When Tripp Guin signed up for small-business cheeking at SouthTrust Bank, he believed that the fees associated with the account would be minimal, if not nonexistent.
“I kind of assumed that it would be free,” say’s Guin, who started Iris company, Referral Resource, in 2002 and was referred to the bank by a friend. However, like many banks. SouthTrust requires that accounts carry a minimum balance, 52,000 in this case, and charges a $10 monthly fee if customers dip below that. One-hundred and fifty transactions are free each month in the plan, and the bank assesses a 25 cent fee for checks and deposits beyond that.
Now that SouthTrust has announced its planned merger with Wachovia Corp., Guin is thinking about moving his account to a community bank that could provide him with more personal attention. But for a new and growing business, he says, the fee structure is also important.
“Every little bit counts,” he says. “I’ll do whatever it takes to save money. If a $10 per month fee can be avoided, I’ll definitely try to take care of that.”
Typically, larger banks with more expansive branch networks have offered less attractive fees to consumers, while smaller community banks have offered kinder, gentler fees in an effort to grow their deposit base. But in Mecklenburg Comity at least, a comparison of checking accounts designed for small businesses reveals that community banks don’t always shy away from fee income.
Among commercial banks in Charlotte, Fust Trust Bank and The Scottish Bank boasted the highest penalties for accounts that fall below a minimum balance, at $18 and $16 per month, respectively’. The median monthly’ fee among banks in Mecklenburg was $11.50. The two banks also charge transaction fees at the higher end of the scale. After 125 free debits, customers pay 35 cents per check at First Trust, and after 25 free deposits, they pay 40 cents per item. At Scottish Bank, customers get 50 free checks or debits and 30 free deposits, after which they’ pay’ 30 cents per debit and 40 cents per deposit. Both banks require a minimum or average balance of 32,500.
“We think we deliver a higher level of service, so the customer should be willing to pay for that,” says First Trust Chief Executive Jim Bolt.
On a percentage basis, the bank’s sendee charge income is relatively low due to the large account
balances many customers carry’ at First Trust and the bank has a smaller number of fees attached to
its deposit accounts than customers would find at larger banks, he says.
While they’ end up getting a high level of service, they sometimes don’t pay all those fees that they’ might pay somewhere else,” he says.
Big banks in the middle
Across town. First Charter Corp. continues to promote its “free business checking.” with no monthly minimum balance and no monthly’ fee. But even that account isn’t completely’ free: After the first 500 transactions, the bank assesses a 25-cent fee per check and $1.50 per $1,000 deposited after the first $10,000 in deposits.
Charlotte’s two largest banks, Bank of America Corp. and Wachovia Corp., fall in the middle of the pack. BofA’s minimum balance is $2,500 and its monthly’ fee is $12. After 70 checks and 100 deposits, the bank charges 30 cents per check and 35 cents for each deposit. Wachovia’s minimum balance is $1,500 and its monthly fee is 511. After 150 combined transactions the bank charges 25 cents per transaction. After the first $5,000 in cash deposited, the bank charges 12 cents per $100 deposited.
While other banks might offer free cheeking to favored customers, First Charter has offered free business checking to all comers since February 2003. Bob James, chief executive of First Charter Bank, says the bank determined the value of other accounts and loans generated by’ new7 checking customers would exceed the value of the checking fee income. So far, he says, the strategy is working.
Bread and Butter
Last year, the bank set a goal of opening 40,000 new checking accounts and passed that mark by nearly 1,000. The bank is on target to exceed that mark again in 2004, James say’s, and he plans to stick with the bank s free-checking products, as the deposits they generate become more valuable in a rising rate environment.
“The whole idea is to get the customer in the door,” he says. “This is a good way to get them to come to see us, and then we convince them that this is the place where they ought to do business. ”
According to FDIC data, at commercial banks and savings institutions nationally, service charges on deposit accounts rose at a double-digit pace in 2000 and 2001 but slowed down to 5.5% in 2003 as interest rates hit record low’s and banks worked to maintain their deposit base. Last year, service charges on deposit accounts at commercial banks totaled S31.7 billion. In the first quarter of 2004, account charges dropped by 1.9% to $8.2 billion.
Historically’, banks have grown fee income either by’ building up deposits or by’ raising existing fees, increasing the return per deposit dollar as much as their customers will tolerate it. Smaller banks with less diversified revenue streams have been squeezed by’ compressed interest margins of late,
but they’ are now7 benefiting from rising rates and could potentially’ pass some of the relief onto their customers in the form of low7er fees, say bank analysts.
At Bank of Granite, which features the smallest transaction fee among basic business accounts — 18 cents per check — a task force at the bank reviews all fees and charges twice a year, says President Charles Snipes. The bank has never offered free checking but has tried to keep its fees as low as possible, he says, particularly for small businesses.
“The small-business customer has been our bread and butter over the years,” he says, adding that the bank’s fee structure has varied little over the past two and a half years. “Competition continues to be a major factor, but if we’re out of line or we feel it’s justified, we’ll make that decision.”
Despite the relief that community banks may get from the recent rate hike, Greg McBride, a financial analyst with Bankrate.com, doesn’t expect the industry’ to ease its fee structure by any significant measure in the future.
“Fee income is what has driven bank profits to record levels industry-wide in recent quarters despite the falling-rate environment,” he says. “The importance of fee income has never been greater for banks. There’s no indication that they’re going to be any’ less reliant on fee income (in the future).
