The banking industry’s titans are consolidating, fueling dire predictions that bigger isn’t better–at least for customers.
Turn on your radio and you’ll hear ads poking fun at big banks and their big fees. Dawdle in a bank line, and chances are you’ll find customers lamenting the good old days, when no one bought a toaster–they just took one home by opening a free checking account.
Free checking?
It might run counter to popular opinion, but more than three of every five of the nation’s checking-account customers already say they pay no monthly service fees, according to a Bank Advertising News poll.
That leaves one question begging: “If 60 percent are paying no fees at all, what’s wrong with the other 40 percent?” asked William P. Anderson, who heads Bank Rate Monitor in North Palm Beach, Fla. “The other 40 percent need to get energized and find out how to avoid paying fees.”
You’ll get no argument that it can be an incredible hassle to change banks, especially if you have to reroute direct-deposit paychecks, direct-debit bills, get your spouse’s signature, order new checks, maintain two accounts while checks from the first account clear, memorize new PIN numbers and learn where the new bank’s ATMs are.
But the rewards can be both personal and universal. “It’s all about making capitalism work better,” said Tom Garman, professor of consumer economics at Virginia Tech in Blacksburg, Va. “The informed consumer makes the market work better.”
And Anderson has a more pointed perspective for bank customers who think consumerism and whining are synonymous. “If you’re not willing to spend the time to find the lower-priced product, don’t call your congressman to lower bank prices.”
It would be much simpler if price were the only issue to consider when you shop for a checking account. But it’s not. Here’s how to do it:
– Re-evaluate your habits and needs. Narrow your search by evaluating your banking habits and preferences. Start by tackling quantifiable factors that commonly can trigger fees or discounts with checking accounts: What’s your average monthly balance? What’s the lowest it drops in a month? How many checks do you typically write each month? Can you take advantage of direct deposit? How much do you have on deposit or invested through the bank? How often do you use an ATM? How often do you use another bank’s ATM? How often do you use a debit card instead of a check or credit card?
Then get more abstract: Is it important to get back your canceled checks, or can you accept copies, reductions or simply a statement? Are you comfortable conducting deposits and withdrawals through an ATM? Are there other bank products you need regularly, such as traveler’s checks? Or are you willing to buy them elsewhere?
– Define “service.” There’s a spectrum of service from high touch to high tech. To oversimplify: If you want personal service, focus on community banks or credit unions. If you prefer automation, focus on the big banks.
– Think like a banker and crunch the numbers. There are times when free isn’t really free–especially in a fee-hungry industry like banking. If you slip and use another bank’s ATM, let your balance dip or bounce a check–ka-ching!
Ask the bank for a copy of its fee disclosure and size up whether it’s likely to nickel-and-dime you into poverty. Keep in mind that mergers could change a bank’s fee structure. For instance, Gail K. Hillebrand, senior attorney at Consumers Union in San Francisco, worries what might happen if Bank of America and NationsBank merge as planned. Currently, BofA charges $10 if you bounce a check and $12 if you need to stop payment on one, while NationsBank charges $25 for each in Texas, she said. Will fees rise when NationsBank’s chief executive takes charge of the combined bank?
Given that it’s difficult to project how many fees you’d ring up, at least price the three fees you are most likely to run up, said John Galinger, consumer program director for Cal-PIRG, a Sacramento-based public interest group.
Fees are only part of the equation, however. Also examine the hidden costs. For example, if you prefer an account that requires a minimum balance, consider what you could earn on that money if it weren’t idling at the bank. Keeping a high balance can quickly surpass any monthly fees you’d otherwise pay. For example, say you could duck a monthly service fee by maintaining a $1,500 balance in a checking account that pays no interest. Switch to a no-minimum account and invest that stash in a CD paying 5 percent and you could earn about $6.25 a month.
– Consider the alternatives. That means community banks and credit unions. They don’t have ubiquitous branches and ATMs, but is a huge network vital if you have an ATM near your home or workplace? If price is the deciding factor, many credit unions boast free checking with no strings attached. If you want personal service and can maintain a balance, check out a community bank.
– Line up for direct deposit. Many institutions will waive or reduce the monthly service fee if you use direct deposit. Based on a recent survey, you can save as much as $10 a month, or $120 annually. If your employer doesn’t offer it, pester the boss.
– Never forget it’s buyer beware. Baffling jargon and vague product names confuse comparisons. For instance, you don’t need a passport to incur a “foreign bank” fee; you just have to use another bank’s ATM. If your balance rises and plunges like a roller coaster, a minimum “daily balance” is less forgiving than an “average balance” because you could incur a fee for dipping too low for even a single day.
And who would guess that “check truncation,” “check safekeeping” and “check imaging” mean that your bank will send you only a facsimile of your canceled checks? If you want the actual canceled checks, ask if there’s a fee.
