It was only a matter of time, but we are starting to see actual NEGATIVE interest rates on bank account balances.
On August 6th, the Bank of New York Mellon Corporation (BK) announced a new annual fee will be charged on cash deposits from institutional investors. The reason for these new fees is actually something that you and I take for granted much of the time: The FDIC.
Banks pay account holders interest on their deposits, and also have to pay FDIC insurance premiums for holding deposits. As more and more people move money into their bank accounts (long thought to be a “safe” move), the FDIC insurance payments for the banks rise. When more and more businesses do the same thing, FDIC payments for the banks skyrocket.
With short-term interest rates near zero and higher insurance premiums, banks are getting squeezed. An “extra fee” could also be applied if short-term treasuries fall into negative yields!
Granted, the fee at BK isn’t for individual investors…you must have an average balance of more than $50 million dollars. But it is the start of a disturbing trend. Wells Fargo just announced that they will “test” a $3 monthly fee for debit card users in five states (Georgia, Nevada, New Mexico, Oregon and Washington) during the month of October.
Don’t have an account with Wells Fargo? SunTrust and Regions Bank also have monthly fees. Even Bank of America is getting in on the act. According to MSN Money, only US Bank and Capital One are fee free.
What can you do? If you get hit with a “test”, call your bank and tell them to knock it off or you’ll move your money.
If you’re bank has already moved to some sort of debit card fee, it won’t be long until other fees crop up as the banks attempt to repair their balance sheets. Since your concern should be repairing your personal financial statements, avoid fees like the plague. Move your money somewhere that doesn’t charge a fee. Most local credit unions are a great place to start looking.
BNY Mellon Charging for deposits
More banks testing debit card fees
I think that every bank has an annual fee. But too much is bad, because customers are going to use other banking services.
Many banks do have “maintenance” fees for very low balances (<$500).
But in today's environment, there is no reason to pay fees to a bank for holding on to your money. Why? Because there are enough choices out there than don't charge fees. This touches on one of the principles of safe investing; relentless pursuit of cost reductions.
Personally, I am in the process of moving my money out of one of the big 4 banks. They're recent financial performance is horrible, and I don't like their policies. So I've decided to move to a more consumer friendly option. Check out http://www.mint.com…they have a great screening tool for bank accounts.
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