The average consumer costs their bank more money than they add in revenue, finds personal finance site www.GoBankingRates.com in a new article exploring how big banks view their customers in terms of profitability.
EL SEGUNDO, CA (May 21, 2013) Since the Occupy Wall Street and Bank Transfer Day movements, customers of big banks have become increasingly vocal about their outrage over excessive bank fees. However, GoBankingRates finds in its latest feature that customers may be wasting their breath, as big banks are not interested in keeping their business.
To provide readers insight into why this is the case, managing editor for GoBankingRates, Casey Bond, states, “Considering lending out customers’ deposits is one of the major ways banks make money, one would assume that the more cash sitting in bank accounts, the better. The truth, however, is that most big banks have more money on deposit than they know what to do with.”
For instance, Bloomberg reported in December 2012 that deposits at U.S. banks exceeded loans by an “unprecedented” $2 trillion. In fact, deposits have increased by 29 percent since September 2008, while loans have experienced growth of less than 2 percent over the same time period.
Additionally, Bloomberg reported the banking industry was lending 78 cents for every $1 in deposits at of the end of last year, well below the mid-90 percent range the Royal Bank of Canada’s Gerard Cassidy states is ideal.
“Unless customers can offer their banks a substantial amount in investable assets, loans and deposits, they are largely unprofitable,” explains Ms. Bond.
Ron Sellers of Grey Matter Research & Consulting told GoBankingRates in a written statement, “Consumers don’t understand the finances of banking. They often say, ‘Well, you’re using my money, so you’re making money off me.’ What they don’t recognize is that servicing that account costs money.”
Those costs, says Sellers, include processing every transaction; producing and sending statements; and maintaining branches, ATMs and phone service centers. Plus, banks also have to keep a portion of deposits on reserve at all times.
“It’s important to remember that banks are, in fact, businesses, so their number one objective is to turn a profit,” Bond adds, further explaining in the feature that bank fees make up a much smaller percentage of overall bank industry revenue, and customers who were once the most profitable now cost banks more than they’re worth to keep.
In fact, Ms. Bond advises, “For the average person with a modest-sized bank account, a symbiotic relationship with a big bank is probably not possible. Even so, there are plenty of not-for-profit credit unions who would be happy to take the business of dissatisfied bank customers – and likely provide much better service.”
About GoBankingRates.com
GoBankingRates.com is a national website dedicated to connecting readers with the best interest rates on financial services nationwide, as well as informative personal finance content, news and tools. GoBankingRates.com collects interest rate information from more than 4,000 U.S. banks and credit unions, making it the only online rates aggregator with the ability to provide the most comprehensive and authentic local interest rate information.
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