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Recent trends in retail fees and services of depository institutions.

The availability of retail banking services and the fees that depository institutions charge consumers for them have received increased attention in recent years. This attention may have been prompted by the trend toward the separate pricing of services and changes in the environment in which depository institutions operate. Concern over the potentially adverse effect of one particular change in the regulatory environment--that of increased premiums paid for deposit insurance by depository institutions--led the Congress, in section 1002 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, to require the Board of Governors of the Federal Reserve System to report annually on discernible changes in the availability of retail banking services and in the level of their fees. Section 1002 further specified that the annual reports to the Congress be based on annual surveys of samples of insured depository institutions that are representative of all such institutions in terms of size and location.

The Federal Reserve has commissioned a survey and issued a report for each of the five years from 1989 to 1993.(1) All of these surveys were conducted by telephone with the same procedures and by the same private survey organization operating under contract with the Federal Reserve Board. To keep the length of the interviews manageable and to improve the accuracy of the results, they were conducted for only one product category at a time. With some variation in numbers from year to year, roughly 150 members of the Bank Insurance Fund (mostly commercial banks) and 180 members of the Savings Association Insurance Fund (mostly savings and loan associations) were chosen for each survey; they were picked randomly each year from each of seven regions of the country encompassing all fifty states and the District of Columbia and from five size groupings covering all institution sizes (see the appendix for more detail).

Statistical analysis of the survey results produced, for the entire population of banks and savings associations in the United States, estimates of the level of service availability and the level and incidence of fees at the time of each annual survey. This article reports a selection of those estimates for the 1989-93 period. In most cases, the change that occurred between the first and the last survey is also reported, along with an indication of the statistical significance of the change.(2)

Several findings are noteworthy. First, the availability of consumer services in general has not declined. Indeed, the availability of a few increased sharply. Second, observed changes in consumer fees varied substantially be type fo fee. Fees associated with special actions, such as those imposed on checks returned for insufficient funds, on overdrafts, and on stop-payment orders, exhibited consistently large increases that exceeded the rate of inflation; the evidence for other types of fees is more mixed (see box for data from another source on trends in overall revenue from fees on both consumer and business deposit accounts).


Survey information on the proportion of banks and savings associations that offered various retail services over time is available for the following services: auto loans, non-interest-bearing checking accounts, negotiable order of withdrawal (NOW) accounts (which are interest-bearing checking accounts), savings accounts, money orders and cashiers checks, the return of canceled checks, automated teller machines (ATMs), and safe deposit boxes.

Data on checking and savings accounts include the availability of no-fee versions of those accounts. Cashiers checks are close substitutes for money orders, so the reported data cover the proportion of banks and savings associations offering either of these instruments rather than the proportion offering each.

Services at Banks

Throughout the five-year period, most of the above retail services were offered by more than 90 percent of banks (table 1). The exceptions are ATM services and NOW accounts. ATMs began appearing in significant numbers in the 1970s, and NOW accounts were not authorized for banks until 1980. Although the availability of ATMs at banks was up a statistically significant 16 percentage points over the period, one-fourth of banks still did not offer them in 1993. The availability of NOW accounts rose a statistically significant 7 percentage points over the period, and the estimated proportion of banks that offered them during the past two years exceeded 90 percent.


During the survey period, the no-fee version of each of the three deposit accounts shown in table 1 was offered by only a small minority of banks. The availability of no-fee noninterest checking was the only one of the three to have changed a statistically significant amount over the period, rising 5 percentage points.

Overall, the availability of four of the eight broad service categories for banks rose a statistically significant amount--new-car loans, NOW accounts, money orders or cashiers checks, and ATM services; and no banking service showed a statistically significant decline in availability.

Services at Savings Associations

For savings associations, the only surveyed services consistently offered by more than 90 percent of all institutions throughout the period were savings accounts and money orders or cashiers checks. Relative to the availability observed at banks, the estimated proportions of savings associations offering noninterest checking, ATM services, and safe deposit boxes were particularly low, barely rising above 50 percent during the period.

The smaller proportion of savings associations offering noninterest checking accounts may stem from the fact that savings associations, unlike banks, were generally restricted from providing these accounts before the 1980s; their availability rose a statistically significant 14 percentage points over the five survey years, a change that, along with other factors, may reflect a reaction to the previous restriction. Other services whose availability changed statistically significant amounts over the five years were new-car loans (a rise of 14 percentage points) and safe deposit boxes (a rise of 7 percentage points). The increased availability of car loans and safe deposit boxes suggests that the offerings of savings associations are in some respects becoming more like those of banks.

As they were at banks, accounts entailing no fees were rare at savings associations. Statistically significant changes in the availability of the accounts were, however, more pronounced at savings institutions, where the proportion offering no-fee noninterest checking rose 6 percentage points and the proportion offering no-fee savings accounts fell 14 percentage points. These data suggest that, to the extent that savings associations offer no-fee accounts, they are switching such offerings away from savings toward noninterest checking accounts.


The fees charged for various types of retail banking services and changes in them over time differ considerably. Dividing service fees into three different types provides a manageable way to deal with the variations; these types are (1) fees associated with maintaining and using various kinds of deposit accounts, (2) fees associated with specialized services or actions such as stop-payment orders, and (3) fees charged for the use of ATM services.

Deposit Accounts

Analysis of the fees charged in connection with deposit accounts must, at the very least, account for the distinctions among noninterest checking accounts, NOW accounts, and savings accounts. Even within these categories, however, accounts can differ considerably. In the case of noninterest checking, for example, accounts can differ in terms of the nonchecking services provided, the minimum balances that depositors must maintain to qualify for various fee levels, and the mix of fees charged. In the case of savings accounts, to take another example, fees can depend on whether the account is a passbook savings account or a statement savings account and on minimum balance requirements. Therefore, the characteristics of accounts must be specified when comparing the levels of fees over time. The following discussion presents information on three types of noninterest checking accounts, one type of NOW account, and two types of savings accounts. Data on the proportion of institutions offering each of these accounts is included to indicate prevalence.

Noninterest Checking

The following three fee structures are reported for noninterest checking accounts: (1) a monthly fee when balances fall below a minimum, (2) a monthly fee and a per-check charge when balances fall below a minimum, and (3) a monthly fee and, in some versions, also a charge per check, regardless of the account balance (table 2).


Single-balance, single-fee. A single-balance, single-fee account involves no fee if a minimum balance is maintained; otherwise the account incurs a single montly fee with no other charges. The estimated proportion of institutions offering this account has changed sharply from one year to the next, perhaps because of changes in the structure of fees that would cause the account to be reclassified. At least at banks, however, it is one of the more common types of noninterest checking accounts.

For banks, the average monthly fee and the average minimum balance required to avoid the fee did not change a statistically significant amount over the period, and the average minimum balance required to open the account dropped a statistically significant 46 percent. At savings associations, however, where this type of account appears to be less common, the average monthly fee rose a statistically significant 17 percent over the period, compared with a 16 percent rise in the consumer price index (CPI) in the same period.(3) The estimated average minimum balance needed to avoid the fee or to open the account at savings associations varied sharply during the period, but the differences between the 1989 and 1993 levels were not statistically significant.

Single-balance, single-fee, check-charge. A single-balance, single-fee, check-charge account has a monthly fee and a charge per check for balances below a defined minimum, and no fee or check charge for balances above the minimum. Thus, this account differs from the single-balance, single-fee account in that failure to maintain a prescribed minimum balance brings a charge per check as well as a monthly fee. The proportion of banks offering this kind of account, which has varied considerably from one year to the next, has sometimes approached 30 percent; the variability may be a result of changes in account characteristics that cause the account to be reclassified.

The average monthly fee charged holders of this type of account at banks is considerably smaller than that charged account holders when a charge per check is not levied. This circumstance illustrates the importance of defining accounts narrowly so that changes in different aspects of an account's fee structure do not mask the true trend in any given type of fee over time.

In the case of this account, the estimated average monthly fee charged at banks increased substantially, from $3.24 in 1989 to $4.02 in 1993. This 24 percent increase is greater than the 16 percent increase in the CPI during the period, but, like changes in the other reported features of the account, is not statistically significant. Because of the small number of savings associations found to offer accounts with this fee structure, reliable information on the fees and minimum balances associated with this account at savings associations cannot be reported for most years during this period.

Fee-only. The fee-only noninterest checking account levies a montly fee regardless of the account balance and may also impose a per-check charge. From one-half to three-fourths of the banks that offered the account over the five survey years imposed the check charge. The fee-only account appears to be one of the more common of the noninterest checking accounts offered at banks, where approximately 40 percent are estimated to have offered it in 1993. It appears to be increasing in popularity at savings associations as well, where nearly 20 percent of institutions were offering it in 1993 and where the average minimum balance to open dropped a statistically significant 67 percent over the period.

The trends in the monthly fees charged for this account differ considerably between banks and savings associations. At banks, average fees increased by a statistically significant 45 percent, from $3.32 in 1989 to $4.81 in 1993, a change that is nearly three times that of the CPI during the period. At savings associations, however, the monthly fees declined a statistically significant 18 percent during the same period.

These sharp changes in the observed monthly fee exaggerate the change in overall fees charged the account holder, because the estimated proportion of institutions levying a charge per check changed in the opposite direction during the same period. At banks, it declined from about 70 percent to about 50 percent, while it increased from about 18 percent to about 45 percent at savings associations. These countertrends again illustrate some of the problems involved in assessing fee changes associated with maintaining and using accounts of various types.

NOW Accounts

NOW (negotiable order of withdrawal) accounts are checking accounts that pay interest and, as a result, can have fees that differ from those observed for noninterest checking. Like noninterest accounts, they can differ considerably in terms of the balances that depositors must maintain to quality for various fee levels and the mix of fees charged the account holder. The most common type of fee structure associated with NOW accounts, both at banks and at savings associations, is one in which the institution charges no fee if the account holder maintains a minimum balance; otherwise, the institution levies one monthly fee with no per-check charge.

The estimated proportion of banks and savings associations offering this type of account has not changed by a statistically significant amount over the survey years (table 2). Statistically significant changes did occur over the period, however, in the average monthly fee charged account holders who failed to maintain sufficient balances; it rose about 10 percent at banks and about 22 percent at savings associations, compared with the 16 percent rise in the CPI over the same period. The average minimum balance to avoid this fee fell a statistically significant 12 percent at banks and rose a statistically significant 27 percent at savings associations.

The monthly fee, minimum balance to avoid a fee, and minimum balance to open for NOW accounts have long been higher at banks than at savings associations. Over the survey period, savings associations appear to have been catching up with banks in terms of the monthly fee and average minimum balance to avoid a fee on this account. At both types of institution, monthly fees and average minimum balances are clearly higher for this type of account than they are for any of the listed noninterest checking accounts. The fact that NOW accounts pay the account holder interest is likely a major reason for this difference.

Savings Accounts

The 1989 survey of savings accounts was not compatible with later surveys, so information on savings accounts is presented only for the 1990-93 period (table 3). The two major types of savings accounts are the passbook account and the statement savings account. The most common fee structure imposes one monthly fee if a specified minimum balance is not maintained; otherwise, no fee is assessed.


The proportion of institutions offering statement savings accounts with this fee structure increased by statistically significant amounts between 1990 and 1993: from about 40 percent to more than 50 percent at banks and from less than 30 percent to about 40 percent at savings associations (statistical significance not shown in table). The estimated average monthly fee charged account holders who did not maintain a minimum balance was roughly $2 at the beginning and end of the period. The average minimum balance required to open the account rose sharply at savings associations, but the change was not statistically significant.

The proportion of institutions offering passbook savings accounts with the "single-balance and fee" structure rose by small and statistically insignificant amounts during the period. The average monthly fee charged passbook account holders that do not maintain balances sufficient to avoid the fee was about equal at banks and savings associations in 1990 and about 15 percent to 20 percent lower than the fee for the statement savings account. By 1993 the fee for the passbook account was up somewhat at banks but had risen a statistically significant 38 percent at savings associations, four times the 8.9 percent change in the CPI during the 1990-93 period. By 1993 the spread at banks between the average fees estimated for passbook and statement savings accounts had narrowed, while at savings associations, the average fee for passbook accounts actually surpassed the average fee for statement accounts.


The data on fees for deposit accounts present a mixed picture, with charges up sharply over the five years for some types of accounts but not others. The picture for minimum balance requirements is clearer, with little evidence of a substantial general increase over the survey period; indeed, such requirements appear to have fallen in some cases, although estimates exhibit substantial volatility from one year to the next.

Specialized Services or Actions

The evidence on fees associated with specialized services or actions is quite different from that on deposit accounts. The trend appears to be a good deal more uniform (table 4), with average fees rising by statistically significant percentages and faster than the change in the CPI in most cases.


Money Orders

For money orders, the proportion of institutions that charge and the average charge can differ, depending on whether the purchaser is a customer of the institution, that is, on whether the purchaser has an account there. During the period from 1989 to 1993, a small and declining minority of banks and savings associations offered their customers money orders free of charge, and virtually all of them charged noncustomers. In general, fees charged noncustomers by both banks and savings associations in 1993 averaged about $2.25, compared with an average of about $1.75 for customers in that year.

Between 1989 and 1993, fees for money orders rose fairly steadily at both types of institution. At banks, where the prices for money orders were higher than at savings associations at the beginning of the period, estimated average fees rose about the same percentage as the CPI; by rising at two to three times the rate of inflation, average fees at savings associations nearly caught up to those at banks by 1993.(4)

Stop-Payment Orders

By 1993, virtually all banks and savings associations charged their customers for stop-payment orders, at an average of about $13. As in the case of money orders, the average fee at savings associations, initially lower than that at banks, rose faster than at banks and significantly faster than the CPI, catching up to the average bank fee by the end of the period.

NSF Checks and Overdrafts

A check drawn on an account with insufficient funds may or may not be honored by the paying bank. When not honored, it is called an NSF (not sufficient funds) check; when honored, it is called an overdraft and represents an extension of credit. Throughout the period, virtually all depository institutions charged for NSF checks, and although a small minority of institutions did not charge for overdrafts at the beginning of the period, virtually all did at the end.

The increases in the fees charged for NSF checks and overdrafts at both banks and savings associations were statistically significant and greater in percentage terms than the change in the CPI during the period. By 1993, average fees were about $16.

Deposit Items Returned

When a customer deposits a check that is returned by the paying bank (because of insufficient funds, for example), the bank in which it was deposited may charge the customer a fee. The levying of such charges is controversial. Many have argued that it is not the depositor's fault that the check is drawn on insufficient funds and that charging the depositor in such cases is therefore unreasonable. Others argue that such fees may provide a useful incentive for depositors not to accept checks thought likely to be returned for insufficient funds and that depository institutions have a right to recover their costs in ways available to them.

Whatever the merits of these arguments, the percentage of banks charging for the return of deposit items rose a statistically significant amount, from 47 percent in 1989 to 65 percent in 1993 (statistical significance not shown in table). Savings associations exhibited a much smaller, statistically insignificant increase. Of those institutions that levied a fee, the average charge at banks in 1993 was less than half of the charge for NSF checks, while it was about half of the NSF charge at savings associations. Among the special fees surveyed, this was the only one whose average did not rise a statistically significant amount; indeed, at savings associations, the estimated average charge did not rise at all over the period.

Safe Deposit Boxes

Although the provision of safe deposit boxes to customers for the safekeeping of valuables is not the primary function of depository institutions, the service is a tradition, particularly at banks. A major problem in reporting the fees for the rental of safe deposit boxes is the many sizes typically offered, each of which can carry a different fee. So that annual rental fees can be compared for the same box size over time, fee estimates are reported only for the most common type of box, which has a face measuring approximately 3 inches by 5 inches.

In 1993, fees charged by banks for the yearly rental of such boxes averaged about $16, while they averaged about $18.50 at savings associations. Between 1988 and 1993, these fees appear to have risen at rates that were somewhat smaller than the change in the CPI during the period.(5)

ATM Services

A multiplicity of fees may be assessed for services rendered by automated teller machines. Depository institutions may levy a yearly fee as well as impose fees for various types of ATM transactions. Transaction fees may differ depending on whether the transaction is a withdrawal, a deposit, or a balance inquiry and, most importantly, on whether the customer uses the institution's own ATM (an "on us" transaction) or another institution's ATM (an "on others" transaction). The surveys elicited information on all of these aspects of ATM fees; data were collected for the years 1988 and 1990-93.

Survey results indicate that only a fairly small minority of institutions charge their customers an annual fee for the use of ATM services (table 5)--an estimated 14 percent of banks and 9 percent of savings associations in 1993. In recent years, this fee has been in the neighborhood of $10 to $12 per year. Because so few surveyed institutions charged this fee, the sharp declines in the average fee at both banks and savings associations are not statistically significant.


Transaction fees have been the most important area of change in the pricing of ATM services. The most striking change over the past few years has been the substantial, statistically significant increase in the proportion of institutions charging for "on others" transactions (statistical significance not shown in table). The estimated proportion of institutions charging for withdrawals "on others," for example, increased by half, in the case of banks, from 1988 to 1993 and doubled, in the case of savings associations, over the same period. Other types of "on others" transactions exhibit similar increases.

In contrast, a relatively small and declining proportion of institutions charge for "on us" transactions.(6) The distinction between the fees charged for "on others" and "on us" transactions may be partly explained by the fact that an "on others" transaction typically requires the customer's institution to pay the ATM network as well as the owner of the ATM, neither of which payment is required in the case of "on us" transactions.

The average fee for "on others" transactions in 1993 was about 90 cents at banks and between 80 cents and 90 cents at savings associations. The number of banks and savings associations found to charge for "on us" transactions was too small to permit reliable estimates of the average fee for these transactions for many of the years examined. What evidence is available, however, suggests that fees charged for "on us" transactions were substantially lower than for "on others" transactions, particularly at banks.

Except in the case of withdrawals "on others" at savings associations, estimated average ATM transaction fees did not rise as much as the CPI, which increased about 22 percent between the dates of the earliest and latest surveys.(7) Savings associations appear to have been catching up to banks for fees charged for withdrawals "on others"--their fees were lower than those charged by banks in 1988 and grew at a faster rate over the period.


To date, the Federal Reserve has sponsored five annual surveys of the availability of retail services at depository institutions and the fees charged for these services. An analysis of the resulting data yields several generalizations. First, there is little evidence that the availability of retail banking services as measured has declined during the period between 1989 and 1993, and for a few services, availability has increased sharply. Second, the trend in fees charged for these services depends on the category of fee.

For fees associated with the maintenance and use of deposit accounts, substantial increases can be observed for some types of accounts but not others. For most of the accounts examined, there is little evidence of a substantial, general increase in the minimum balances required to avoid fees or open the account.

For fees associated with specialized services or actions, the overall picture is a good deal more uniform, with average fees rising faster in percentage terms than the change in the CPI in most cases. For most items examined, the estimated proportion of depository institutions charging such fees also rose over the period.

For ATM fees, the most striking development has been the increase in the proportion of institutions charging for "on others" transactions, rather than the changes in average fees, which, with one exception, do not appear to have exceeded the change in the CPI during the period.


The data employed in this article were obtained through telephone interviews conducted by Moebs Services, of Lake Bluff, Illinois, under contract with the Board of Governors of the Federal Reserve System. As in all surveys, errors in reporting are possible. To minimize these errors, results obtained by trained interviewers were, after every ten interviews, submitted to one of the several officials in Moebs Services with extensive experience in retail banking. A discrepancy or suspected error resulted in a second phone call to the surveyed institution.

The statistical design of the survey, developed for Moebs by Professor George Easton, of the University of Chicago, consists of a stratified systematic sample, treated as a stratified random sample, with seven geographic regions and five size classifications serving as the strata. Because selection probabilities differ by region and size class, the inverses of the selection probabilities were employed as weights. These weights were then employed to obtain the population estimates reported in tables 1 through 5.

(1.)The surveys of automated teller machine services and safe deposit box services were conducted in 1988 instead of 1989.

(2.)Broadly speaking, the levels of statistical significance indicate the minimum probability that, given the change observed for the sampled institutions, a change in the same direction occurred for the entire population of such institutions.

(3.)The CPI used throughout is the urban index, all items. Comparisons with the CPI are intended to indicate how fees and minimum balances changed in relation to changes in the prices of other common consumer items.

(4.)In table 4, any increase of at least 22 percent in the average fee is greater, by a statistically significant amount, than the 15.7 percent increase in the CPI during the period; the confidence level in each case is at least 90 percent.

(5.)Because the first survey of safe deposit boxes was conducted in July 1988, rather than in 1989, the percentage change in the CPI from December 1988 to December 1993, 21.9 percent, is used here.

(6.)The declines in the proportion of institutions charging for withdrawals "on us" are statistically significant for both banks and savings associations.

(7.)The registered 29 percent increase in the average fee for withdrawals "on others" at savings associations is not statistically greater than the 21.9 percent increase in the CPI during the period.

The Growth in Service Charges on Deposits: Evidence from Another Source

The changes over time in the fee income received by depository institutions depend in a complex way on changes in the fees charged, changes in the proportion of institutions charging fees, changes in minimum balance requirements, and changes in the mix and usage of services offered, which may in turn reflect changes in fees, minimum balance requirements, and other factors. Data on the total revenue that banks receive through service charges on deposits are available from the income statements filed by banks (see table). These data are collected for all insured domestic commercial banks and nondeposit trust companies and include revenues obtained from many of the fees presented in tables 2 though 5, including the fees associated with account maintenance and use, fees for NSF checks and deposit items returned, and ATM transaction fees. These data, however, do not distinguish between revenues from service charges on business accounts and revenues from service charges on consumer accounts.


These data show that bank revenues from service charges on deposits increased substantially between 1989 and 1993, rising from about $10 billion in 1989 to about $15 billion in 1993. Scaling these figures by the consolidated assets of banks can help correct for the changing size of the banking industry; as a proportion of assets, bank revenues from service charges on deposits increased from 0.32 percent to 0.42 percent during the period. Measured this way, such revenue was more important to smaller banks than larger ones, but the increase over the period was more pronounced for larger banks.

Other types of revenues and the costs, both interest and noninterest, that depository institutions must incur to provide deposit services are not included in these figures. Thus, while the information is useful in documenting the growing importance of revenue from service fees on deposits, it does not indicate the profits earned by depository institutions from providing deposit services.
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Author:Hannan, Timothy H.
Publication:Federal Reserve Bulletin
Date:Sep 1, 1994
Previous Article:Statement by Susan M. Phillips.
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