Old Hidden Fees, Meet New Hidden Fees

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David Lazarus writes about Bank of America’s latest attempt to improve its bottom line via hidden fees:

In the past, BofA would charge 90 days worth of interest for early withdrawals from a CD good for 12 months or less. In other words, a $10,000, 12-month CD with an annual yield of 0.3% would entail an early withdrawal penalty of about $7 if you took out the entire amount.

Now BofA is charging a flat $25 plus 1% of the amount withdrawn for CDs with terms under 12 months and 3% for longer terms.

That means the early withdrawal penalty for that same $10,000, 12-month CD now runs $125 — a nearly 1,700% increase. The penalty for a five-year, $10,000 CD is $325 — a roughly 1,600% increase.

This is yet another example of a fee that (a) most people don’t really know much about, (b) most people don’t think they’ll ever incur, and (c) generally gets paid by people in some kind of distress. In the modern banking industry, that makes it a perfect target for a huge increase. They will do anything — anything — to avoid charging simple, flat, open fees. That would require actual competition with other banks, after all.

Unfortunately, I don’t really know what the answer to this is. I have a visceral aversion to doing business like this, but I also understand why they do it: any bank that charged simple, flat, annual fees would lose all of its good customers, who would migrate to banks that make most of their money from penalty fees that they’ll never have to pay. Bad customers, conversely, would eventually migrate to the bank with flat fees as they came to realize that it was a better deal for them. So the nice bank would have lots of bad customers and the evil bank would have all the good customers.

If every bank charged simple, open fees, there would be an equilibrium of sorts. But how do you get there? And should we even try? I’d like to, but I can’t pretend it’s very likely to happen, or even that it’s in the top 20 problems facing the poor. So here we stay.

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Which is also a pretty great way to describe Mother Jones' mission: People coming together around the truth to hold power accountable.

And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

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