[HN Gopher] Ask HN: Why are banks charging so many fees for acco...
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Ask HN: Why are banks charging so many fees for accounts and cards?
I'm trying to understand why banks still charge account fees and
card fees, especially when they don't seem to make significant
profits from them. I started a fintech company focused on banking
for luxury deals and worked with banking partners, so I've seen a
lot of the industry from the inside. Still, I can't wrap my head
around this. Why are these fees still prevalent? Are they just a
relic of legacy banking systems, or is there more to it? The scary
thing is banks don't even make alot of money on that. So why still
charge them.
Author : Lopsii
Score : 31 points
Date : 2025-01-25 18:40 UTC (4 hours ago)
| slater wrote:
| Because they can.
| wwtl12 wrote:
| I wish I still believed that massive companies charged for
| things because they need to, and not simply because they can.
|
| It reminds me of freezing your credit (you know, the thing that
| makes it a lot harder to get your life ruined with identity
| theft (in the US)). This used to cost about $10, _each time_ ,
| and I believe you had to send a letter with a check to each
| credit bureau.
|
| Now? It's free, and you can do it on-demand online (although
| they all try to upcharge you into buying their stupid credit
| score nonsense every single time, which should be illegal).
| It's curious how this used to cost money, and then a lot of
| scandals happened, and either laws were passed or threatened to
| be passed, and now something pro-consumer that should have
| always been free... is free. And Experian, Equifax, and
| TransUnion are still making craptons of money.
|
| The astute reader might ask why they ever charged for this in
| the first place. It couldn't be that they _needed_ to, because
| they aren 't now, and the universe hasn't imploded. So the only
| explanation is that they did it because they could, because it
| locked up something people needed to do behind a paywall, and
| was profitable.
| SpicyLemonZest wrote:
| The false dichotomy between "need to" and "because they can"
| is at the root of a lot of sloppy economic thinking. It's
| true that businesses aren't trying to charge the bare minimum
| they need to survive, and that this sometimes lets them
| absorb the cost of providing service X for free with no hit
| to consumer welfare. (This can happen for both regulatory and
| non-regulatory reasons - furniture stores, for example, will
| often give you quite a bit of free employee time in hopes of
| catching a sale.)
|
| It's not true that business costs are entirely fictional and
| consumer willingness to get hosed is the only input to their
| pricing models.
| elmerfud wrote:
| My bank doesn't do this and I can't recall any bank that I've
| banked with for several decades now ever doing this. I do see
| some banks saying they do this and I wonder why anyone would
| choose to be their customer because there's plenty of market
| choice out there in banking.
|
| Likely they do it because they can and it's a vendor lock-in
| mindset from their customers. People have banked with them their
| whole life or their parents banked with them etc.. so they feel
| like this is the better deal. I've seen credit unions doing this.
| Credit unions talk about how great their services are and how
| much better it is to be with a credit union but I see them charge
| all kinds of horrible fees as well. It's also much more difficult
| to get a hold of someone 24/7 with a credit union if you have
| banking needs.
|
| I think there's still a lot of legacy banking attitudes like you
| need to go into an office and sit down and talk to somebody.
| Which usually necessitates you having to take a day off of work
| because banker's hours are called bankers hours for a reason. I
| myself choose to bank with someone who will be available on my
| schedule not on their schedule.
| toomuchtodo wrote:
| As a financial services provider, you can make money in a couple
| of ways: net interest [1], loan interest (spread between your
| deposit interest and interest rates you price for credit
| products), fees, and interchange (skim off debit and credit card
| transactions). Which matrix of fees you elect to implement is a
| function of your customer persona(s), what they value, and
| sensitivity to those income levers.
|
| How do you pay to operate your business without income? You need
| to pay for people, infra, and other costs of banking provided.
| The only model that works for that is postal banking or deposit
| accounts issued by the central bank, where your nation state
| offers banking as a utility in some fashion.
|
| [1] https://www.kalzumeus.com/2019/6/26/how-brokerages-make-
| mone...
| exabrial wrote:
| Interest on deposits includes IORB from the federal reserve,
| which is the safest investment for them, current > 4%
| philipwhiuk wrote:
| > How do you pay to operate your business without income?
|
| Easy - VC funding :P
| desibanda wrote:
| SVB crying in the corner :'(
| Vaslo wrote:
| Nobody with good credit ratings is paying these fees. Exception
| maybe being those folks who want those fancy AMEX Black Card or
| whatever those cards are with concierges, etc.
| SoftTalker wrote:
| Yes it's for people who have not demonstrated that they can use
| credit responsibly, not overdraft their accounts, etc.
| wwtl12 wrote:
| Yeah, like single moms and people who experience unexpected
| deaths or job losses. How irresponsible! Maybe if they were
| rich app developers like Hacker News, they wouldn't have to
| be punished so much.
| ctkhn wrote:
| Respect to you man. Not a lot of people care or have a lot
| of compassion for people that deserve it
| repsilat wrote:
| I have great credit and my bank charges me $3 every month to
| pay my rent. (They will send a cheque in the mail for free, but
| it wasn't reliable for me so I stopped doing that.) Third world
| stuff.
| philipwhiuk wrote:
| Wat
| Glyptodon wrote:
| Doesn't sound normal unless the fee is being charged by the
| landlord and not the bank. (Landlords seem to love payment
| fees.)
| repsilat wrote:
| It's the bank. One of the biggest US retail banks. Maybe
| other big ones don't, maybe I should change banks.
| jkaplowitz wrote:
| And many of the best fancy cards provide enough value in the
| various benefits they offer to outweigh the fee for many of
| those customers. This is often true not only in terms of luxury
| experiences like lounge access, but even in terms of cold hard
| financial value. Examples include a certain amount of annual
| statement credit against certain types of transactions, points
| that can be directly or indirectly redeemed for lots of types
| of purchases, and so on.
| troupe wrote:
| For example, Amex Platinum comes with $400 Dell credit each
| year, and several other similar perks.
| pimlottc wrote:
| Because the good times are over, the free money is gone, and it's
| back to business as usual.
| pestatije wrote:
| Most banks dont charge for standard non-business accounts,
| neither for debit cards...where are you seeing these
| fees/charges?
| SoftTalker wrote:
| Even for business accounts. I have a "business" account, opened
| for some contract work I did years ago, it has very little
| activity, but I pay no fees and have a debit card. I keep it
| open "just in case I need it" because it doesn't cost me
| anything.
| crackercrews wrote:
| I've seen these fees in personal accounts. They're usually
| waived if you maintain a certain minimum balance. Sometimes
| it's a few thousand dollars, but if you want things like free
| checks or other "perks" they can be much more. And of course
| they don't pay meaningful interest on your deposits. They're
| basically charging you the fee in the form of lost interest.
| drdec wrote:
| Why would you expect checks to be free? The people who print
| checks need to eat too.
|
| I'm curious what else is under your "perks" umbrella.
|
| If you want a checking account with no minimums try Ally. EFT
| payments are also free. You will have to pay for checks
| however.
| wildzzz wrote:
| I like Ally. I can do pretty much everything I need to for
| free and their interest rates are about as good as it gets.
| Only annoying thing is being unable to deposit cash but
| that's such a rare occurrence.
| crackercrews wrote:
| Because a small number of checks have been free for many
| decades. They cost almost nothing to print. But banks now
| charge $20 for a small box. Add another $10 for shipping.
|
| I don't use checks often but have to buy a box in order to
| have >0.
| smitelli wrote:
| Just a PSA for anyone unaware, you can get checks printed
| anywhere and using a huge variety of designs. It is not
| mandatory to order them from the bank where the account is
| held.
| bowsamic wrote:
| In Germany it's ubiquitous
| doubled112 wrote:
| Most big banks in Canada charge for standard non-business bank
| accounts.
|
| This one is TD but the others all charge the same. Why compete
| when you can collude? TD Unlimited Chequing
| Account Unlimited transactions for your peace
| of mind Annual fee rebate for the first year
| on select TD credit cards (up to $139) No TD
| ATM fee at any ATM in Canada Free Interac
| e-Transfer(r) transactions Monthly account fee
| of $16.95 or $0 if you maintain a daily balance of $4,000 or
| more
|
| https://www.td.com/ca/en/personal-banking/products/bank-acco...
| dackle wrote:
| Also, $16.95/month is $203.40/year, which divided by $4,000
| is 5.09%. If you can earn more than 5.09% then you are better
| off paying the fee and investing your $4,000 elsewhere.
|
| It is also pretty much impossible to keep precisely $4,000 in
| your account because of the lumpiness of day-to-day inflows
| (paycheques) and outflows (bills). If you keep say $10,000 in
| your chequing account to (a) avoid the $16.95/fee, and (b)
| provide a buffer against unexpected expenses, then the
| breakeven return on your money is $203.40 / $10,000 = a
| paltry 2.03%.
| doubled112 wrote:
| Sure, you could pop it into a TD High Interest Savings
| Account and earn your high interest rate of 0.050%.
|
| Wait, its 0.000% on $4,000
|
| High interest, indeed!
| dackle wrote:
| Yes, and while TD is paying you 0.050%, they are loaning
| out your $4,000 in the form of a mortgage on which they
| earn 6.79%!
| wwtl12 wrote:
| They _do_ make significant profits from them, especially from
| poorer people who incur them. They 're also a great pretense to
| charge even more penalty fees, trapping people in a cycle of debt
| that is, conveniently, very profitable.
|
| This is the same board where people will tell you to charge
| $10,000 a week for cloud consulting because it's "value-based
| pricing", and to steadily increase the per-user costs for your
| dime-a-dozen CRUD web app "because people will pay it". Amazing.
|
| Banks do it because they can, buddy. It's wealth extraction, and
| if you aren't the one doing the extracting, you're the one being
| extracted.
| nine_k wrote:
| A small income is better than no income at all, so why not charge
| $10/year if you can, and the customer won't mind?
|
| I also suppose that charging a small amount regularly is a
| garbage collection mechanism. If you stopped paying attention to
| your empty account, it will run into negative, and eventually be
| closed due to that.
| Ekaros wrote:
| Because they can and are not losing significant number of
| customers to price competition. Same works on most things. And if
| they cannot add fees, they will add ads. Extract as much money as
| possible and when they finally start losing people step it back
| and give discounts for limited period.
| Glyptodon wrote:
| I think there are kind of three tiers of financial services:
|
| 1. Payday loan tier. It's very extractive and uses lots of fees
| and interest because getting a cut of whatever money is there now
| is all that matters.
|
| 2. "Normal" tier. There basically aren't fees for typical
| services, everything is paid for indirectly via interest rates
| and card fees or marketing other services. The banks I've used
| since the 2000s have all been like this.
|
| 3. "Premium" tier. At this level there's usually a fee to keep
| out the "riffraff," like with most AmEx.
|
| Do some normal tier providers have fees? I've seen credit unions
| where there are fees if you don't meet some threshold of services
| or usage. Or with some non CU accounts where there's a fee if
| balances don't stay above a certain level. But that's about it.
| I've also seen I think once or twice set ups where you had to opt
| in to things like free overdraft protection, but could get
| charged for it if you don't. But that seem like the fringes, not
| the norm.
| troupe wrote:
| When it comes to banks, there is also a tier where fees are
| waived for high value customers. For example, checking, atm,
| wires, are free if you have $50k or more in your checking
| account.
| ACow_Adonis wrote:
| I'm having a hard time wrapping my head around someone someone in
| business not understanding charging fees.
|
| You charge fees to get money.
|
| Banks are there to make profits.
|
| You say that banks don't make much money off of it, but maybe
| your idea of "much money" and mine are different.
|
| In my country, it is reported that bank fees make up
| approximately 5% of bank revenue, and I'm reasonably sure we have
| less fees than others. I don't know what business or country
| you're in, but there's a pretty good guess your country takes in
| more money in fees, and earning a marginal 5% on anything is not
| chump change.
|
| May I humbly suggest that your premise is wrong. They ARE
| significant sources of revenue and profit and banks charge them
| because they are in the business of generating profits.
| fuzzfactor wrote:
| >Why are banks charging so many fees for accounts and cards?
|
| The answer's exactly the same as from the famous bank robber
| who eventually confessed as to his motivation for living the
| high life on ill-gotten gains using the same institutions:
|
| "Because that's where the money is."
| mitchellst wrote:
| I don't know that there's a single answer, but the replies here
| are in the neighborhood. Fees of some kind are the only revenue
| model, so you pick the ones that work for your use case.
|
| Two other thoughts, one speculative/general and one where I know
| of what I speak:
|
| If you make most of your income off a small group of your
| customers, then it's wise the charge some nominal fee on the
| other customers to get them to breakeven unit economics. (That
| holds in most any industry, not just finance. Consider the
| endless think pieces on the problems caused by a high proportion
| of free users at zoom and Dropbox.) No, you're not "making big
| profits" from them, but the point is to make sure your customers
| aren't adversely selected. That can mean, "let's still make
| something off the people who pay their credit card bill every
| month." It can also mean, "overdrafts create manual work in our
| back office; let's make sure they pay for themselves and aren't
| correlated to our profit margin on the real business, which is
| lending."
|
| Area I know more about: for credit cards in particular, don't
| underestimate what the annual fee does for the issuer. The
| psychology of it for the consumer is huge. People will cancel
| accounts they're not using, sure. That helps, because forcing
| unused accounts closed can draw regulatory headaches. But
| consumers also consider the card more valuable and may be more
| loyal to it if it costs as much as their Netflix subscription
| each year. The issuer is making money on other sources--interest,
| interchange, travel portals, etc. The fee is, for the right type
| of customer, a kind of marketing device.
| whalesalad wrote:
| Because you're using the wrong bank.
|
| I use Schwab for personal banking. They are excellent and return
| ATM free each month. Been using them for years and don't think
| I've ever paid a fee.
|
| Likewise for business banking I use Mercury and they've been
| great too.
| citizenpaul wrote:
| I prefer to pay a decent fee so they make money for the service.
| As tech oligarchs have taught us if you are not the customer you
| are the product. I'd prefer to be a customer to my bank.
|
| Banks are an odd business. You are basically guaranteed some
| income but the margins are slim and lots of regulations. Despite
| all the bad behavior they are probably one of if not the closest
| watched businesses by gov regulators.
| SoftTalker wrote:
| The banks are holding your money and lending it out at a profit
| (fractional reserve banking). You should not feel obliged to
| pay fees on top of this.
| nokun7 wrote:
| I've never experienced my bank imposing such fees or
| restrictions, nor can I recall any bank I've used over the past
| two decades or so doing such. However, some banks adopt these
| practices, and I question why customers remain loyal when there
| are abundant alternatives in today's competitive financial
| market.
|
| One possible explanation is inertia: many people stick with their
| bank because it's familiar. It may be the bank their parents
| used, or they've been loyal customers for years and assume
| they're getting the best deal. Unfortunately, this loyalty often
| overlooks better opportunities elsewhere. Interestingly, credit
| unions--despite promoting themselves as customer-centric and fee-
| conscious--can also impose excessive fees, challenging their
| claimed superiority.
|
| Credit unions are notorious for limited official working hours,
| which can be frustrating when urgent banking needs arise.
| Accessibility in banking has become a priority, especially for
| those who need customer service outside traditional "banker's
| hours." The idea of physically visiting a branch, often during
| inconvenient weekday hours, feels increasingly outdated in
| today's digital-first world.
|
| For me, a bank needs to be accessible on my schedule--not the
| other way around. The ability to resolve issues or access
| services anytime is essential, and plenty of financial
| institutions cater to these preferences without restrictive fees
| or antiquated processes. Customers should embrace this freedom of
| choice and find banks that value their time and priorities, not
| the other way around.
| crackercrews wrote:
| Automatic payments make banks sticky. Once you have your credit
| cards and utilities paid off with a particular account, you're
| probably not leaving.
| xenator wrote:
| Better ask why in other countries charges are much less, better
| applications, better service and much more services they provide.
| johnea wrote:
| Consider the thought process of executive management:
|
| Do we want to make more money? Or less money?
| bill_mcgonigle wrote:
| I was a kid in the 80's and would regularly see $5 interest
| credits on my meager savings, free ATM, free phone banking (don't
| laugh) and they even set it up for me that if I went below $20 in
| my checking the system would pull $50 from my savings. 1986 or so
| - overdraft fees hadn't been invented. After the dot-boom/bust
| The Fed "aggressively pursued ZIRP (zero interest rate)
| policies". Mortgages got much cheaper but fees replaced the
| interest income. Somebody is paying either way. It used to be the
| loan holders. I even remember my local bank having a stack of a
| hundred toaster ovens to give to anybody who opened an account.
| They wanted your business so you would do your loans with them. I
| quite preferred that America though it might be possible to argue
| that getting nickel-and-dimed everywhere is overall cheaper. But
| that was at the height of Americans' real purchasing power from
| wages and I'm disappointed that my kids had to grow up in the
| opposite environment. Maybe this will change before they will be
| shopping for a home. I read recently that real wages (purchasing
| power) were actually higher during the Great Depression. Soaring
| highs on the Dow don't matter much to people when all the
| productivity gains during that period have been transfered to
| financialized everything to make that NGU. The system needs to be
| stable for us to all benefit. "The Gini Coefficient is too damn
| high" as they say.
| gambiting wrote:
| Do they? Where? In the US? I have multiple bank accounts in both
| UK and Poland and none of them charge for just having the account
| or a debit card associated with the account.
| geor9e wrote:
| I can't tell if this is a "link in bio" ad disguised as
| engagement bait. But, I've opened at least a hundred bank and
| credit card accounts over the last couple decades as part of
| "churning" community. Got tens of thousands of dollars in sign up
| bonuses and it sent my credit score to 830+. I started when I was
| broke, and kept doing it, since a couple scheduled 5 minute tasks
| for hundreds of dollars each time is still a fairly easy side
| hustle. So I could ask the opposite question -- why are banks
| giving money away? Fees and rewards are carrots and sticks. Some
| use both at once, like high reward cards with annual fees. There
| are desirable customers and there are undesirable customers and
| they treat them accordingly. Since you say your customer base is
| specifically "luxury buyers" (meaning you can skim profit off
| them in a lot of ways), you probably avoid the stick entirely and
| treat them pretty well. If your customer base was the lower-
| income segment with bad credit scores, maybe you'd pivot to fee
| based relationships. If you're a huge bank, you probably have
| departments for each style.
| dgeiser13 wrote:
| > especially when they don't seem to make significant profits
| from them.
|
| Where do you get the idea they don't make significant profits
| from them?
| jbs789 wrote:
| Particularly post GFC when net interest margins went through the
| floor, banks had to keep up revenue amid heightened capital
| requirements - they increased fees and cut back on employees. If
| you're thinking the fees don't matter relative to the overall,
| remember that banks are managed as divisions and someone running
| retail is responsible for their profit and loss statement.
| kdmtctl wrote:
| A little bit late to the party, but keep in mind that interest is
| a risk bound product, but fees are not. Fees are not pushing the
| capital requirements and generally better in terms of ROE. This
| is the main reason, I think.
|
| Also, traditionally it was technically expensive to calculate a
| bunch of fees for every transaction and core banking systems have
| had quite complicated rules processing engines which were damn
| slow. Sometimes it was more feasible to skip a fee than take the
| burden. I'm not in the industry anymore but I suppose this has
| been changed and fees becoming the new driver.
|
| Basically most of the Fintech was born on bank's inability to
| perform a lot of simple calculations and react to the market
| fast. The gap could be closing.
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