Fee Income

What Is Fee Income?

Financial institutions bring in money in just two ways: by gathering interest on loans and by charging fees on services.

Fee income is the revenue considered related charges. Charges that produce fee income incorporate non-adequate funds fees, overdraft charges, late fees, over-the-limit fees, wire transfer fees, month to month service charges, and account research fees, among others.

Credit unions, banks, and credit card companies are types of financial institutions that earn fee income.

Grasping Fee Income

Interest income is the money that an institution earns by lending money, and remembers interest payments for mortgages, small business loans, lines of credit, personal loans, and student loans. One more profoundly lucrative source of interest income is extend balances on credit cards.

Financial institutions likewise earn a huge portion of their income from fees, which are once in a while called non-interest income. In fact, fee income has soar since the 1980s.

The deregulation of the banking industry during the 1980s offered banks new opportunities to sell nontraditional fee-based services. Noninterest income previously accounted for almost a quarter of all operating income produced by commercial banks. That percentage decisively increased as American banking institutions diversified into other financial activities including investment banking, merchant banking, insurance sales, and brokerage services.

$30

The average fee charged for a bounced check starting around 2019.

Noninterest fee income took off with the Gramm-Leach-Bliley (GLB) Act of 1999, which made a financial holding company (FHC) structure that empowers common ownership of banking and nonbanking activities. The GLB Act was the catalyst for wiping out the vaunted Glass-Steagall Act (1933), which precluded blending commercial banking in with other financial services activities, for example, investment banking services.

Simultaneously, commercial banks started to boost revenues from the fees they collected from their traditional lines of business, for example, checking and savings accounts.

A Bonanza of Fees

It is estimated noninterest fee income presently accounts for almost half of all operating income created by U.S. commercial banks.

Regardless of how low the interest rates on mortgages get, banks can depend on various fees as a consistent source of income. The average charge for a bounced check was $30 starting around 2019. The big banks collected $11 billion in overdraft fees alone from their American customers in 2019.

Then again, the average fee for utilizing an out-of-network ATM withdrawal was $4.72.

Other common fees can incorporate month to month account maintenance fees for checking and savings accounts and least balance fees. Special services likewise cause fees, for example, foreign transaction fees, clerk's check fees, and paper statement fees.

Features

• Fees likewise have developed for standard bank services, for example, checking accounts and ATM withdrawals.
• Fee income is the revenue that a financial institution earns on services instead of interest payments.
• Fee income has expanded since the 1980s bank deregulation permitted financial institutions to enhance into investment and insurance services.