Citibank announced this morning that it will charge customers a $7.50 bank fee for any month when the balance on their Access or EZ checking account falls below $1,500.
Of course, what is even more upsetting is that Citibank is hardly an outlier. If anything, they are just the latest bank to follow a new trend. NBC reports that 54 percent of banks have raised fees on their checking accounts in the last year. Bank of America, for example, just raised the monthly fee on its checking accounts by $3. Bank of America's no frills MyAccess checking is touted as a service fee-free account with no minimum balance. If you make your way to the third page of disclosures, though, you will see that it has an $8.95 monthly maintenance fee if you don't keep $1,500 in the account without direct deposit. So, it is true - no service fee. Perhaps the fact
that it has a maintenance fee, though, along with a $35 overdraft fee and a $3 fee to see your checks, might point to an account that relies on semantics.
More about Citibank's fees
Obviously, customers don't have to sign up for an account that charges a fee if your balance dips below $1500. Citibank offers basic checking. That is an account with fewer "bells and whistles," as Citibank puts it. Basic checking has no minimum. In most states, it has a $7 flat rate fee. In Florida, the fee is $10. If you want to avoid fees entirely, though, you can sign up for the Citibank Account. You've got to keep $6,000 in an interest-free account, of course. Over the course of the year, that sum invested in risk-free 30-year Treasuries, you would net you $264. If you make a mistake, though, Citibank will hit you for a special fee that in some states runs as high as $15 a month.
What does this tell us about the state of Checking?
- It is confusing. Is that an accident? I doubt it. Each account has different fees, and different penalties for dropping below a minimum deposit level. If you can calculate the odds of dropping below the minimum, then you could use decision-tree analysis. Granted, most people don't understand decision-tree analysis. Besides, you can't because there is no reasonable way to evaluate the likelihood of those outcomes.
- Banks have no problem with tailoring products across different state regulatory environments. Banks often assert that they need to avoid state bank laws (pre-emption) because it is too difficult to follow lots of different rules. The OCC sides with its national banks, asserting that "the overlay of multiple state law standards would impose unnecessary and excessively costly burdens." That problem sounds legitimate, but in an era where computers can be programmed (by American workers!), it doesn't hold much water. Empirically, it seems like folly. Minimum balance fees on basic checking at Citibank can vary from as little as $3 to as much as $10. I would imagine that the inspiration for these differences is state law. Most likely, these are the maximums allowable. Without state protections, I would imagine that fees would re-inflate. Thankfully, states are looking out for their citizens (unlike the OCC.)
- Banks play a role in the problem of the unbanked. If you are risk-averse, a checking account might be the wrong product for you. Forty million Americans don't have a bank account. Tiebout would call this an empirical example of public choice theory. They are expressing an aversion to risk. Risk aversion is hardly uncommon, of course. Why else would so many people choose to avoid equity and instead choose only money-market and bond funds in their 401 (k) accounts? Moreover, the risk-averse tend to be the very kind of people who would not be able to afford to keep $6,000 in a checking account. Demographers have studied risk-aversion, and it is the least well-off who demonstrate the greatest fear of risk.
- A good portion of the need for financial literacy is created by financial institutions. A checking account is a very basic financial product. It is not like a hedge fund or some kind of 30/130 investment. Even so, a consumer needs to read through multiple pages of small print to even understand the details on these checking accounts. Most are complicated, and then there is an apples and oranges problems across accounts within the same bank!
Bank fees are ugly. Our payments system is not free, of course, but it is hardly fair that the poor should shoulder the great majority of the burden of paying for it. Now that those very consumers are shareholders (TARP!), it is even more unjust.
Banks make a simple thing like a checking account into something that requires a decision-tree. Then they turn around and create MoneySmart with the FDIC, or drop a few dollars on a few non-profits. Wouldn't it be easier if they just offered an honest checking account in the first place?