I paid a $3.00 ATM surcharge


I was with a friend and I really needed some cash in a hurry. I ran across the way to an ATM and ended up paying a surcharge of $3.00. I couldn’t believe it. This is my excuse for writing a post about ATM fees. Here is the paper that informed most of this post, but I think you need a subscription to get at it. Below are the highlights.

First, I looked to see if any states set statutory maximums on what a surcharge can be (I’ve never paid more than $2.00 for a surcharge so 3.00 really blew my mind). It seems that states do not regulate the amount of ATM surcharges. What I mean is that the state either allows surcharges of any amount or bans surcharges completely (apparently Iowas is the big state in the literature to have banned surcharges and then allowed them again). There is no middle ground.

Then I read some papers about the welfare effects of surcharge bans. According to the literature, surcharge bans are on average total welfare neutral although they do move welfare from producers to consumers (like me!). However, there is some evidence that in high density areas, the welfare loss to consumers due to having to pay a fee is swamped by the convenience factor (fees allow banks to set up more ATM’s and thus increase coverage). The higher density makes a small savings in convenience add up to a lot over the course of a life of an ATM machine. Low density areas do better with surcharge bans.

But here’s the most interesting thing that I read, which is that banks that have high ATM surcharges for non members (so called, “foreign” transactions) tend to be able to increase their market share. On one hand, a bank with a high surcharge for foreign transactions drives away foreign customers, but also induces customers to join the bank to escape the high transaction fee. Not surprisingly, this effect is pronounced in banks with a high ATM network. These banks can essentially drive customers into their arms to escape from their draconian fees.


2 Responses to “I paid a $3.00 ATM surcharge”

  1. 1 Benjamin Bregman
    August 13, 2009 at 1:53 pm

    I would like to offer an alternative solution for anyone looking to avoid surcharge fees. Ask your financial institution about their participation in surcharge-free solutions such as Allpoint Network, MoneyPass, or Co-op Network. These networks offer unlimited surcharge-free access at more ATMs than the largest US banks. To enjoy surcharge-free access at 35,000 ATMs across the US at locations such as 7-Eleven, CVS, Target, and Walgreens ING Bank offers Electric Orange Checking. http://home.ingdirect.com/products/products.asp?s=EOHP

    Best of luck and don’t be surprised to see the average surcharge continue to rise – its up near 50% since 2004.

  2. 2 mengster
    August 13, 2009 at 3:45 pm

    charles schwab (and some other banks) refunds all atm fees

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