Loyalty To Your Bank Could Cost You Money

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In the annual American Banker/Reputation Institute Survey of Bank Reputations, surveyors asked respondents about feelings of trust, admiration and other positive perceptions. Banks and financial services were rock-bottom on a list of 16 industries. “Five years after the financial crisis began, the industry remains deeply unpopular,” industry magazine American Banker says.

The funny thing is that people think where they bank is superior and that other banks are the real bad apples. On a 100-point scale, banks averaged a less-than-impressive 56 points among consumers in general, but that jumped to 69 points when surveyors asked people about the institutions where they bank. Small banks fared bigger than the big players; consumers gave large banks an average of just 44 points, and even their customers only gave them an average of 60 points.

Our loyalty may cost us, though, because we have a big blind spot when it comes to how much we pay in fees. When the American Bankers Association asked consumers in another survey how much they think they pay a month in banking fees, 55% said “nothing.” Another 10% estimated three bucks or less when researchers asked them, “How much do you estimate you spend on fees for banking services each month, such as fees for checking account maintenance, ATMS use and so forth?”

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But while roughly two-thirds of people think they pay next to nothing,  this rosy perception doesn’t match up with the actual data. In its most recent survey last month, MoneyRates.com compared 386 checking accounts at 100 banks and found that only around 30% are free, and the average monthly fee is nearly $12.50. Sure, some of the people who say they don’t pay anything in fees probably do, but the numbers don’t add up.

The average monthly fee at the 50 biggest banks is $14.63, and only around 23% of accounts at these banks don’t charge a monthly fee. And these are disproportionately the banks most of us use; around 80% of all consumer deposits are held by the 10 biggest banks. And while some customers can dodge this fee by maintaining a minimum balance, many can’t. The average minimum required by big banks is $7,735.31 — more than twice the amount the average American has in their checking account.

“Large banks tend to charge higher monthly and ATM fees than their smaller and medium-sized counterparts, and are less likely to offer free checking,” MoneyRates senior financial analyst Richard Barrington writes. And that’s not even taking into account other common fees like overdraft fees, which average over $30 a pop.

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These mismatches in consumer perceptions and behavior can add up to big bucks for banks. A July study found that it’s not the customers with the lowest balances who habitually overdraw their accounts or use pricey out-of-network ATMs, contrary to popular belief.

Slightly more than half of customers with less than $1,000 in the bank said they overdrew their account in the past year, compared to two-thirds of those who generally kept between $1,000 and $2,000 in their accounts. The latter group was also more likely to pay ATM fees, but was less likely to shop for a new bank account by searching for the lowest fees.

“Clearly, many consumers don’t consider ATM and overdraft fees as much during the purchase process… This is partly because people aren’t particularly realistic about their future behavior when making these decisions,” industry publication The Financial Brand says.

Likewise, people who prioritize writing paper checks — whether or not they actually do — are willing to pay more in fees. “Those selecting unlimited check writing as a ‘must have’ feature were three times more likely to select checking accounts with high monthly service fees” of $20 or more, The Financial Brand says.