The Federal Reserve has finished its September meeting and interest rates remain unchanged. Although domestic spending and U.S. economic recovery has been strong, concerns about the international market and its potential impact on inflation has made the Fed wary, so they will likely revisit rates in their next meetings in October and December.
In the meantime, financial institutions remain right where they have been for several years, waiting. Even if the Fed were to raise interest rates, the experts say it would have to be a significant increase (more than 100 basis points) to have a significant impact on net interest margin (NIM). And while the banks wait for the Fed to increase interest rates, they are overlooking sources of immediate revenue – non-interest income.
As Chris Nichols of CenterState Bank noted in his blog this week, deposit fees make up as much as 70 percent of fee income, but bankers seldom consider changing fees to raise revenue. Fee income is also rate sensitive, and when the Fed does raise interest rates, it will signal to consumers that times are getting better and it’s time to look for a better rate for their money.
To help banks and credit unions address the fee conundrum, this week we introduced FeeBuilder, the first live data, on-demand national fees database. FeeBuilder helps financial institutions adjust fees for maximum revenue and competitiveness. They answer off-cycle questions without waiting for an annual fee study or relying on outdated data, and they can help spot trends that can help you create a more balanced service offering. FeeBuilder (and its sister publication, TrendSpotter) makes it easier to spot fee trends and to identify sources of non-interest income beyond overdraft.
Following the Bank of America debit card fees fiasco of 2011, consumers, especially Millenials, are suspicious of bank fees and will go out of their way to avoid them. A Harris poll showed that 31 percent of consumers hate monthly account fees followed closely by ATM fees. FeeBuilder can show you where fees are competitive, and where there are new opportunities for fee revenue that won’t alienate customers. Those banks that review their fees only once a year are going to lose customers by the time they get around to adjusting fees to make them more competitive. A year (or even 6 months) between custom fee studies is a long time to wait to get current answers for your fee questions.
Here are some of the trends that Chris uncovered with the help of FeeBuilder:
This year, banks have been able to increase fees while dropping minimum balances on checking and increasing minimum balances requirements on combined accounts. The result has been an increase in non-interest income and larger deposit balances. As Chris notes:
Decreasing minimum checking balances while increasing combined balance levels usually serve to increase liability duration driving up a bank’s net cost. Banks can get away with this in a falling rate environment, but that tactic is likely to be relatively expensive in a rising rate environment and funds shift out of non-interest bearing accounts.
Overdraft fees make up a significant portion of non-interest income. The average overdraft fees stand at $31.51, with overdraft protection at $6.60 per month. However, what FeeBuilder also reveals is that more banks are instituting daily maximums, capping overdraft charges incurred each day.
Another area that FeeBuilder shows retail banks at a disadvantage is wire transfers. The average cost of a wire transfer is $11, but direct banks (i.e. Internet banks) charge $2.70 on average for wire transfers .Mid-sized banks lose money on wire transfers because they have to be done manually, where large banks make money changes to electronic funds transfer.
Finally, with bank and credit union money market accounts holding the highest balances in years, consider using FeeBuilder to optimize fees in these accounts before rates rise significantly, and these balances begin move on to higher-yielding accounts.
There is new competition on the horizon from Internet banks and non-bank platforms, and as deposit rates recover, customers are going to look more closely at deposit charges. We developed FeeBuilder so you can stay one step ahead and identify new, sustainable sources of non-interest income.
If you want more information about FeeBuilder, visit our FeeBuilder Web Page or send us an email at firstname.lastname@example.org.
The Latest from ProductBuilder Alert
Interested in the latest product trends from banks and credit unions, including the latest trends on fees? Be sure to sign up for ProductBuilder Alert, our weekly sampling from our ProductBuilder database of financial product ideas. Here’s a sample from this week: