Bank of America Archives - High Yield Savings Accounts

With the CARD Act enforcing credit card regulation, banks have begun fishing for money in a sea of consumer pockets. Bank of America, one of the most popular banks in the United States will be adding a $59 annual fee to consumers’ credit cards. The new changes are set to take place April 11, and set to affect 5% of credit card holders, or approximately 2 million out of 40 million customers.

According to a Bank of America representative, consumers that would not be able to qualify for the card if they were to apply for the credit card today will be the ones being charged in April. The Credit Card Accountability Act, also known as the CARD Act has put some pressure on banks to limit the reasons they change interest rates and fees. In the Act, it states that credit card issuers cannot increase interest rates on an existing credit card unless the card holder is 60 or more days late in making a payment. The act also dictates when credit card issuers can make these moves. By providing consumers with cards that the banks know consumers can’t afford, it effectively allows banks to collect more money from consumers through higher interest rates. If a consumer is using a credit card they can’t afford, they are more likely to be late on payments, and late payments are profitable for banks.

The restrictions laid out in the CARD Act are proving costly to banks, as they must think of new ways to pocket consumer money. It is estimated that the loss of revenues due to the CARD Act will total $25 billion annually for banks across the nation. In order to circumvent this, banks are charging consumers for previously free services, such as new fees for calling customer service representatives and transaction fees. Financial experts agree that the $59 annual fee is driven to increase bank profit. Implementing the annual fee will generate approximately $118 million for Bank of America.

There has been a lot of action lately in the banking industry and the stock markets. I recently wrote about how fair value accounting could boost the value of bank stocks. Since then, much of the banking industry has been on a tear – in some cases climbing 30% or more. I’m not recommending that anyone invest in bank stocks though. Always do your due diligence before investing in any stock or industry.

Profits up for some banks

Last week Wells Fargo announced they were expecting a $3 billion profit – which was a pleasant surprise for the banking industry. Both Citigroup and Bank of America also recently announced that they operated at a profit during the first two months of the year.

Still some dangerous times for banks ahead

While some of these banks are currently operating at a profit, they also have a lot of toxic assets remaining on their books. The operating profit does not include such items as reserves for credit losses, nor does it account for troubled assets that may not be repaid in the future. The results look good now, but charge offs and failed mortgages and other debts could cause big problems down the road. Many banks are going to need to continue raising capital to hedge against loan defaults.

Related High Yield Savings Account information.

A previously published article, How the FDIC Takes Over Banks, was recently included in the Carnival of Pecuniary Delights No. 3 – The Money Box Edition, which was held at Miss Money.