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Banks make a lot of money from basic checking and savings accounts. It may seem surprising that boring, basic accounts remain such big money-makers for the banks, but banks are making billions every year, largely because we stay with large traditional banks for no apparent reason. Banks call it “inertia,” and they profit from it.
On savings accounts, banks make money by paying depositors virtually no interest. Most major banks pay an interest rate of only 0.01% on their savings accounts. And then they use the money customers deposit to make loans at much higher rates. So, we are basically giving interest-free loans to banks.
There is good news: we no longer have to settle with 0.01%.
Branch-free banks are challenging traditional banks by paying interest rates of 1% or more. That may not seem like a big number, but it can be. If you have a $20,000 savings account, that is the difference between earning $2 or $200 of interest a year. We have compiled a list of the highest interest rate savings accounts, which we update daily. The banks do not pay us, so our recommendations are completely unbiased.
After raking in money on savings accounts, Banks turn their attention to checking accounts. Banks make most of their money by charging the following fees:
- Overdraft fees: which represent approximately 60% of the fees charged by banks. Only 10% of the population pays 75% of the fees, and they tend to be the most economically vulnerable, including our troops.
- ATM fees: which can add up quickly. If you go out of network, you pay ATM fees to two banks: your bank, and the bank that owes the ATM
- Monthly fees: which most people get waived. A direct deposit or minimum balance usually takes care of this fee.
And these numbers add up quickly. We have used FDIC data to see which banks charged the most per branch in fees on checking and savings accounts. Although we expected big numbers, even we were surprised at how much fee income was generated. Bank of America was the worst offender of the big banks, generating nearly $1 million per year per branch in fees. Every time you drive by a Bank of America branch, remember that the bank is earning $1 million in annoying fees alone.
We list the fees per branch below. But, just like with savings accounts, there are new alternatives out there. You can now get a bank account with no monthly fee (and no direct deposit requirement), no ATM fees (including reimbursement of other bank ATM fees) and no overdraft fees. Some of our favorite options include Bank of the Internet and Ally Bank. But you can compare all of the account on our checking account page.
If you are drowning in overdraft fees, or travel and are tired of ATM fees, then switching is a no-brainer. But, you may be thinking that you never pay any fees and don’t really have any problems with your bank. I was in that camp. But then I decided that I didn’t want to stay with an organization that just waits for me to make a mistake, and then charges an outsized fees. Like any other industry, I want to reward better organizations with my business, and I switched to Ally.
Stay Up to Date
At MagnifyMoney, we want people to get in the habit of comparing, ditching and switching. If you find a gas station with cheaper gas, you switch. But, most Americans just stay with their bank. We want people to pay attention to the rate, tricks and traps and be ready to switch when a better deal is out there.
To keep you informed, we created our PriceChecker email, which goes out twice a month. With a quick glance, you can see if you have the best rate on your savings account. We also show the best mortgage rates, credit card deals and cashback rewards. And, whenever we find a fine print trap, we let you know about it. You can sign up for our email list here.
#1 on the list is Fort Hood Bank, targeting the people who serve our country in the armed forces. Their customers will likely have limited assets, and the fee revenue will likely be dominated by overdraft and NSF fees.
#2 on the list is Cole Taylor Bank, which has made news targeting college students on financial aid, who also have limited assets.
#3 on the list is The Northern Trust Company, a private bank. The average account generated $477 in fees last year. They have 77 offices.
#4 is Bank of America, with 5,319 branches. BofA looks particularly bad when compared to the other big 4 banks:
Bank of America charges, by far, the most fees per branch. 23% more than Wells Fargo and 27% more than Chase.
Citibank only generates $278,210 per branch, 72% less than Bank of America. Citi does not have an extended overdraft fee.
At MagnifyMoney, we believe that the overdraft market is ripe for disruption. The revenue generated from the activity bear no relation to the cost of providing the service. My thoughts on how we can make the system better are here.