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Big Banks Get the Collective Finger

Monday, November 7, 2011 | Ed Pawelec

At least 650,000 Americans have flipped big banks the bird in the month since Bank of America (BAC) proposed a $5.00 debit card fee, according to Credit Union National Association (CUNA).  This compares to an average of roughly 80,000 new Credit Union members per month in 2011.

CUNA reported on November 4 that, since B of A announced the new fee in late September, “credit unions have added $4.5 billion in new savings accounts.”  That data applies only to credit unions, and not smaller community and regional banks which have also seen increasing business. 

You'd better believe the big banks, like Citigroup (C), JP Morgan (JPM), and Wells Fargo (WFC), took notice of the trend.  None of them instituted new debit card fees, and BAC quickly withdrew its proposed fee.

Although they seem to have been stymied on debit card fees, you can be sure that the big banks are searching their collective brains to find a new way to pull some additional cash from the consumer.  (The irony is that consumer deposits and credit are frequently the smallest part of a big bank's business, compared to the rest of their revenue sources.)

As the big banks reported earnings last month, the headlines spoke little of consumers or small businesses.  Instead, we got articles like BofA’s Drop in Trading Revenue Exceeds Citi’s.  This is what your tax dollars are insuring and bailing out: hedge funds, not banks.

Believe me, it's easy enough to rant about that, but I’d rather focus on something more useful.  To quote Costas, “The point here is that you must take control of planning for your future now.”  And choosing the right bank or credit union for your needs is one of your means of taking control.

The History

The recent focus on credit unions has evolved from a grassroots movement with the facebook page Bank Transfer Day.  The goal was to have a mass movement of funds from large banks to credit unions by November 5.  I think that the arbitrary date confused some people, since you can do this at any time, but it did get the masses moving in the right direction.

27 year old Kristen Christian is credited with getting the movement going, but it had its origins during the heat of the financial crisis, when the Move Your Money Project kicked off.  That is a good place to start a search for a new financial institution, since it includes both credit unions and community banks.

Now don’t get me wrong, I would not move my money to a different bank just for the sake of “punishing” the big banks.  But you’re doing yourself a disservice if you don’t at least take a look around. 

I was recently looking for a home equity line of credit (HELOC), and after checking around my local banks and the larger banks, I found the best deal at Citizens Bank.  It’s not a credit union, and it’s not a recommendation.  About an hour on a Saturday led me to find the best deal for my needs, and it is saving me a few hundred bucks a month.  It’s all part of managing your money.

The Cons

First of all I want to be crystal clear on something: you don’t walk into your local credit union or bank, as some people undoubtedly did on November 5th, and just switch all your money to the new institution. 

The fact that it takes more than the flip the switch to move your money from one bank to another is people’s primary objection, but it’s really not that hard. 

There will be some paperwork to sign just to get an account opened.  Depending on the type of account, or if you have multiple accounts, this could take anywhere from an hour to a few days.  Once you have a new account, you can begin transferring your business.

This brings up a second common objection: you have to manage two accounts.  You should definitely be aware of any direct deposit or direct bill pay that you have set up with the account that you are closing.  Since you may need a month to close all your old accounts and open new ones, you may need to pay you a month’s worth of bills with a good old fashioned check.

The final and biggest objection is that there is a lack of convenience due to fewer branches and ATMs.  There’s no question that many smaller banks and credit unions lack a significant branch presence, but most people seldom if ever actually enter a branch. 

The lack of ATM can be relevant depending on the bank or credit union.  Credit unions in particular are likely to form agreements with other credit unions for no fee transactions, or reimburse fees charged by banks to members.  Credit union members essentially own their financial institution, and the unions are organized as nonprofit.

The Pros

In my opinion, the biggest pro is the fact that you can save some money on loans and fees, or earn a little more on your savings, making a lot of the objections moot.  If you approach the process with a little patience and the expectation that a complete transition might take about a month, most of the inconveniences can be resolved.

If you’re looking to transfer primary checking and savings accounts, then you definitely want to compare services like electronic bill pay.  You also want to be certain of the ATM policies at the new institution.  But that is all part of the shopping process.

The bottom line is that you may be perfectly happy with the bank with a credit union that you have, but you should compare, because it is your money.  A little shopping, which can be done in a couple of hours, may yield a few hundred dollars in cost savings or higher interest rates on deposits. 

Once you find a potential bank, I recommend visiting your local branch, because this is about developing a relationship.  Most small banks rely on local transactions and are actually interested in meeting you -- if not, that bank is a good one to cross off your list.

Although Bank Transfer Day has passed, it got me thinking, and I hope you're thinking about it now, too.  It’s never too late to start getting a little more out of your hard earned cash.

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Ed Pawelec
Contributing Editor
Price Shock Trader
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