Banks are collecting substantially less money from consumers who overdraw their accounts than they did just last year. And so far, their retail units generally do not seem to have found a formula for replacing the lost revenue.
In research conducted this summer, Bankrate.com found that the average overdraft fee was $29.80, or 11% lower than a year earlier. Over the previous 22 years, overdraft fees climbed at a relatively steady clip from less than $22 to more than $33.
Falling even more sharply since last year were the fees charged to customers whose purchases got rejected because their accounts lacked enough funds. The average nonsufficient-funds fee plunged by 21% to $26.58, according to the Bankrate study.
"The momentum has definitely changed," said Greg McBride, chief financial analyst at Bankrate.com. "So what had been a fee that consistently increased from one year to the next, and where increases tended to swamp the decreases from one year to the next — that has changed significantly."
The study, which was conducted between June 13 and July 1, analyzed various fees charged by banks in 25 large U.S. markets.
Outside of overdraft-related charges, the prices of fees did not change substantially between 2021 and 2022.
The average total cost of withdrawing cash from an out-of-network ATM rose by around seven cents to $4.66. But the average monthly fee for interest checking accounts fell by 16 cents to $16.19.
The findings line up with recent earnings trends at larger banks, many of which have been making changes to their overdraft policies that benefit consumers.
Zions Bancorp. in Salt Lake City, which reported $172 million of noninterest income last quarter,
All told, customers at the 25 largest U.S. banks are expected to save more than $4 billion per year as a result of overdraft-related changes, according to
More than half of the nation's 20 largest commercial banks, including Citigroup and PNC, have stopped charging nonsufficient-funds fees, and another four are scheduled to end the practice by year-end. That leaves three holdouts: SVB Financial, Huntington and MUFG Union Bank.
Some banks have told investors how they plan to compensate for at least some of the lost revenue, but those plans have typically not involved squeezing more money from retail banking fees.
In January,
In the retail banking sphere, one way that banks could fill the revenue gap would be by charging monthly maintenance fees on more checking accounts.
Bankrate.com found that 46% of noninterest checking accounts were free this year, meaning they did not have a monthly fee or balance requirement. That percentage was down from 48% last year, but still the third-highest level in 12 years, according to the research.
Among interest checking accounts, 7% of accounts were free this year, unchanged from 2021.
The question now, according to McBride, is whether free checking will become a casualty of lower overdraft revenues. "So far we're not seeing evidence of that, but it's still early," he said.
McBride argued that banks have been making consumer-friendly changes to their overdraft policies in an effort to stave off regulation that would take the decisions out of their hands. In that context, he said, any changes to the thresholds for free checking accounts are likely to happen gradually over time.
By contrast, the reforms to large banks' overdraft policies have arrived quickly over the last year or so. A small number of big banks have eliminated overdraft fees altogether, and others have cut the price of an overdraft fee.
Meanwhile, 17 of the 20 largest U.S. commercial banks have either abandoned NSF fees or pledged to do so by the end of the year, according to a recent American Banker
But the Bankrate.com research suggests that many smaller banks have not yet made similar reforms. Some 96% of the bank accounts examined this summer still charged overdraft fees, and 87% of them charged NSF fees.
The study also found that as of early summer, most banks had yet to raise deposit yields, despite aggressive interest rate hikes by the Federal Reserve. The average yield on interest checking accounts was 0.03%, which was unchanged from a year earlier, according to Bankrate.com.
But the deposits market is poised to become more competitive, said Neal Stanley, CEO of The Corepoint, which consults with banks on their deposit-pricing strategies. He advised banks to develop products that benefit customers for having a relationship with their bank.
"You don't want to be hocking the highest rate," Stanley said.
