Banks Impose New Wire Transfer Fees

The big banks are creating ways to extract fees from their customers. High fees for domestic wire transfers are a new iteration on this emerging theme.

Wire transfers are generally the safest ways to move money through the banking system. In 2007, approximately $2.7 trillion changed hands through FedWire transfers in a typical day. Although banks charge a fee, the transfer is handled through the Federal Reserve. It provides the service to its members. The Fed charges banks $75 per month for the right to participate in the FedWire system. It also imposes a per transaction fee of between 19 and 30 cents per transfer, depending on the monthly volume of the institution.

• Wachovia introduced a $15 fee for domestic wire transfers on July 1st, 2010.
• Since February 2010, Bank of America charges $12 to receive a domestic wire transfer and $25 to send one.
• Citibank charges $10 to receive a domestic transfer and $20 to send one. For their employees, they halve the costs.
• Chase acknowledges that it does charge a fee for a domestic wire transfer, but does not make the pricing available on its site.

Chase says that there is no monthly fee for having the right to be able to utilize wire transfer services. Perhaps in the future, Chase will try to get consumers to cover the $75 that the bank is forced to cover to get its wire transfer privileges from the Fed.

That spells out the basis for a low-cost, high margin service: spend $0.20 cents and then charge $25. Banks used to cover that service for free. Now, they aren’t willing to eat the twenty cents. Instead, they’ll charge you fees that amount to a profit margin of approximately 5900 percent.

During the last earnings season, several banks said that they were going to find more ways to charge consumers for retail checking services. Jamie Dimon and Brian Moynihan were among the most vociferous.

The Big Banks still have a long way to go before they can be considered the most egregrious fee-chargers in the banking business. City Holdings and TCF Financial both generate more than 25 percent of their core revenue from fees on checking accounts. By contrast, Bank of American produces 12 percent of its revenues from fee sources.  For the other big banks, the number is below 11 percent, according to data from Sandler O’Neill.