Hoping to recover losses from failed mortgages and continued large write-offs in the credit card business, banks are moving away from free checking accounts and heading toward instituting new fees or increasing existing fees. Consumers with checking accounts that have fees now should expect to see a rate increase. Even credit cards issued by some of the major banks will have higher interest rates, cash advance fees and late fees associated with them in the coming months.
Bank of America is one of the major banks in the process of increasing its account fees across the board. It recently reported that it wrote off credit card balances at an annualized rate of 8.25 percent in April, up from 8.18 percent in March. While down from the peak rate of 14.53 percent in August of 2009, the default rate at Bank of America is the highest among the top bank card issuers.
Checking Account Fees
The once free version of the Bank of America checking account will now have a fee associated with it. The fee is being assessed regardless of the amount of money in the account or the number of transactions. The most popular Bank of America checking account currently has a fee of $8.95 a month, but this is expected to increase to $12.95 per month when the rate increases go into effect.
Tiered Checking Account Fees
Bank of America also expects to launch a pilot program to test a tiered-fee program. The program is set to roll out in several states including Massachusetts, Arizona and Georgia. The program will offer a new set of accounts from which banking customers can choose. Four accounts will be available through the pilot program, but all of the accounts have monthly payment fees associated with them. Three of the account options, however, will allow customers to avoid paying the monthly fee as long as the consumer banks online, maintains a minimum monthly balance or uses a Bank of America credit card.
Consumers Check Out Options
Of course, consumers do not have to stand idly by as banks raise fees all around them.There are lower cost alternatives, such as checking accounts at credit unions. In fact,economist Michael Moebs, who founded the independent economic research firm Moebs Services in 1983, estimates that big banks will lose approximately 13 million accounts between 2010 and 2011 to either local community banks or credit unions that have lower fees or, in some cases, no fees at all.
If this proves to be true, then any increase in banking account fees may not make up for the loss of income from departing customers. Maybe that’s why Bank of America is testing the waters with its pilot program first.