How Should a Bank Make Money?

by Washington Federal Team on May 3, 2011

Traditionally, a bank was set up to make a profit by being a convenient intermediary, borrowing money from those who have it (savings account clients) and loaning it out to those who need it (loan clients).  Over the years, as banking became more complex, banks recognized that they could also charge for the time and energy it takes to provide certain services like bank checks, overdraft protection, notary service, and a retirement account.

Today, many banks have become experts at maximizing fee income.  Some even rely on fee income for up to half of their top-line revenues.  It’s no wonder that there’s been a backlash from consumers. In September, the evening news was full of stories about how the large commercial banks were revamping their fees for overdrafts and non-sufficient funds (i.e. bounced checks).

Washington Federal prefers to take the high road on fees and focus on making our money from the spread between what we pay our depositors and what our borrowers pay us in interest.  In fact, fees on deposit accounts make up only 0.4% of our top-line revenue.  It’s clear we don’t believe in nickel and diming our customers.  For example, we keep fees for overdrafts well below the average (currently $27 nationally).  When a checking account is going to go into the red, we ask a real person (not a computer) to review the items pending so that we can make a call to the client if we have a question about how to handle clearing the items.  If one of the items is your mortgage payment, you might prefer we clear that before the $5 check you wrote at the local sandwich shop.

Clients who use their debit cards can overdraw their accounts at the register, but only once.  Once the account reaches a zero balance, the debit transaction will reject.  Unlike some other banks, we won’t keep taking a client deeper into the hole in order to pile on the overdraft fees.

That said, you’re probably wondering if we find a way to squeeze clients on rates vs. fees.  On the contrary, we focus on making money more efficiently, realizing $1 in revenue for every 27 to 30 cents we spend.  Many banks have to spend 50 or 60 cents to make $1 of revenue.

We believe that our clients should know their money is being managed with respect and efficiency.  How else could we remain strong and stable over our 94-year history? But rest assured, we take a long-term perspective on managing our business, so that you, as our client, can feel secure trusting us with your financial well-being.

{ 1 comment… read it below or add one }

Debbie Chaney May 10, 2011 at 4:41 pm

This is why I am so proud to be a Customer Service Supervisor with this great company!


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