said Ben Woolsey, president of CreditCardForum. “Unfortunately, on the savings side, the cost of funds don’t equate with the deposit relationships.”
Recent changes to credit card and savings account rates illustrate this divide. In the second half of 2016, the average annual percentage rate for new credit card offers jumped from 17.85 percent to 18.16 percent, while the annual percentage yield for savings and checking accounts barely inched up from 0.32 percent to 0.33 percent, said Wallet-Hub.
Because the existing debt base is so large, even small interest rate increases ring up big dollars for banks. Based on the US credit card debt load and average rate for cards that carry a balance, a 0.25 percent rate hike by the Fed hits American borrowers with $2.48 billion in additional annual interest. For a borrower with the average credit-card balance of $5,550, a 1 percentage point rate hike, from 13.61 percent to 14.61 percent, would add about $63 in interest the first year.
Experts recommend consumers respond to rising rates by shopping around for lower in- terest rate cards, and aiming to repay at least part of your debt this year. After all, rising rates don’t pinch borrowers who don’t carry a balance.
“It’s just reason No. 10,000 to focus on paying down your credit card debt,” says Matt Schulz, senior industry analyst at creditcards.com.