One Step at a Time: Bank of America Unveils New Checking Account
Big banks in the United States were forced to revisit the way they do business in the wake of the late-2000s financial crisis. Facing an adverse regulatory environment and a disgruntled (read: infuriated) public, financial institutions like Bank of America Corp. (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Co. (NYSE:WFC) did the corporate equivalent of soul searching — they shed bad assets, charged off bad debt, exited bad businesses, and trimmed the fat all around.
The results, from a shareholder’s perspective, have been phenomenal. It’s a dark bit of irony, but financial stocks have tended to outperform the market in the post-crisis period. The Financial Select Sector ETF (NYSE:XLF) is up 171 percent over the past five years while the S&P 500 is up about 148 percent. Over the past two years, the financial sector ETF is up about 54 percent compared to 39 percent for the index. For the year to date, the financial ETF and the S&P 500 are about neck and neck.
However, from a consumer perspective, the results have added insult to injury. Many on Main Street are still fuming about the financial sector’s involvement in the crisis, which cost millions of people their jobs and homes, and brought America’s economy to its knees. Big banks have paid tens of billions of dollars in damages and fees, but justice has fallen short of restitution. Consumers still don’t feel like banks have been held accountable for the negligent, fraudulent, and criminal behavior that characterized the crisis.
The degree to which big banks are held accountable for the financial crisis is in the hands of regulators like the Department of Justice, but it will be up to the banks themselves to mend relations with Main Street. To that end, banks will have to develop their business in a way that is both profitable and consumer friendly.
Bank of America is taking a step in this direction with the rollout of a new kind of checking account called “Safe Balance.” The Safe Balance account offers consumers a checking account for a monthly fee of $4.95 but does not allow overdrafting. The account is a reaction to consumer complaints over large and often unexpected overdraft fees, which at Bank of America runs $35 per infraction. According to a Pew Charitable Trusts survey conducted in spring 2012, 20 percent of consumers reported paying at least one overdraft fee. These fees hit an outsized share of low-income and young people, who often don’t have the financial cushion necessary to absorb unexpected costs. At a yearly cost of about $60, the account is cost effective if a consumer would have overdrafted his or her account twice in a year.