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Sunday, October 14, 2012

The Higher Costs of Banking...And How To Avoid it!

Those of us old enough remember the early 1980s. Interest rates were high, which made borrowing money from and paying it back to banks extremely costly. The upside to this was that banks also paid out higher interest on personal saving accounts, which was only fair since banks were making money off of the personal deposits of its depositors, both large and small. However, to offset the higher interest they were paying to customers who had savings accounts with their banks, small banks began imposing fees on these accounts. Then in the late 1980s, these small banks began to lure customers with free checking when their customer base began to thin out. Soon, the larger banks got into the act as they tried to siphon off the increasing numbers of customers the smaller banks winning over. The result was that by the mid- to late 1990s, free customer checking had become a banking industry standard.
But in recent years, the trend has been reversing. According to figures released by a Bankrate Inc. survey last month, only “39% of noninterest checking accounts are free to all customers, down from 45% in 2011 and a peak of 76% in 2009.” And although last-year’s public outcry forced banks to back away from the imposition of new fees when they were proposed last year, it hasn’t stopped banks from doubling-down on existing fees. The majority of banks have raised their fees on ATM transactions, checking account overdrafts, and minimum-balance amount fees. The result is a landscape of new and oftentimes imaginative fees. For example:

• The recent fee change at SunTrust has resulted in a $36 fee on all basic checking overdrafts, an increase from the $25 for-the-first overdraft, and $36 for each subsequent payment.

• Wells Fargo customers must now keep $1,500 in their basic checking accounts or make $500 in direct deposits each month to avoid a $7 monthly fee.

• U. S. Bank will charge a $15 fee for an overdraft transaction that is $15 or less, and $35 for any overdraft over that amount.

• In June, Fifth Third Bank began charging $37 per overdraft after a $25 fee is assessed for an initial overdraft transaction. This replaces old policy of charging a $33 fee for the second, third, and fourth overdrafts in a twelve month period.

 The reason often cited for the introduction new banking fees are simple. For starters, we must remember that banks are in business to seek profit. As such, they are beholden to their shareholders to ensure that turning a profit is the end result of their daily business transactions. Secondly, banks are attempting to recoup losses as a result of federal legislation in the form of the so-called Durbin Amendment.
The amendment, a last-minute addition to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 cap on the fees bank could charge retailers such as Target each time a customer used their debit card there. The bill lowered swipe fees – the fee charged to merchants every time a customer pays with plastic – on debit cards issued by big banks. Whereas before the introduction of the Durbin Amendment, debit-card issuing banks would take a small percentage of that total from retailers whenever a customer would make a purchase with their debit cards, banks are now limited to charging retailers roughly 23 cents per swipe. That particular lowered revenue stream for banks forced them to make up the profit loss in—you guessed it—charging you and I higher fees as the cost of doing business with banks.
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The result is a list of big banks charging higher fees.  Examples include:

1. Bank of America 
• Checking: $25 deposit to open; $8.95 monthly fee unless statements are paperless and deposits/withdrawals are done online or by ATM. 
• Debit Card: Included with all checking accounts (no additional fees). 
2. Wells Fargo 
• Checking: $100 deposit to open; $5 monthly fee unless direct deposit or average balance of $1,500. 
• Debit Card: Included with all checking accounts (no additional fees). 
3. J.P.Morgan Chase 
• Checking: $25 deposit to open; $12 monthly fee unless direct deposit of at least $500, minimum balance of $1,500 or $5,000 average daily balance in linked accounts. 
• Debit Card: Included with all checking accounts (no additional fees). 
4. Citigroup 
• Checking: $0 to open; $10 monthly fee unless balance of at least $1,500 in prior month or one direct deposit and one bill payment each month. 
• Debit Card: Included with all checking accounts (no additional fees). 
5. US Bank 
• Checking: $50 to open; $6.95 monthly fee with online statements or $8.95 with paper statements unless direct deposits of at least $500 or average account balance of $1,500. 
• Debit Card: Included with all checking accounts (no additional fees). 
6. PNC 
 • Checking: $25 to open; no monthly fee. 
• Debit Card: Included with all checking accounts (no additional fees). 
7. TD Bank 
• Checking: $0 to open; $2.99 monthly fee with online statements or $3.99 monthly fee with paper statements. 
• Debit Card: Included with all checking accounts (no additional fees). 
8. Capital One 
• Checking: $50 to open; $8.95 monthly fee unless $300 minimum daily balance or monthly direct deposit of at least $250. 
• Debit Card: Included with all checking accounts (no additional fees). 
9. SunTrust 
• Checking: $100 to open; $7 monthly fee unless minimum balance of $500 or direct deposit. 
• Debit Card: Included with all checking accounts (no additional fees). 
10. BB&T 
• Checking: $50 to open; $10 monthly fee unless direct deposit of at least $100, $1,500 average balance or a mortgage with BB&T. 
• Debit Card: Included with all checking accounts (no additional fees). 

So how can you and I avoid paying higher fees for the cost of banking? First, watch a recent segment (below) from NBC’s “Today Show” for starter for some tips.
video
Second—and in the immortal words of Smokey Robinson—“shop around!” Banks by law must make their account fee schedules available for you. I’ve already provided a partial list of the largest banks and their customer account fees.
Some banks have policies that result in few, if any problems in accessing their information on their checking account fees.  However, there are banks with whom you may have to dig a little deeper than picking up a simple brochure in one of their branch offices (see:  "Banks That Play Hide-the-Fee, And Those That Don't").  Also, consider the following suggestions:

-Consider a credit union.  Credit unions are not-for-profit, and aren't under pressure to nickle and dime their customers to satisfy their stock-holders.  For the most part, their account fees are usually lower than banks, and their overdraft fees tend to be better.
-Bank online.  Big banks typically maintain a physical presences in the form of a building and their branch offices...which cost them money to maintain.  Guess where the cost of maintaining these money houses is shifted?  Online-only banks often have the best terms and conditions. Because some of these banks have no physical branches to maintain, they are able to offer better rewards and charge fewer fees. However, many traditional banks have online-only accounts too. Bank of America’s eBanking account has no minimum balance requirement and waives the monthly fee if you agree to do all your banking via the Internet and ATMs.
-The most obvious--Meet the minimum or average balance requirements. This is easiest way to avoid the monthly fee at banks.  Maintain the minimum balance, and avoid withdrawals which result in lowering the balance below this point, except in emergencies. Shop around for the banks with lower minimums.
-If your one of those individuals who has no problem maintain larger balances, consider depositing your money into an interest checking account. Most banks do not pay interests on accounts unless you are able to maintain the monthly (or daily) minimum.
-Sign up for direct deposit. If you can’t maintain the minimum monthly balance requirement, you may qualify for free checking by authorizing one or two direct deposits to your account each month. If you get a regular paycheck, your employer or sponsoring agency can help you set it up. Like a minimum balance requirement, direct deposit encourages you to keep money in your account, and banks like that. It tells them they can invest your money and use it to make loans, so your account is more likely to be profitable without extra -Avoid overdraft protection. This is one of the biggest rip-offs to banking customers there is. Don't be afraid to ask the banks you're interested in whether they require their customers to have this service (as a result of the Electronic Fund Transfer Act, bank customers must now choose whether or not they want to opt into overdraft protection).  If they don't, by all means consider this bank seriously.  Otherwise, avoid this "protection." The average overdraft fee is $20 to $30 per transaction.
-Look into banks which offer special discounts to college students, seniors, veterans, or other groups. That alone is worth at least four lattes. Chase, for example, offers a checking account especially for college students that works just like their regular Total Checking account, except it will waive the monthly fee for students.

If you find yourself on the verge of being nickled-and-dimed into living paycheck-by-paycheck—the death of a thousand financial paper cuts—you don’t have to settle! If you don’t like the account you have now, or don’t like what you’re paying, by all means change banks! Don’t like the way your bank is treating you? Can’t set up direct deposit or meet the minimum monthly balance requirement? Take a look at what’s available in your neighborhood; your local credit union or community bank may be able to offer you a better deal. I It’s your money, so make sure it works for you.

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