Beating Broke

Personal Finance from the Broke Perspective

Choosing Your Next Bank

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In the last five years or so, the banking industry has seen some major changes.  Interest rates have plummeted. We’ve had at least one recession, and a recovery of sorts.  The stock market has dropped like a rock and soared like an eagle.  We’ve also seen the rise of online banks become a new-fangled curiosity to something that most of us accept as a standard.

Online banks have made it normal to have services like bill-pay, electronic deposit, and easy to use online account management.  They’ve also put the pressure on traditional brick and mortar institutions to revamp their services, lower their fees, and offer more for their users.  But, they’ve also made it more difficult to decide on a bank.  No longer do we just pick the best one of a handful in our town, or the one that mom and dad used to use.  They’ve increased our selection, and made the decision a tad bit more difficult.  So, how do we go about selecting our next bank?

Bank Location

Choosing Your Next BankEven in our super digital world, where our physical locations are becoming less and less likely to matter, the location of your bank might make a difference to you.  You might like the ability to walk into a branch of your bank and make a deposit, or talk to someone face to face.  You might just like the security of knowing that you have that ability should you really need it.

When you’re choosing your next bank, you really need to decide if having a local branch available to you is something that is important, or if it’s just something that might be nice.  If it’s important, you’ll want to take most of the online banks off the list of eligible institutions right away.  If it just might be nice, you can leave them on the list.

Bank Fees

There’s been a lot of talk about bank fees, hidden fees, and transaction fees lately.  After the most recent housing market crash, and the new legislation on credit card transaction fees, many banks are trying to find new innovative ways of recouping the costs.  They’re getting creative with their fees, and their fee structures.  It should go without saying that you can have the best bank in the world, with all the shiny services, but if they’re adding on fees all over the place, they just aren’t that great.

When you’re choosing your next bank, take a close look at their fees and fees structure.  Does their checking/savings account have a monthly fee if you’re inactive?  Does it have other monthly fees for services?  Are the fees they have significantly higher than what other institutions charge?  Fees that you don’t, or won’t, end up being charged might not seem all that important, but they can be an indicator of the future of the institutions fee structure.  Be sure to make note of, or cross off entirely, any bank that has a difficult to understand fee schedule, or higher than average fees.

Bank Services

Here’s where you can usually weed the really bad ones out.  Maybe they have all the right locations, a huge ATM network, and better than average fees.  All of that will be somewhat useless if they don’t have all the services that you want.  Find out what services they offer.

When choosing your next bank, be sure to check to make sure what services they offer.  Make a list of services that you must have.  Bill-Pay would be top of that list for me.  If it’s an online bank, having some way of depositing checks electronically through an app on your phone might be high up on the list.  Does their debit card offer cash back?  Do they offer any rewards?  What other perks does the account have?  What perks would you like it to have?  The truly analytically minded out there, like me, might just choose to use a spreadsheet to tick off what each candidate has, and use it to compare.

There are plenty of choices out there.  Decide on what it is that you want in a bank, and then go about finding one that offers it all.  Chances are that you’ll find it.  For me, I’m still using the Capital One 360 (used to be ING Direct) account I opened up years ago.  I like that it’s easy to use, super simple to create sub accounts for categorization, and has very few fees.  I’m also a fan of Ally bank, but their login process seems to lock me out about every third or fourth time I try and login.  That’s not very convenient for me. 🙁  But, their rates are usually up there with the highest and their customer service is top notch.  If you’re better at remembering your password than I am, they’re a good option as well.  I’ve also heard good things about Perkstreet (2% cash back debit), and USAA, but haven’t used either to verify.

Here are some banks offering some great rates for online savings (rates are accurate as of 9/23/2013):

  • Capital One 360 — 0.75% APY — Apply Now
  • AMEX — 0.85% APY — Apply Now
  • Ally — 0.84% APY — Apply Now

I know there are plenty of other options that others rave about all the time. What is your favorite bank?  What qualifications do you look for in a bank?

This post was first published in June 2013, but is being republished today, with updates (Perkstreet is closing, and rates updates)

 

Back to a Cash Economy?

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With the recent increase in new fees at banks, and the backlash it has caused, people are starting to determine what the alternatives are.  At the moment, there are still banks and credit unions that are maintaining their current fee structure without adding anything new.  Many of those are also maintaining their “free” accounts.  But, if the Durbin Amendment remains, it may be only a matter of time before they buckle under the costs and start removing “free” accounts and adding fees.

What then?  It that happens, we might see a financial world where all debit cards have a monthly fee.  We might see more annual fees on credit cards, and higher interest on credit cards.  We might see more and more checking and savings accounts having a minimum deposit amount and/or a monthly fee.

Use Cash OnlyAs a card-carrying member of the NGPAF (Not Gonna Pay Any Fees) club, that might just make me decide that I don’t want to use any of their services anymore.  My depository institution might just have to become the coffee can in my backyard.  Seriously, though.  If all of those services become services with fees, we might see a pretty drastic increase in the usage of cash again.  Many of us don’t use cash all that much.  I know I don’t.

And what happens if we return to a cash economy?  The banks get even less transaction fees.  Their income drops because of it.  And we all see what happens when their bottom line is threatened.  More fees.  It could send the banking industry into a never ending spiral of more and more fees until the only people who still use banks are the ones who don’t feel comfortable keeping thousands of dollars in a coffee can in the backyard.

Luckily for me, I belong to a credit union that isn’t likely to add any additional fees anytime soon.  What about you?  Do you belong to a Credit Union or Bank that hasn’t added fees recently?  What if they did?  How long do you think it will be before we have to choose to either pay fees or carry cash?

photo credit: flattop341

Are Banks Getting a Bad Rap?

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As I was traveling to the Financial Blogger Conference a few weeks ago, all the news was talking about how Citi had announced that they would be charging more fees on debit cards.  In fact, there have been quite a few banks that have announced an increase in fees over the last few weeks and months.  There are very few that have free products like free checking or free savings anymore. All told, there’s a lot of anger aimed at the banks right now.  But, is it all their fault?  Or, are they getting a bad rap? Let’s examine where all of this fee increase stuff is coming from.

Durbin Amendment of the Dodd-Frank Wall Street Reform Bill

The Dodd-Frank bill did quite a bit, but the bit we want to look at is the Durbin amendment.  The Durbin amendment was an amendment added with the intention of creating some competition in debit card processing fees.  Specifically, it’s goal was to “To ensure that the fees that small businesses and other entities are charged for accepting debit cards are reasonable and proportional to the costs incurred, and to limit payment card networks from imposing anti-competitive restrictions on small businesses and other entities that accept payment cards.”

Which doesn’t really explain it all that much.  I’ll try, but no guarantees that you’ll be any less confused. (NerdWallet does a really great job of explaining it, actually.) When a credit card/debit card is used as a payment, it gets swiped through a reader.  The reader reads the data, and then sends the data along with the purchase data to a card processor.  The card processor then routes the data and purchase data to the institution that holds the account the card is attached to.  So, a Ally bank’s card and transaction would get routed to Ally bank.  The institution accepts or declines the transaction and sends that back to the card processor.  The card processor sends that on to the merchant.  For it’s (necessary) work as the middleman, the card processor charges an interchange fee.  Basically, a fee for all the routing it did.  The Durbin amendment put a cap on how much that fee could be.  The end result is that some of the larger card processors have to charge larger fees.  Fees that are paid by the banks.  The banks had two options.  They could charge the merchant a larger fee to make up for it, or they could start charging fees to the user (that’s you) and cease many of the “free” programs that were previously supported by the profit margin they were making on the cards.
The U.S. Capitol
If they had passed all of the larger fees on to the merchant, many merchants would have likely stopped taking their cards.  So, believing that the majority of users would lay down and take the extra fees and loss of “free” accounts, they passed the added fees on to the user.  Again, that means you.  What they didn’t count on was the size of the backlash they would get from the added fees.  An educated user base, that has direct access to so many public outlets like social media, is making far more out of the situation than they ever thought would happen.

Does it really mean anything?

Here’s the funny part.  (not really)  There will be a small percentage of users who will move their business to Credit Unions and online banks who are absorbing the added costs and keeping their “free” accounts without adding any additional fees.  But, the majority of users will pay the fee, complain about it, but, ultimately, do nothing.  The new fees will become normal after a year or so, and things will continue on like they were before.  Just with less “free” accounts and more fees.

You should be mad as hell!

But, not at the banks.  They are merely doing what makes the most business sense to them and trying to maintain their profit margin.  Credit Unions don’t work on a profit margin because they are not-for-profit businesses.  Online banks have a higher profit margin due to not having any physical buildings and fewer staff.  The people we should be mad at are our representatives in Washington.  There’s a bill about to be introduced in the House of Representatives that aims to repeal the Durbin Amendment.  If you feel strongly enough against the fees, you should send your state’s representatives (house and senate) a note (or make a call, email, whatever) and tell them you support the repealing of the Durbin Amendment.

Whatever you do, don’t just lay down and take the fees.  Call, email, or write your representative.  And, in the mean time, find a Bank or Credit Union that isn’t passing the added costs on to their users.  Open an account at one of them and move your business.  My personal favorites are ING Direct, Ally, and PerkStreet,  but a local Credit Union would be great too.

photo credit: kevin dooley