Introduction
Centralization, while facilitating structured operations and controls, often diminishes autonomy, choice, and representation. While sociopolitical systems and global cultures lean towards decentralization, the financial realm predominantly showcases centralized methodologies. The ascent of decentralized finance signals a shift in economic perspective, underscoring an enhanced quest for freedom and self-determinism.
Governance and Centralization
A fully centralized political construct can mirror autocratic governance structures. In contrast, decentralized governance ensures broader representation, power distribution, and enhanced democratic processes. Despite this discernible cultural tilt towards decentralization, a void exists as institutional frameworks remain primarily centralized. Recent adaptations to this trend include emerging blockchain IDs, KYC procedures, tokenizing tangible assets, and introducing Central Bank Digital Currencies (CBDCs).
Traditional Banking: An Exposition of Costs
Traditional banks, despite their widespread convenience, come with a suite of costs that we will cover mainly looking at the US financial market:
Overdraft & Non-sufficient Funds (NSF) Fees: According to data from Bankrate.com and consumerfinance.gov, the average overdraft fee is nearly $30, with variations ranging from $10 to $40. Notably, 96% of accounts charge overdraft fees and 87% charge NSF fees. Statistics reveal that individuals paying more than 10 overdraft fees per year constitute nearly three-quarters of all overdraft fees, with frequent overdrafters paying an average of $380 annually. American households spent approximately $11 billion on overdraft charges in 2019, and while overdraft protection is available, it also comes with a cost. Consumers have an average of about two overdrafts per year, but in practice, a minority of bank consumers, 18%, account for the majority of overdrafts.
ATM Transactions: A standard out-of-network transaction attracts a fee of $4.66, compounded by a non-customer surcharge of $3.14, as reported by atmarketplace.com. Although the number of banks allowing free out-of-network withdrawals is at a record high, it represents less than one-third of accounts (32%). The three biggest banks in America, JPMorgan Chase, Bank of America, and Wells Fargo, earned over $6.4 billion in ATM and overdraft fees in a single year, as mentioned by CNN. Business Insider notes that daily ATM withdrawal limits range from $300 to $3,000, and MyBankTracker indicates an average daily transaction limit of about $5,884 and a monthly limit of about $9,909.
Maintenance & Usage Fees: Investopedia states that the average monthly maintenance fee for checking or savings accounts is $13.95, summing to an annual cost of $167.40. Although waiver options exist, they often require maintaining balances between $500 to over $1,000. Amongst the top 10 US banks, the average monthly maintenance fee is around $9.60, and according to MyBankTracker, banks charge roughly $3 for standard delivery transfers and, on average, about $8 for next-day delivery.
Inactivity & Dormancy Fees: These fees vary, with an average monthly cost of approximately $9.60, as indicated by Investopedia, but some institutions may charge higher fees, such as $25 or more. Forbes adds that this fee typically ranges between $10 and $20 monthly.
Investment Fees: Maintenance or custodian fees can vary, ranging from $50 to $200 per year or more in the US, with Canadian banks charging closer to double that range. Fees can be waived if the account meets a minimum money invested threshold. Expense ratios are annual fees charged by mutual funds, index funds, and exchange-traded funds or ETFs, typically ranging from 0.04% to 2% or more. Commission fees for online trading can range from $3 to $10 per trade, depending on the bank or the broker, with some offering discounts for high-volume traders. Management or advisory fees range from 0.40% to 0.90% or more for managing your funds. 58% of Americans own stock, so most Americans are paying some form of these fees. However, only 19.5% of the trading volume comprises individual investors.
Additional Fees:
· Paper Statement Fees: Approximately $2-3 a month
· Check Purchase Fees: Between $20 to $35
· Bounced Check Fees: Vary, with the default NSF averaging around $30 per Bankrate.com. Both parties may incur fees, and some merchants may charge additional penalties.