Ask HN: Why are banks charging so many fees for accounts and cards?

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.

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.

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.

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.

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.

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...

There are plenty of no annual fee credit cards. If you get a credit card with an annual fee, you should be smart enough to know whether the benefits they offer make the annual fee worthwhile.

My wife and I fly a lot as a hobby. We’ve been averaging over a dozen trips per year since mid 2021.

We pay $3400 in Annual fees between 9 cards. We get around $4900 worth of benefits between those cards between Clear credits, companion flight passes (buy one get one free), hotel credits and various other credits.

That’s not including Delta Platinum Medallion status that gives us free automatic seat upgrades and lounge access for free food and drinks while waiting at the airport.

Of course we also get points toward flights and hotels for spending on them.

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.

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.

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.

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.

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.

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.

In 2023, JP Morgan Chase collected $1.1 Billion in overdraft fees

https://www.consumerfinance.gov/data-research/research-repor...

Most banks dont charge for standard non-business accounts, neither for debit cards...where are you seeing these fees/charges?

In France (BoursoBank,Fortuneo, Hello bank!, Lydia) and in Switzerland (yuh), cards and bank services are free. And you can use you card to really pay instantaneously bills without making a bank credit monthly.

That's understandable as they already make money with your savings...

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.

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.

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.

Consider the thought process of executive management:

Do we want to make more money? Or less money?

Because they can.

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.

> 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?

Better ask why in other countries charges are much less, better applications, better service and much more services they provide.

Because the good times are over, the free money is gone, and it's back to business as usual.

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.

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