23. December 2010 16:43
We report regularly on deposit rates and fees, national APY, and banking pricing strategies. However, that’s only part of the overall picture. There was a lot going on in the world of banking this year, and the Huffington Post recently report on eight positive trends for consumers from 2010:
1. Mortgage rates his a new low at an average of 4.69 percent for the first eleven months of the year. Historically, rates for a 30-year mortgage have averaged around 8.91%. The new low rates continue to fuel a flurry of refinancing if not new mortgage purchases.
2. Financial reform continues to be headline news. The Dodd-Frank Wall Street Reform and Consumer Protection Act offered some benefits to consumer, primarily in the form of greater stability and security. On the downside, higher compliance costs may mean an increase in fees and continued lower interest rates on CDs, savings, and money market accounts.
3. More than 30 million consumers opted out of overdraft protection. Although a huge profit center for many banks, new rules allowed depositors to bow out of overdraft fees and many did.
4. Free checking continues. Despite predictions that added compliance overhead from Dodd-Frank sound the death knell of free checking, availability only dropped 11 percent.
5. The FDIC insurance increase was made permanent, rising from $100,000 per depositor to $250,000 per depositor.
6. Other dollar limits for FDIC insurance were increased, including non-interest bearing accounts such as checking, which do not count against the $250,000 limit for interest accounts. This makes it easier for consumers to have multiple products at the same bank without exceeding their insurance limits.
7. Consumers finally started to fight back against credit card debt. As we have reported earlier, consumers have been using their maturing CDs to pay down credit card debt, which accounts for Federal Reserve figures that continue to show that credit card debt decreased for the second year in a row.
8. And Americans are saving more. Our research shows that overall deposits are up and the Federal Reserve reports that savings deposits increased more than $400 billion during the first 10 months of 2010.
Here’s wishing us all a more profitable and prosperous 2011.
13. October 2010 15:36
What’s happening with bank fees? Pete the Planner, who hosts the weekly radio show, “Skills Your Dad Never Taught You,” spoke with Market Rates Insight’s resident research expert, Dr. Dan Geller, this week to discuss what banks are doing with fees? As Pete notes, banks are becoming increasingly creative with how they are structuring fees to raise revenue. He actually shares a story about a savings account he opened for his infant daughter that was costing more in fees than it was earning in interest because the bank changed its policy on savings accounts.
According to Dan Geller, the new trend toward creative fees is part of a paradigm shift where banks are moving away from getting their profits from the net interest margin between loan rates and deposit rates. “In times of economic downturn, banks have to look for different ways to make up the shortfall, and fees are becoming more important.”
How much are fees going to continue to drive bank revenues? Dan says that as long as there is economic pressure on banks with high unemployment and low demand for loans, there will be continued pressure on banks. Consider the rates for 30-year mortgages, which have dropped to a record low of 4 percent as one example; there is not enough margin from interest payments so banks are increasingly looking to fees to make up the lost profit.
Despite economic pressures, banks just closed one of their most profitable quarters ever. According to Dan, this is partly because banks have been dumping their toxic assets which helps profitability. The economic crisis is forcing banks to become healthier. With the national APY for deposit rates at 0.95% – a record low – banks can still operate because consumer confidence has shifted. The security of an insured deposit has become more important to consumers than a return on that deposit. Dan urges consumers to overcome their fear and look for secure options like long-term CDs that may require trading liquidity for a higher yield.