: Why do dishonour fees exist? In the event of a transaction not going through due to insufficient funds a dishonour fee is charged. Presumably the cost of not making a transaction is lower than making a transaction, yet the

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In the United States, many banks aim to receive $ 100 per year per account in fees and interest markup. There are several ways that they can do this on a checking account. These examples assume that there is a 3 % difference between low-interest-rate deposit accounts and low-interest rate loans.

The customer carries an average balance of $ 8,000. The bank pays 0.25% interest. (3%/year / 2 = 1.5%/year; 1.5%/year - 0.25%/year = 1.25%/year; $ 8,000 * 1.25%/year = $ 100/year)
The bank charges an $ 8 monthly fee. ($ 8/month * 12 months/year = $ 96/year)
The customer gets a "rewards" debit card that pays the customer $ 2 per $ 1,000 the customer charges on the debit card. The bank charges the merchant an extra $ 1 per $ 100 the customer charges. If the customer charges $ 1,000 of transactions per month on the debit card, the bank gets $ 96 per year of markup. ($ 1,000 / month * (1% - 0.2%) = $ 8 / month * 12 months / year = $ 96 / year).
The bank charges the customer $ 2 every time they use an ATM. If the customer uses an ATM once per week, that is $ 104 per year.
The bank charges the customer $ 40 per overdraft. 3 overdrafts / year = $ 120 / year.

Or some combination of these markups that adds up to $ 100 / year. For example: A two dollar monthly fee = $ 24 / year, plus a $ 2,000 average balance at 0.05% = $ 29 / year, plus $ 250 / month in rewards debit card usage = $ 24 / year, plus $ 2 / month in ATM fees = $ 24 / year.

Before it was taken over by Chase Manhattan in 2008, Washington Mutual had a business strategy of offering "free" checking with no monthly fees, no annual fees, and no charges (by Washington Mutual) for using ATMs. The catch was that the overdraft fees were not free. If the customers averaged 3 overdraft fees per year at $ 34 each, Washington Mutual reached its markup target for the accounts.