Let's call it the good, the bad and the ugly side of banking.
Mortgage rates are dropping. That's good because lower mortgage rates make already-cheaper housing more affordable. For existing homeowners, lower rates can mean an opportunity to refinance.
Rates on certificates of deposit are trending down. That's bad for consumers at such a critical time when people are looking for a safe — and FDIC-guaranteed — investment away from downward-spiraling stock markets.
Now we come to the boom in overdraft fees imposed by banks on checking account holders and ATM users. Such fees kick in when a customer takes out more money than is in a bank account. Overdraft fees are so high, according to an FDIC survey out this week, that some fees are equivalent to charging annual interest rates as high as 3,000 percent. That's ugly. And it tends to hit young and lower-income people the most.
Let's take these one at a time.
The good: mortgages
Amid a nasty housing downturn, especially in Florida, U.S. mortgage applications surged by the largest amount on record last week. Why? A new Federal Reserve program pushed interest rates down to their lowest level in more than three years.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.47 percent. That's down a hefty half percentage point from the previous week. It's the largest drop since 1990 when the Mortgage Bankers Association started conducting its weekly survey.
Interest rates are at their lowest level since the week ended June 24, 2005, when they reached the same level.
"This clearly was an early holiday gift from the Federal Reserve to mortgage holders and home shoppers," analyst Mike Larson of Weiss Research in Jupiter told Reuters. But it does not mean it's any easier for marginal borrowers to get a home loan.
The bad: CD rates
Banks got aggressive earlier this year trying to lure new depositors by raising the rates on CDs. It was a welcome, if modest, uptick in CD returns just as the stock markets began their sickening plummet and investors scrambled for at least some of their (remaining) funds to be in FDIC-insured accounts.
In September, local ads by Countrywide Bank offered a seven-month CD at 4 percent, and BankUnited pitched a nine-month CD paying 4.4 percent.
Now CD ads are fewer and rates are lower. Fifth Third Bank offers a longer 24-month CD at 4.15 percent. And now BankUnited's got a 12-month CD that pays only 4.1 percent.
Bank of Florida director of banking Roy Hellwege recently predicted that consolidation among Florida banks (mergers fueled by federal bailout money and the need of weaker institutions to find buyers) will reduce competition for deposits and, in turn, drop CD rates even further.
The ugly: overdraft fees
Banks surveyed by the FDIC earned $1.97-billion in overdraft-related fees in 2006, representing an amazing three-quarters of their overall $2.66-billion in service charges levied on deposit accounts.
For a customer who repays an overdraft of $20 in two weeks, the typical $27 bank fee represents an annual percentage rate of 3,520 percent, the FDIC said.
That's more than ugly. That's robbery.
Robert Trigaux can be reached at email@example.com.