ATM Surcharge and Fees

The ATM card has become a part of life. ATM service is fast, easy and extremely convenient.

ATM fees, however, have been climbing steadily over the last few years.

 

When banks first introduced ATM service, there were no ATM fees. The ATM bank was pioneered as a cheaper alternative to a bank teller. In fact, instead of ATM fees, some banks charged "human teller fees" to encourage customers to use the new ATM service.

Initially, each bank had its own ATM system. Only customers at that bank could use their ATM cards to access the ATM service.

Over time, banks began to form ATM networks, allowing customers to use their ATM cards at banks other than their own. Each bank paid a set amount per transaction to the ATM service and paid other banks "interchange" fees to cover the cost of transactions by each other's customers. The customer, however, was still not charged.

Starting in the 1990s, banks began to charge ATM fees when their customers used a different ATM bank or ATM machine. In theory, this was to offset the costs of interchange fees. In actual practice, the ATM fees paid by customers were higher than the interchange fees.

In the mid-1990s, banks also began to charge an "ATM surcharge" to ATM users from different banks, claiming the need to cover the cost of maintaining the ATM.

This means when you access a "foreign" ATM service offered by a bank you don't have an account with, you're charged by your own bank and the ATM bank for the same transaction.

Add the two ATM fees together and the average cost for a "foreign" transaction to the customer is $2.91, pretty steep if you've withdrawing only $20. ATM fees are also higher in locations such as sports arenas, airports and hotels, locations where you may need to access money quickly and can't afford to waste time looking for your own bank's ATM service.

Opponents of the ATM surcharge point out that ATM fees are far higher than the amount needed to maintain the ATM service. There's no question that ATM surcharges and other ATM fees are profitable: In 2005, Americans paid $4.3 billion in ATM withdrawal fees.

According to the U.S. Treasury Department's Office of Thrift Supervision, the average ATM transaction costs 27 cents. Critics argue that if the justification for ATM fees was to cover the cost of transactions, the banks' ATM fees are excessively high.

Claims that banks are "double-dipping" and essentially charging twice for the same service have led to legal action. Some cities and states have passed legislation banning the ATM surcharge. This opposition has had limited success.

For their part, the banks maintain that ATM fees, including the ATM surcharge, are necessary.

National banks have successfully fought at least some local legislation banning the ATM surcharge. The banks claim that, according to the National Bank Act, they are regulated by federal law, not state or local law.

The issue may also strike deep at the roots of the free enterprise system. Banks, like every other company, have the right to charge whatever fees they see fit. In theory, people can express their displeasure by choosing banks with lower ATM fees.

In other words, if people are willing to pay a bank's ATM surcharge and ATM fees, then they can't be that upset about it. Finding a bank that doesn't charge ATM fees, however, can be difficult.

The best way to avoid an ATM surcharge is simply to always use your own bank's ATM service. This may require a little more planning when you budget, as you may not always have access to your own bank's ATMs. Many grocery stores and drug stores allow you to get cash back when you pay with your debit card, free of fees or surcharges. This is another option when people are trying to avoid using another bank's ATM.

Only using your own bank's ATM service can save you money in the long run, as the average American pays an estimated $60 to $65 a year in ATM surcharge fees.

Resources

Bankrate.com (2006). ABCs of ATMs. Retrieved September 10, 2007, from the Bankrate Web site: www.bankrate.com/brm/green/chk/basics2-intro.asp?caret=29.

Callahan, G. (2000). Justifying ATM Fees. Retrieved September 10, 2007, from the Ludwig von Mises Institute Web site: www.mises.org/story/413.

Consumer Affairs (2005). ATM Fees Hit Record High. Retrieved September 10, 2007, from the Consumer Affairs Web site: www.consumeraffairs.com/news04/2005/atm_fees.html.

Finance Center (n.d.). ATM Surcharge Ban. Retrieved September 10, 2007, from the New Rules Web site: www.newrules.org/finance/atm.html.

McBride, G. (2005). Checking Study: ATM Fees Keep Climbing. Retrieved September 10, 2007, from the Bankrate Web site: www.bankrate.com/brm/news/chk/20050511c1.asp.

Stopatmfees.com (n.d.). Frequently Asked Questions about ATM Surcharges. Retrieved September 10, 2007, from the Stop ATM Fees Web site: www.stopatmfees.com/newpage2.htm.

Weinert, K. (n.d.). A Brief History of ATMs. Retrieved September 10, 2007, from the Stop ATM Fees Web site: www.stopatmfees.com/newpage3.htm.