SAN ANSELMO, Calif.-The nation's banks cited decreased interchange income as the reason for new debit card fees, but new analysis suggests banks could 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 U.S. adults with bank accounts 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, 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 key, MRI said, is using more precise pricing analytics. "Banks typically overpay, relative to the competition," the firm said. "As a result, the basic CD is overpriced by 0.15% increasing the interest expense of the bank needlessly."
