Yahoo Finance Are Bank Fees Set to Rise?
If you have money in a savings account and are watching your income grow at a sloth's pace, nobody needs to tell you that interest rates are low. In fact, according to the Federal Deposit Insurance Corporation, or FDIC, the current national average rate of a savings account is 0.06 percent. That isn't too far away from having no interest rate.
But what you may not realize is that the rates in your bank account could theoretically go lower than zero. Currently, the Swiss interest rate is -0.750 percent. And, no, that minus sign isn't a typo. The Swedish interest rate is better but not by much. It's currently -0.250 percent.
That's right. Some European banking customers are finding that instead of receiving interest, they're paying the bank interest.
Which may leave you wondering: Could it happen here? Could American banks eventually offer consumers negative interest rates?
"It kind of already has," says Malcolm Wardlaw, assistant professor of finance at the University of Texas--Dallas. He cites the example of JPMorgan Chase & Co., which in February announced that on May 1, it would begin charging large corporate customers for some deposits -- what they called a "balance sheet utilization fee." (It doesn't affect retail banking customers.)
Still, might negative interest rates eventually find their way to the average banking customer in the U.S., creating a weird world in which consumers see their savings get smaller, the longer their money is parked in a bank? (You could argue that this already happens, if you have a savings account with a low interest rate and exorbitant fees.) While anything is possible, spoiler alert: It isn't likely.
Why negative interest rates probably won't come to the U.S. First, a quick refresher. Central banks decide the monetary policy of their countries. For instance, in the U.S., the Federal Reserve is the central bank. Other central banks throughout the world include the People's Bank of China, the Bank of Japan and the Bank of Canada, to name a few. These banks' main missions are to ensure the money supply meets the country's economic goals.
There are some logical, non-desperate reasons why a central bank might want to pay banks a negative interest rate. It can be a strategy to combat deflation, in which prices fall. Of course, that can seem great at first for consumers but eventually deflation will harm business owners, their employees and the economy as a whole. Meanwhile, another possible positive about a country's banks having negative interest rates: Foreign investors might be more likely to invest with a country that has a negative interest rate, provided the investors believe the interest rate will rise.
But as Luis Dopico, an adjunct associate professor of practice who teaches courses on capital markets and institutions at Wake Forest University, in Winston-Salem, North Carolina, points out, banks are "experimenting" with negative interest rates. And he doesn't envision the U.S. wanting to conduct such an experiment.
"At this point, the Federal Reserve seems very unlikely to pursue such a course of action," he says. "The Fed is likely uncertain as to how effective a negative interest rate policy would be, and the Fed has already engaged in unprecedented amounts of quantitative easing -- for example, buying bonds and injecting reserves into the banking system, hoping for the same results, with similarly uncertain outcomes."
Wardlaw doesn't think it's likely, either. He can understand why some banks would charge their largest corporate clients negative interest fees, however. "Large volumes of cash have to be stored somewhere, and the physical notes are simply too costly to store in quantity," he says. "Some type of fee could possibly filter down to small businesses, though that's less likely. I doubt this is going to trickle down to personal accounts."
In fact, if anything, consumers are going to see interest rates go up. "Most forecasters and analysts expect the Fed to start targeting slightly higher interest rates at some point within the coming 12 months," Dopico says. "Climbing interest rates will further decrease the likelihood of negative nominal interest rates in coming years."
But bank fees will probably rise, regardless. Despite conventional wisdom, what goes up doesn't always come down, and that's especially true when you're talking about bank fees. Every year for the last 16 years, bank overdraft fees have climbed, according to a September annual report from Bankrate.com. If your account dips into the negative, the average fee you'll pay for overdrafting is $32.74, and if you realize you need cash but must use an ATM outside your network, the average cost is $4.35 -- a 5 percent jump over the year before.
Simply maintaining a checking account can cost money, and those fees are climbing, too. The annual MoneyRates.com Bank Fees survey was recently released and found that the average monthly checking account maintenance charge is now $12.87, 18 cents higher than it was six months earlier.
Even if you have a free checking account, it really isn't free, Wardlaw says, explaining that "the marginal cost to a bank of servicing a checking account is now sufficiently low that it can fund the operations with so-called 'non-shopped fees,' like overdraft fees and other triggered costs."
Non-shopped fees, as you can probably guess, is a term used in a variety of industries for purchases that consumers don't plan on making. And it's safe to say nobody goes out and hopes to pay for bank fees or to find a bank with negative interest rates. In fact, if rates would start climbing, arguably, bank fees might rise less since a bank would make more profit.
Because of low interest rates, Dopico says, "banks and other financial providers have long been seeking to shift their revenue streams toward noninterest income, including increasing fees or creating new fees."
So while negative interest rates may not be coming to your savings account, as long as interest rates continue to hover around zero, you won't pay interest to your bank, but you will pay fees. Which may leave you wondering: Is there a difference?
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