by Mae Saslaw

ATM Fees: Paying for Convenience?

Paying for convenience with atm fees

It’s rare to find an exercise in which you literally throw money away, but it’s distressingly common to feel as though you are. With service fees for things like air travel and movie tickets rising, more and more of our dollars seem to vanish into thin air. No matter whom or what you want to blame, bank fees are no exception. Last time, we told you more than you perhaps wanted to know about overdraft fees. Today, we’ll take a trip to the closest ATM and find out what you’re paying for.

How far is too far?

You’ve just finished a meal in a restaurant, and the waiter sets your bill on the table. Before he can walk away, you hold out your debit card. He says four little words that can just about ruin your night: “Sorry, we’re cash only.” You check your wallet. You have five bucks.

There is no cool move to make next, and there are countless situations in which you’re simply done for, as far as your dining partner is concerned. Maybe the waiter takes pity on you and tells you there’s an ATM across the street. In this particular case, there’s no question you’re going to swallow those extra dollars.

But let’s say you’ve planned ahead, and you know you’re going to a cash-only joint, so you’re going to get cash before dinner. Your bank doesn’t have an ATM on your route. How big of a detour are you willing to take?

The current federal minimum wage is $7.25 per hour. That’s $0.12 per minute, about eight minutes per dollar. Before we factor in transportation costs—gas if you’re driving, wear on your bike, risk of getting hit by a bus on the way, etc., a $4 ATM charge ($2 from your bank and $2 from the out-of-network ATM) is worth more than half an hour of work at minimum wage.

To find your own ATM fee tolerance, divide your hourly rate by 60. Divide 1 by your result to find out how many minutes it takes you to earn a dollar. Multiply that by 4, or whatever you’d normally lose to an out-of-network ATM. That’s how much time you’re allowed to spend to get to the nearest free ATM. Of course, there are other factors—on freezing cold evenings, after a long day at work, I’ll ask myself, “Would I pay somebody $4 to walk another three blocks to my ATM?” The answer is usually “Yes.”

Rising ATM fees, but why?

Six months ago, few Americans had ever heard of an interchange fee, let alone knew what the interchange rates were. Thanks to certain banks’ insistence that decreased interchange fees would hurt their revenue, and thanks to some very occupied citizens, a lot more of us are now aware that those pennies on the dollar add up to big profits. According to a 1989 paper from the Federal Reserve Bank of San Francisco (PDF), interchange fees for ATM networks were between $0.15-0.20 in 1988. This particular interchange fee is the price that the customer’s bank pays the ATM-owning bank when the customer uses that ATM. The following year the fee dropped to $0.05-0.10. There was no legislation that forced the fee down; greater ATM use meant that banks and payment networks didn’t have to charge as much in order to pay maintenance costs, and they wanted to attract more customers, so they dropped the rates all by themselves. Economist Elizabeth Laderman wrote:

If this decrease is indicative of future and more widespread trends, then we may see a decrease in [out-of-network] ATM fees. However, if ATM owners continue to be prohibited from charging [out-of-network] ATM users directly, this decrease in interchange fees can also be expected to decrease the number of new ATMs deployed.

What sounded perfectly rational two decades ago sounds naively optimistic today, like a small child suggesting that warring nations might solve their problems with words. ATM interchange rates have fluctuated, but the fees have only gone up.

1970: Rise of the Machines

How did we get here? The same way we trudge through snow, uphill both ways, to get to that blinking, out-of-network ATM machine: Slowly.

There were fees before it was even possible to use another bank’s ATM. Fees varied for different types of transactions, and different types of bank accounts. Banks needed to find a balance between offering convenience at rates customers were willing to pay, and recouping their maintenance costs. They experimented with charging for teller services, charging some customers if they used tellers more than five times per month. By 1989, banks charged the most for deposits, while 16% charged their own customers for withdrawals. ATMs started to pay off as the banks had hoped, and economists estimated that a fifty cent increase in fees—which happened to be fifty percent as well—would not deter people from using ATMs.

Slowly but surely, banks discovered that they could raise their fees without losing customers. We were hooked.

2011: Judgement Day (for fees)

We know what you’re asking: How will Simple fix this? We’ve partnered with the largest ATM network in the US to offer fee-free access to over 40,000 ATMs nationwide. That’s more ATMs than that offered by the largest bank in the US. You can also get cash back at thousands of merchants. Even if you need to use an out-of-network ATM, we won’t charge you a fee (however, the ATM owner still might). For the rest of the time, you can enjoy using your Simple Visa® card for just about everything.