SAN ANSELMO, Calif.-The nation's banks were citing decreased interchange income for what were to be new debit card fees, but one new analysis suggests that banks could have generate nearly double the potentially $875 million in monthly debit card fees just by lowering their deposit rates by as little as 0.01%.
The $875 million is the total potential for debit-card fees if each of the 175-million US adults with bank account will pay $5 per month, according to Market Rates Insight. A decrease of 0.01% in the national average deposit interest rate reduces interest expense for banks by about $1.5 billion a month, which impacts the bottom line in the same way as earning this amount through fees, the company said.
"In 2010, interest expense on deposits at FDIC insured banks was $107 billion, or an average of $9.2 billion per month compared with an average monthly interest expense of $7.7 billion as of June of this year-a decrease of $1.5 billion a month in average interest expense," Market Rates Insight said. "The national average interest rate for deposits was 0.80% at the end of 2010, and 0.74% in June of this year-a decrease of 0.06% in six month or an average decrease of 0.01% per month. Thus, maintaining the 'normal' decrease of 0.01% per month reduces interest expense nationally by $1.5 billion per month, which is nearly twice as much as the total potential income from the $5 debit-card fee if every bank-account holder had to pay it."
The company said that refining deposit rates to the tune of 0.01% without adversely impacting deposit balances is possible by applying higher level of pricing precision and analytics. "Banks typically overpay, relative to the competition, when matching interest rate on a basic CD (average of 0.60%) to the competition not realizing that the competing CD has a requirement, such as new-money (average 0.85%), which pays a premium of 0.15%. As a result, the basic CD is overpriced by 0.15% increasing the interest expense of the bank needlessly."
