One of the last vestiges of government regulation of consumer banking will end Jan. 1 as minimum deposit requirements for money-market checking and savings accounts will be lifted. The move will, for the first time, allow consumers to open these popular accounts and earn near-market rates of interest with less than $1,000.
But the change is far from a bonanza for consumers, banking experts say. Surveys of savings institutions nationwide show that some plan to charge consumers higher service or transaction fees on these accounts as the institutions try to recoup the costs of administering smaller accounts.
A number of banking giants, including Los Angeles-based Security Pacific National Bank and New York-based Citibank, have already announced higher fees in conjunction with lower account minimums.
These higher fees have sparked concern among banking experts and consumer advocates that some depositors may not understand the fees and service charges or may not receive adequate notice of them.
Some consumer advocates also suggest that higher fees could spark new calls for government rules requiring banks and thrifts to offer free or low-cost "lifeline" checking and savings accounts for low-deposit customers.
'Could Become More Costly'
"Banking could become more costly after Jan. 1, unless you watch your fees and charges more closely," says Robert K. Heady, publisher of Bank Rate Monitor, a North Palm Beach, Fla., newsletter that recently surveyed large banks and savings and loan associations.
"As account minimums come down, banks and thrifts will almost certainly compensate by increasing fees and charges," Heady adds. "If they have less money on deposit and more transactions, they must make up for that added cost in some way."
In some cases, higher fees could "completely offset any advantage to the consumer from having a higher-interest account," says Ken McEldowney, executive director of Consumer Action, a San Francisco-based consumer organization that also has surveyed banking account policies.
Under the changes, the federal government is eliminating the $1,000 minimum balance on money-market deposit accounts, money-market checking accounts (dubbed SuperNOW accounts in industry lingo, the "NOW" standing for negotiable order of withdrawal) and short-term 7-to-31-day certificates of deposit.
The minimums on the money-market deposit and checking accounts--which were created only about three years ago--had been lowered to $1,000 from $2,500 on Jan. 1, 1985. As many as three-fourths of the nation's savings institutions subsequently adopted the $1,000 minimum, Heady estimates.
The changes are all part of deposit market deregulation mandated by the Depository Institutions Deregulation and Monetary Control Act of 1980, which sought to end longstanding rules limiting interest that depositors could earn on savings and checking accounts.
The final stage of that act will take place next March 31, when the 5 1/2% interest limit on traditional passbook savings accounts and 5% limit on interest-bearing checking accounts (NOW accounts) will be removed. That will allow savings institutions to set whatever rates and minimum balances they wish. But experts say the final step is of little significance, given the removal of account minimums on all other accounts.
Bank Rate Monitor, which this month surveyed the nation's 100 top banks and savings and loans, found that about two-thirds of those surveyed were undecided on changes or declined to reveal their plans.
In many cases, these institutions are simply waiting to see what their competitors will do, Heady contends.
"The extent to which they dope out each others' moves qualifies them for the Sam Spade award," he says, noting that many institutions also moved slowly a year ago when the minimums were lowered to $1,000 from $2,500.
Resisting Lower Minimums
But some institutions say they are resisting lower minimums because they don't believe they will attract new customers or because loan demand is weak and they don't need to push aggressively for new deposits.
San Francisco-based California First Bank, for example, says it is not making any change in its minimums of $1,000 on money-market savings and checking because "we don't believe it will attract new customers," spokesman Mike Colwell says.
Similarly, Bank of America is maintaining its minimum on money-market deposit accounts at $2,500 because "we find that most customers keep balances far above that amount anyway," spokeswoman Adrienne Lyons says.
Some institutions have already made changes by introducing "hybrid" accounts that merge features of various accounts, such as NOW and SuperNOW accounts, into single accounts.
Los Angeles-based Coast Savings & Loan Assn., for example, earlier this year merged its NOW and SuperNOW checking accounts into one account, paying higher interest rates for higher balances.
Under this "tiering" policy, Coast pays a 5.25% annual rate (the limit for NOW accounts) during any month in which accounts post at least one day's balance below $2,500. The rate rises to 6.25% for balances between $2,500 and $10,000 and 6.5% for balances above $10,000 (like SuperNOW accounts).
Among the one-third of large institutions that Bank Rate Monitor found changing their account policies, a handful have entirely eliminated some account-balance minimums. These include Citibank and First National Bank of Chicago.
Most, however, have lowered their minimums to between $100 and $500, Heady says.
San Francisco-based Bank of America, for example, says it is lowering its minimum on SuperNOW accounts (marketed as Investors Checking Service) to $500 from $1,000.
But in exchange for lower minimums, some institutions are increasing their transaction fees, which are separate charges on each check, withdrawal or other transaction.
Security Pacific, for example, will charge 40 cents per check or other transaction if balances on SuperNOW accounts drop below $2,500 on any given day of a month. That is up from the current 30 cents per transaction.
Security Pacific also is lowering the interest that it pays on accounts by basing interest payments on the lowest balance in any given day in a month rather than the average balance for that month.
Some institutions also are increasing fees charged when account balances fall below certain levels. Citibank, for example, is increasing its monthly service charge to $15 from $10 for SuperNOW accounts if the customer has less than $10,000 in combined checking, savings and other accounts at the bank.
Banking experts are urging consumers to shop carefully and be particularly wary of hidden transaction fees or monthly service charges.
"Typically in the last three years of banking deregulation, most banks and thrifts have failed to identify fees, charges and penalties specifically in their advertising," Heady says. Figuring out those charges was thus "left to the poor consumer who's already confused and bewildered by the thousands of accounts available to him."