Here's Where to Put Your Checking and Savings Account Funds
An "important notice" came in the mail from my bank the other day.
They wanted to tell me that I needed to sign up for overdraft coverage -- something I already had. But there were some nasty twists.
If I didn't sign up for it and I went over my checking account balance on my debit card, they'd ding me $35 for each transaction.
Under my present set-up, I had a $1,000 line of credit that would cover any potential overdrafts. If I went over, I'd essentially be borrowing from the line, then paying it off plus interest within a week or so. For the handful of days I took to pay it off it didn't amount to more than a few dollars.
Here's where it gets nasty. My bank tells me that they may "approve everyday debit card transactions for you at our discretion," and charge $34 for each overdraft and returned check under their new plan.
Maybe you've received a similar letter from your bank. It's called "cost shifting." As banks have cut back on lending and tried to clean up their balance sheets, they've been hitting retail customers with new fees.
What about that federal credit card protection act that went into full effect recently?
While banks have to give you plenty of notice of new fees (on credit cards), there's no limit on what they can charge you. They're not restricted as to rate or number of fees.
Debit cards, which used to be these direct conduits to your low-cost checking account, have become productive little profit centers for banks. Some 89% of New York banks surveyed by the New York Public Interest Research Group, charged point-of-sale fees on debit cards. The charges ranged from $0.10 to $1.50 per transaction.
Why would banks charge fees on something that was previously devoid of fees? Because there's nothing in current federal law that prevents them from doing so.
Banks realize that millions of customers have shifted to debit card use and they want to profit from those transactions the same way they nick you for using out-of-network ATMs for withdrawing your own cash!
While hardly surprising, debit card fees are onerous and the last straw as big banks seek to recoup their losses from meltdown.
In the case of my bank -- JPMorgan Chase (JPM) -- it's not as if the bank desperately need to impose these fees. Although I haven't noticed any transaction fees on my debit card statements, the line of credit on my account is certainly not free and I didn't originally ask for it.
To its credit, Chase was actually fairly well managed during the 2008 debacle and returned the $25 billion in Troubled Asset Relief Program funds with interest in the middle of last year. Chase CEO Jamie Dimon said the bank "didn't need" the government's bailout funds.
I'm not singling out Chase, per se. All big banks have constricted their lending and are trying to maximize their revenue now at the expense of consumers.
Still, I know I can get a better deal, and I'm going to search for one.
There are lots of options to banks. One place to look -- and one I haven't explored recently -- is a credit union. These entities aren't banks, didn't buckle during the 2008 crisis, and are owned cooperatively by their customers. Their fees and loan rates also tend to be lower than large banks. (You can find a local credit union by going to www.ncua.org.)
After a neighbor suggested I check out a local credit union, I found some surprising offers: Free online banking, competitive rates on loans, and rebates on out-of-network ATM charges. They even pay up to 3.59% on checking (my current bank pays nothing).
Picking a financial institution that meets your needs can be best accomplished by going through a brief checklist:
Lending. You can shop anywhere on the Internet for a loan or try local credit unions for the best rates.
Checking. If you automate most of your bill paying, you can find free banking services. If you keep a large balance in your account, find interest-bearing programs with no fees.
Savings. Most banks are paying awful annual rates. I'd shop around aggressively. Go to www.bankrate.com. Don't get into long-term certificates of deposit right now. When rates rise -- and they will -- you'll be stuck in a poorly paying vehicle.
The days of doing all your business with one bank in town are over. If you put your bank on notice that you're taking your business elsewhere, that's the best kind of banking reform.
This was my 6/2 Minyanville.com column
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.