Are they average or median, though?
“There’s Ralph, he knows the score!”
I distinctly remember that for a little while, during the turmoil that lead to the Great Recession, many consumer money market accounts “broke the buck” and dived into negative interest rate territory. It only lasted a couple of days, IIRC, but my friends in finance were shocked and amazed.
Sort of. What happened was that they invested in some credit-risky assets that lost value, so they couldn’t maintain a positive return. Money market funds have some accounting rules that allow them to always keep a dollar value as long as the total value of the underlying investments doesn’t move too far from the total posted dollar value. When some risky assets took a dive, they had to revalue the shares, which broke the buck. But, they didn’t invest in negative interest assets – it’s more like a bond fund that swings around in value.
Said another way, money market funds invest in assets that do actually swing around in value somewhat, but they never show that volatility to investors as long as certain conditions are met. However, during the crisis, the value of the assets swung so far that some of the volatility leaked through to investors.
Right, that’s what spooked people about the one, Reserve Primary Fund, not many, money market fund which ‘broke the buck’ in 2008. Still a big deal because investors feared others might so began a run on other funds. That was caused by credit losses: that fund held a lot of short term debt of Lehman Brothers, which of coursed failed to pay as promised. That’s distinct from a lender agreeing to a negative return up front.
During the '08-09 period some US T-bills traded at slightly negative yields. That would also cause a MM fund to eventually break the buck since there’s no interest to pay out and they can’t send the holders a bill for negative interest. The value just has to decline. But negative short term rates on instruments paying off in full as promised weren’t widespread or sustained enough at the time to cause breaking of the buck.
Now in Europe/Japan MM funds of the typical US retail structure of fixed share price would not work for that reason, or in the US if short term high quality debt yields went broadly negative*. But it still wouldn’t cause a panic, if based on known negative rates of instruments paying off as promised. And it’s not a technical issue for bond funds because nobody expects them to have a constant share price. Or if rates were persistently negative MM funds could operate under the same idea, notify investors upfront that the share price is variable (ones for institutional investors already work that way based on regs put in place after 2008-9, the SEC didn’t go through with imposing that reg on retail funds though it was proposed).
*or even very close to zero. MM funds are relatively expensive to run. Even Vanguard ones have Expense Ratio’s like 0.10%, in contrast to some stock index funds with ER’s as low as zero, in part because the stock funds can cover their operating costs with fee income by lending out the stocks in the fund for other people to sell them short.
Using those figures, the average checking account customer pays about $100 per year in fees.
The customers who are paying those fees aren’t going to be worrying about negative interest rates. (If you had enough in the bank that negative interest rates were an issue, you wouldn’t be paying overdraft and non-sufficient funds fees, or monthly maintenance fees.)
Maybe it’s a flaw in the original question, ‘Does the average consumer really pay many bank fees?’ but I think the meaning was more like ‘do more than half of (or some other large %) of depositors pay fees?’, not whether the total $ volume of fees divided by the number of depositors would come out to a positive number, which it obviously would if any fees at all are charged.
However I think the answer to the question even as I interpret it is also probably that a big chunk of bank depositors pay more than minimal fees in a given year. The % of 's deposited in accounts whose owners pay fees is probably pretty small, because big balance depositors tend not to pay fees, and their accounts make up a large majority of the total 's on deposit. But the % of depositors who pay significant fees is probably substantial, though whether more than 50% I don’t know, again if that’s the meaning of ‘average depositor’.
Also not quibbling with the finding itself, overdraft fees are really not ‘negative interest rate’. People who overdraw are borrowing. Overdraft fees are high interest loans, in theory for short periods and moderate amounts so that interest doesn’t come out to a huge number of $'s. It’s really in the same category as a bank business as issuing credit cards hoping the holders run a balance.
I can only answer the question as asked - “Does the average consumer really pay many bank fees?”. The answer is, on average, yes. I can’t find any stats at all around what percentage of bank customers pay fees or what % of customers pay what % of fees so I can’t figure a median number of people who pay fees. My educated guess based on prior industry experience is that the 80/20 rule would be a pretty close approximation, in that I think 80% of the fees collected are paid by ~20% of the bank customer base.
Anecdote - When I was a branch manager I had one particular customer who constantly overdrew her account. She wasn’t poor by any stretch, always quickly paid the overdraft and all associated fees, she was just a lousy bookkeeper. Basically, she wrote checks until we called her and said “Hey, we have 5 NSF checks for you this morning. You owe us $XXX.XX”. I tried to explain to her how much it was costing in overdraft fees (around $4,000 annually, over 9 grand in today’s money) but, though she acknowledged the financial impact, she never changed. An real average skewer, she was.
Yeah but the figures you quoted from the source don’t actually tell you the answer to ‘does the average consumer really pay (many) bank fees’. Take $5.21 per month ‘average’ overdraft fee. That’s a number from CFPB which takes total overdraft fees charged per month and divides by number of people with checking accounts. If you say that answers the question as ‘on average, yes’, so would $0.52 per month, so would $52.10 per month. If any fees were charged, that ratio is positive. It doesn’t give any meaningful answer to ‘does the average consumer really pay many bank fees?’, on any reflection IMO.
And there is more direct info relevant to the ‘spirit’ of that question at least, in your link and its two further upstream sources, Pew Foundation study and its sources in govt (CFPB, FDIC etc) data. The article says for overdrafts:
“About 30% of all checking account holders are hit with overdraft fees like Brown’s over the course of a year, according to a 2014 report by the Consumer Financial Protection Bureau. There are other bank fees that are higher, but overall, overdraft fees make up the majority of checking account costs.”
And later says:
"Consumers have an average of about two overdrafts per year, but in practice a minority of bank consumers, 18%, account for the majority of overdrafts. "
The latter in line with ‘80/20’, but taking the two together calling into question if the ‘average consumer’ pays ‘many’ bank fees. ‘Average’ lower balance/lower income consumers do, pay fees to banks that is, and then the tier below them, unbanked households, pay fees to check cashing/money order places and payday lenders instead.
Nm
Darn. I was looking forward to seeing loan sharks threatening to break thumbs if people didn’t *take *their money.
Looks like Michael Burry is also investing in gold. Some may have seen him back in the news as of late, he thinks he has found the next global bubble. The CNBC article gives us these three key points:
Most may remember Michael Burry from the movie The Big Short.
Looks like a well rounded group on this thread, octopus says he’s staying in stocks. Anyone else? Is this more of this doomsday talk that will never materialize, or do you think it has a good chance to cause a global collaspe? He’s not alone is sounding this alarm, as the CNBC article indicates. Burry has got a great track record with amazing returns over the years, here is his wiki entry.
Out of curiosity, I was wondering what else he is investing in. Besides gold, he’s investing of all things, water, in particular farmland that has water rights to it.