Credit unions such as LA Financial, open to any Los Angeles County resident,… (Mark Boster, Los Angeles…)
Thinking of breaking up with your big bank? You're not alone.
Bank of America's recent move to slap customers with a $5 monthly fee to use their debit cards has unleashed a torrent of ill will against the nation's financial giants. Fed up with enriching executives and shareholders, some account holders are vowing to shift their business to smaller banks or neighborhood credit unions.
But before you march down to your branch to close your account, take a deep breath. Switching in haste could cost you if you skip the fine print or don't understand your own financial habits. Friendly teller service doesn't matter if what you really need is a nationwide ATM network. Free checking is fabulous, but not if it comes with a lot of strings.
Breaking up is easy. Finding a financial partnership that's more satisfying could prove trickier. Like any relationship, deciding whether to stay or to go requires some careful thinking.
"You have to do homework. You have to ask questions. It's going to take some time," said Norma Garcia, a senior attorney for Consumers Union. "But it's time worth spending if you wind up with a bank that treats you like you want to be treated."
Know what you've got
It may sound obvious, but first check out your own bank statement or head to your bank's website. A lot of consumers have no idea what they're paying for, according to Rob Kaplan-Sherman, president of the services division at Research Intelligence Group, a Fort Washington, Penn., market research firm.
Pew Charitable Trusts analyzed 265 different checking programs offered by the 10 biggest U.S. banks and found 49 types of fees in all. Those included overdraft-protection charges that averaged $35 per transaction, as well as bounced-check penalties, ATM charges, copying fees and charges to deposit large amounts of coins. At least one bank said it would deduct fees to cover the cost of its expenses in legal disputes — regardless of the outcome.
Most consumers have to worry about only a handful of those. But it's worth printing them out so you can shop around. The most likely things to consider are: monthly account fees, fees for using ATMs, fees for using debit cards and fees for overdraft protection or for covering overdrafts from a linked savings account.
Of course, fees are only part of a banking relationship. Many customers have multiple bank accounts, direct deposit, automatic bill payments and a mortgage or other loans with their institutions.
Multiple services tend to bind consumers to their banks — a term known as "stickiness" — especially if they have set up automatic payments or deposits. It will take some work to undo them at one bank and set them up at another. So be prepared for some hassle.
Consider other things you might need. Maybe it's an auto loan — something that a lot of business-oriented community banks don't provide. Or maybe it's the huge ATM networks available from the major banks. If the latter is important to you, be sure to find out whether the small bank or credit union you're considering belongs to a cooperative ATM network, which could give you access to thousands of fee-free ATMs.
Small institutions pride themselves on personal service. But maybe you do all your banking online, which makes you a candidate for Internet banks.
You'll also want to ask whether the bank plans to start charging for use of its debit cards, which have overtaken checks as the preferred method of accessing money in bank accounts. Following the outcry over BofA's new fee, which kicks in next year, JPMorgan Chase & Co., Citigroup Inc. and some other big banks have said they'll steer clear of that charge for now. But many large institutions haven't made that pledge, so it's worth being vigilant.
"Consumers are tightening their belts," Kaplan-Sherman said. "When they hear that a free tool they have become very dependent on is going to start generating a charge, it raises a question: Should they change their behavior at the bank they have, or change banks?"
Love the one you're with?
Unwinding a banking relationship can be complicated.
Assuming you're not already hopelessly estranged, you might find it easier to stick with your bank and still avoid fees by changing your behavior, Consumers Union's Garcia said.
For example, you might be miffed about Bank of America's upcoming debit-card charge. But you can avoid paying it by not making any debit purchases (use of the bank's ATMs remains free).
BofA is also phasing in an $8.95 monthly charge for basic checking that once was free with direct deposit of paychecks. But you can avoid the fee by depositing $2,000 a month, maintaining a balance totaling $5,000 in linked accounts, or using a linked Bank of America credit card at least once a month. Or, if you're comfortable with making all your deposits and withdrawals over the Internet, via mobile banking or at an ATM, you can opt for BofA's online-only free checking.
Another important consideration is overdraft protection.