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Big banks consider charging for deposits, are probably bluffing

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Big banks consider charging for deposits, but there are plenty of alternatives.What if banks gave you a negative interest rate, actually charging for deposits, rather than paying interest? That’s what some banks are contemplating if the Federal Reserve stops paying them .25 percent interest on the gigantic reserves they hold at the central bank.

Late last month two unnamed bank CEOs were in the Financial Times saying that losing the interest payments from the Fed would make taking deposits a losing proposition in many cases:

Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4 trillion in reserves they hold at the Fed would lead them to pass on the cost to depositors.

Banks say they may have to charge because taking in deposits is not free: they have to pay premiums of a few basis points to a US government insurance programme.

“Right now you can at least break even from a revenue perspective,” said one executive, adding that a rate cut by the Fed “would turn it into negative revenue — banks would be disincentivised to take deposits and potentially charge for them”.

The idea that banks may charge checking accountholders interest provoked some outrage in the press, but you can feel free to ignore it. Here’s why: There are 6,863 FDIC-insured banks and 6,895 credit unions in this country. If Wells Fargo, Bank of America or any other of the top 5 banks tries to start charging you to hold on to your savings, just take your money elsewhere.

To me, this sounds like saber-rattling designed to convince the Fed to keep shelling out billions of dollars’ worth of risk-free returns to large banks. But while I don’t think large banks will ever actually go through with this birdbrained plan, I guess it’s possible they have so much money on hand they think they can afford to alienate depositors.

If that’s the case, there are plenty of online banks, local banks and credit unions out there that would be happy to take your money and actually pay you interest in return, while probably providing you better customer service in the process.

What do you think? What would you do if your bank started charging for deposits? Would you pay it, or move your money to another institution?

(Photo: Chris Connelly)

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11 Responses to “Big banks consider charging for deposits, are probably bluffing”

  1. David S. says:

    If they did I am sure it would be tiered to the balance, just as they do with checking accounts. If you have less than $5000 then you have negative interest, but more than $5000 you get a little over prevailing rates and over $100000 you get even more interest. Legally they need some deposits so they will try to protect the large accounts from migrating, while paying for those large account perks by charging interest on the small accounts.

  2. Glenn Lasher says:

    To my understanding, the root idea initially was that banks could makes loans from deposits. Loans generate revenue. The Federal Reserve getting involved is a more recent twist on this, but the basic principle should still work, if one wanted to apply it.

  3. With fees, banks have essentially been charging negative interest for years. They’re too smart PR-wise to overtly ‘pay’ negative interest. I think they’ll just continue on the path that they’re on, which is to pay zero or trivial interest while digging their grubby paws ever deeper into consumers’ pockets through fees, etc.

  4. J. says:

    Thank goodness for the North Carolina State Employee’s Credit Union! Never banked anywhere else, and all I hear are horror stories.

    • Sadie says:

      Not even credit unions may be safe if banks & credit unions begin charging customers for their deposits. My credit union already charges $3/mo for a Health Savings Account irregardless of the balance.

  5. It would be fair in fact, if the money was 100% insured, meaning that banks would not use it for their own investing but just store it doing nothing.

    Pretty much going back to split between investment banks & deposit banks.

  6. dojo says:

    Happens in other parts of the world ;)

    If you open an account here in Europe (my country especially) you will pay a monthly fee. If you have a card, you’ll pay for it, same for internet banking. If someone is paying you money, you’ll pay commission, if you are depositing money you are paying a fee (small, but still a fee). If you withdraw money from the ATM you’ll pay a fee, if you want to see how much money you have there is another fee. If you go to the cashier to get money, there’s a bigger fee etc.

    So, it’s not uncommon to deposit 1000 bucks and have 950-980 in few months :D

    • Marilyn says:

      Of course we pay fees for our accounts. Most banks charge monthly maintenance fees if your balance is below $10,000. Many banks limit the number of free ATM transactions or charge for each individual usage and they charge for using another bank’s ATM and your own bank charges you for using someone else’s ATM, which means two fees for one transaction. Banks charge merchants for the privilege of accepting the card for payment. Some business charge fees for using the card and some charge fees for cash and for using the the card. They charge us for withdrawing cash, visiting a human teller instead of an ATM, etc. Essentially most American banks receive two sets of fees for every transaction plus monthly service and maintenance fees.

      What we’re talking about here is being charged for adding money to your balance, where we’re already paying all the fees mentioned above.

      I use online banks. Traditional banks keep pushing away users. It might not matter much to them now but as more people leave, maybe it will. They already complain that credit unions are unfair.

      It’s sort of hard to maintain the required capitalization ratio if your depositors leave because you charge them a fee. Then you can’t make loans to rake in cash that way. Foot, shoot. Seems like saber rattling to me too.

      What I wonder is what happened to the concept of “cost of doing business.” It seems like every business sells a service and then says that it costs money to provide the service so they charge fees for anything you do or need. Call customer service–pay a fee. Use the service you’re accessing–pay an additional fee. Of course these companies are raking in profits in the millions and billions.

  7. Matt says:

    Really? Charging for deposits? I think this idea is a bit on the crazy side – banks should be able to generate more than sufficient profits from the loans and credit cards they issue to cover this. I understand discounting the interest but what incentive would people have to keeping money in the bank if they were charged for deposits. A person could easily swap over to an online back or paypal and move all of their funds out thus reducing the need for the local branch to exist.

    Personally I think they will sooner go to 0% interest before going to a negative one (they already charge enough in fees to cover their costs and overhead)

  8. CrazyRcPilot says:

    POP – Protect Our Profits

    God forbid some fat-cat has less profit this month than the last one. If the banks want to impose fees for their most basic of tasks (the very tasks that allow them to operate a business) then we as consumers should get to charge fees every time the bank screws up.

    ***********************************************Probably not the right forum for this, but everyone should watch “Just in Time” with Justin Timberlake. Money has become Time and Time is still money. When a group of people find a way to survive, the system just raises the cost of living in an effort to push the little people lower and the big guys just get bigger.

  9. bloodbath says:

    Credit Union, here I come.
    I believe they WILL try to do it then back out when their is a public backlash. I’m never charged at my bank because I have higher than normal deposits – they treat me ‘special’ but the Credit Union will treat me specialer if I’m forced to go there.


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