The Price of Convenience

"Fee income has taken on a much more important role in bank earnings, and that's what's behind it," said Greg McBride, a senior financial analyst at Bankrate and an expert on bank fees.

Washington is one of the most heavily banked cities in the country, with a bank branch for about every 3,300 people, and the number of ATMs reflects that fact. Between national companies like Wachovia and Bank of America, local ones like Chevy Chase, credit unions, small community banks and independent ATM operators, analysts estimate there are at least 5,000 machines in the area, and probably many more.

ATMs first appeared in the early 1970s. Conceived as labor-saving devices, installed outside bank branches to handle routine transactions and take the pressure off of the human tellers inside, they developed quickly into an expected convenience for a bank's depositors. Bank officials say that remains their central purpose.

Costing up to $40,000 apiece and as much as $12,000 a month to maintain, the machines are often money losers, bankers say, and the fees for non-depositors are simply a way to defray the cost.

"Overall, there's a significant expense to our very extensive ATM network," said Thomas H. McCormick, executive vice president at Chevy Chase Bank. "We don't build that network to be a significant profit center. . . . The full cost of deploying and operating the network costs far more than fees from non-customers taken in."

Not all of Chevy Chase's ATMs charge $2.25. At 235 stand-alone ATMs -- such as those Chevy Chase has put in malls, Metro stations and airports -- the company has a $2 surcharge for non-customers -- a concession, McCormick said, for people who may not have many options if they need to get cash.

"Our ATM strategy is to serve our existing customer base and attract new customers to our bank," McCormick said. "The fee we charge to non-customers is really helping to defray our costs of deploying those ATMs. But without getting into the economics, exactly, it costs an enormous amount to have a large ATM network." Seventy percent of the bank's ATM usage is by its depositors, who pay no fees at all, he said.

McCormick said that of Chevy Chase's $136.6 million in deposit service fees booked in its 2005 fiscal year, less than one-sixth is attributable to ATM surcharges. That would amount to about $22 million last year assessed against non-Chevy Chase customers, though McCormick would not disclose the exact number.

Banks, while heavily regulated in almost all aspects of their business, can charge anything they want for ATM fees, and, unlike with a branch, they don't have to go through a regulatory application process to set one up.

According to Arnold G. Danielson, a local bank consultant and investment banker who has tracked banks in the mid-Atlantic region for decades, Chevy Chase became enamored of the market-building possibilities of credit and ATM cards in the 1990s, when it built a large credit card operation. After selling the credit card business in 1999, Saul, according to Danielson, decided that one of Chevy Chase's best chances to increase its market share in the face of competition from much larger rivals was to make the bank so convenient, customers would be "compelled" to sign up.

ATMs were central to the strategy. In 1995, Chevy Chase had 439 ATMs, already far more than any other local institution. In the next 10 years, it added more than 500 more.

Saul, who founded Chevy Chase Bank in one of his family-owed strip shopping centers in 1969, rarely talks to the media, and declined to comment. The 74-year-old banker and real estate investor owns nearly all of the stock of Chevy Chase, which has $14 billion in assets.