Fee Income Definition

What is fee income?

Financial institutions make money in just two ways: by collecting interest on loans and by charging fees for services.

Commission income is income from charges related to the account. Expenses that generate commission income include Insufficient funds costs, discovered fees, late fees, overlimit fees, bank transfer fees, monthly service fees and account search fees, among others.

Credit unions, banks, and credit card companies are types of financial institutions that earn fee income.

Key points to remember

  • Fee income is income that a financial institution derives from services rather than interest payments.
  • Commission income has multiplied since banking deregulation in the 1980s allowed financial institutions to diversify into investment and insurance services.
  • Fees have also increased for standard banking services such as checking accounts and ATM withdrawals.

Understanding Fee Revenue

Interest income is money an institution earns by lending money and includes interest payments on mortgages, small business loans, lines of credit, personal loans, and student loans. . Carry-over balances on credit cards are another very lucrative source of interest income.

Financial institutions also derive a significant portion of their revenue from fees, sometimes referred to as non-interest income. In fact, commission income has skyrocketed since the 1980s.

The deregulation banking industry in the mid-1980s provided banks with new opportunities to sell non-traditional fee-based services. Non-interest income already accounted for almost a quarter of all operating income generated by commercial banks. This percentage has increased significantly as US banking institutions have diversified into other financial activities, including investment banking, merchant banking, insurance sales, and brokerage services.


The average fee charged for an NSF check in 2019.

Non-interest commission income took off with the Gramm–Leach–Bliley Act (GLBA) of 1999, which created a financial holding company (FHC) framework that allows joint ownership of banking and non-banking activities. The GLB law was the catalyst for the elimination of the famous Glass–Steagall Act (1933), which prohibited the mixing of commercial banking with other financial services activities such as investment banking services.

At the same time, commercial banks began to maximize the fee income they collected in their traditional lines of business such as checking accounts and savings accounts.

A cost bargain

It is estimated that non-interest fee income now accounts for almost half of all operating income generated by US commercial banks.

No matter how low mortgage interest rates are, banks can rely on a variety of fees as a stable source of income. The average fee for an NSF check was $30 in 2019. The big banks collected $11 billion in overdraft fees from their US customers alone in 2019.

On the other hand, the average fee for using an out-of-network withdrawal was $4.72.

Other ongoing fees may include monthly account maintenance fees for checking and savings accounts and minimum balance fees. Special services also incur fees, such as foreign transaction fees, cashier’s check fees, and paper statement fees.

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