Thinking about changing banks? Here’s why most of us won’t do it
Did you ever look at a bank’s website and think to yourself, “Why would they give you free bill pay when they charge for everything else?” Even with the super-restrictive accounts that limit ATM deposits and withdrawals; put holds on most of your checks; and demand monthly fees or regular savings transfers; bill pay is usually offered free.
It’s surely not an inexpensive process from the bank’s perspective; there’s the technology and software required for processing and security and for many payees the bank is eating the printing and postage costs. (If I was a betting woman, I’d put lots of money on the suspicion that, per transaction, bill pay is far more expensive than, say, overdrafts due to debit card transactions, for which banks charge more than $30 per instance.)
Why BofA Thought Debit Fees Would Fly
When Bank of America first announced they would charge fees simply for the use of the debit card (the bank later reversed its decision) it was a calculated risk based on the belief that their large ATM network and, most importantly, their freebies had their hooks in customers.
“They’re hoping that people will throw up their hands and be willing to pay $5 a month to spare themselves the hassle of changing,” said Ron Lieber of the New York Times in an interview on NPR’s Talk of the Nation. The hassle isn’t with changing direct deposit routing and buying new checks and vanity debit cards — it’s more about changing bill pay. “People have gotten used to having their credit card bill paid from their bank account and paying their utilities and maybe there’s a direct connection between the school or a tuition payment plan. And, you know, by the time you’re done, you’ve got 10 or 12 different tentacles into the account, and you start to believe that it’s going to be really complicated to extract yourself.”
It’s Not Just the Hassle: It’s the Love
Did you know you are more likely to be satisfied with your bank — and pay for additional services — if you pay your bills online with your bank’s website? (Those of you who don’t pay bills online, you’ve seen those photos on your bank’s home page of pretty, smiling women sitting at their computer paying bills with an attitude of absolute zen, haven’t you? You know what I mean.) In a survey of 900 Forbes.com newsletter subscribers, of online bank users, those who paid bills online rated their bank as significantly better than those who did not.
In a press release that must have been targeted at product managers and accounting folks at banks, the firm that ran the study crowed, “Data suggests that converting online bankers to online bill paying customers represents the best opportunity for banks and credit unions to increase share of wallet while driving customers toward the most cost-efficient channel for services.”
Then, There is the Lazy Factor
Even though many of us would rather bank with a credit union, an online bank, or a bank like USAA, any of which seem like better choices than Bank of America or another too-big-to-fail-sized bank, it’s just a lot of time and effort. There is, says Lieber, “the perceived pain involved with switching.” And our banks give us enough pain just by being who they are without adding in the considerable time to do paperwork and input all those account numbers, addresses, and phone numbers, again.
That’s why Representative Brad Miller of North Carolina has been pitching what he calls “account number mobility” — the ability to take your account number with you when you change banks (though, presumably, you would have to change routing numbers). More importantly, his “Freedom and Mobility in Consumer Banking Act” would:
“…make it simpler to close accounts, and for 30 days following the closure any direct deposits would have to be transferred to the new bank free of charge. During that period banks would also be obligated to notify customers when a recurring debit occurs. This measure wouldn’t completely remove all the hassles of switching banks, but would protect consumers from unnecessary fees and grief,” he says.
Miller points out that the technology to do this is already in place; when the FDIC takes over failing banks, customer accounts are transferred seamlessly.
It’s Hardest For Those Living Paycheck-to-Paycheck
If you’ve never timed your payment to the mortgage company precisely so that it would be credited to your mortgage account by the due date and not clear your bank account until the following day — when your paycheck was deposited — than good for you! But most Americans have a more tenuous hold on their good credit and the funds in their bank account than that. (I know, many of you are the sort who keep an emergency fund and a personal escrow account and never worry about that at all. But you’re special!)
If you do have your paycheck set up to direct deposit into your account, along with many regular automatic bill pays and debits, and you are regularly running out of money with a few days left in the pay period, it’s near-impossible to get the “float” to switch banks. You’ll want to have a little extra that you can deposit in the new account while you wait for the change in direct deposit to take place; and if you’re also juggling checks and pending debit transactions, it might seem a hopeless mess and certain to trigger nasty overdraft fees from the banks and late fees or NSF fees from the merchants. You’d probably throw your hands up and say, “No way.”
Only the 1% Can Change Banks Easily?
To see how hard it was to change banks and switch bill pay and other automatic debits, the Lieber used a stopwatch. “I had somewhere between 10 and 15 automated payments and direct deposits to various sorts that I needed to change, and it took me a little under two hours,” he told Talk of the Nation. And, of course, there was the float. “Sometimes, they may be taking money out of one account when you think they’re taking money out of another. So you need to leave some money in both places just to allow for that,” he said.
When I was at Wharton, everyone’s favorite finance professor, Franklin Allen, taught us a tongue-in-cheek chorus to his questioning. Professor Allen was (still is, I’m quite sure) adorable when he would call out: “And who doesn’t pay taxes?” We’d reply, 100 good MBA girls and boys, “Rich people!” Rich people also have the benefit of no transaction fees in the Allen finance world. Indeed, it’s the wealthier customers whose accounts never trigger the maintenance fees and the like (and wouldn’t have had to pay debit fees, had Bank of America been stubborn).
The wealthy, who have the float to change banks easily and accountants and personal assistants to make it happen, don’t care as much about changing banks, because they’re being taken care of. And this is what Bank of America and many other large banks have counted on all these years. Until now.
Consumer Anger was a Perfect Storm
Who could have predicted the effects of such a small fee? Especially after my cursory analysis last month showing well over $100 per customer in fees was a pretty common average for large banks. But the timing couldn’t have been worse, right at the beginning of the Occupy Wall Street movement. Suddenly, thousands of people nationwide showed that they were not just willing to put 90 minutes into changing banks; they were willing to put their lives on hold for weeks to camp out and protest bank fees. Then someone invited a few friends to change to a local bank or credit union, and Bank Transfer Day was born.
Early reports were that the Transfer Day was very successful; even before the event, it had enough of an impact to influence Bank of America’s decision to charge those now-infamous debit fees. But the damage was done, not so much to the banks’ reputations, but to the idea that changing banks was odious and hard.
Suddenly, it was a small thing anyone could do to show their beliefs in keeping money local and in the hands of financial institutions organized around service instead of profit alone. It was unforeseen by big banks and could, in the end, make them more reliant than ever on those “rich people” who don’t pay any fees — and, sadly, the families struggling from paycheck to paycheck.
The end may not be a fairytale one for the banks, and many of us have finally found the strength to change our automatic draft to the cable company each month. But, as long as the account portability legislation stays in limbo, the banks will keep the most lucrative customers on both ends of the financial spectrum; at least, that’s what I see in my crystal ball.
Become A Money Boss And Join 15,000 Others
Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)
There are 73 comments to "Thinking about changing banks? Here’s why most of us won’t do it".
I loved hearing that BOA story. I used to work for a credit counseling agency and BOA was incredibly hard to deal with!
I am wondering if you can confirm something for me. I found out a while back that if you have more than 1 account with a bank, they can go into account 1 and take money – if I overdraw on account 2. To make if plainer, if I overdraw on my Cap One Checking account and I don’t pay for a while – then they can go to my 9-year old son’s account (that’s pretty sad!!!) to make up the difference. Some clause somewhere allows them to do that.
Finally confirmed it with a Whitney Bank dude the other day. Do you know anything about that and how far they can reach (surely not investments, IRA’s?).
Hm, that’s new to me. I think most banks offer linking of accounts as a courtesy option (and the opportunity to fee you for a simple transfer). It wouldn’t surprise me if they reserve the right to pursue funds from other accounts if you become very delinquent as you described, but I think most banks offer a long “grace period” to get your account back in good standing.
This will happen with all banks or credit unions. It’s a type of cross collateralization. If your name is on the account, the bank or credit union can take funds from account 2 to correct account 1 or make loan payments if you are past due. They cannot take from retirement accounts since these are protected accounts. If you’re worried your account will make Junior lose their birthday savings, keep Junior’s account somewhere else. And once your children are 18, remove your name from the account. The bank or credit union will take your money to make Junior’s account positive again.
Cana bank go into a business checking account also (i.e. better to get personal account at 1 bank and business at another)?
An Accountant once told me that keeping everything with a Credit Union is a bad idea. Apparantely, all collateral put up for loans through a Credit Union are also subject to this “cross collateralization” that Julia mentioned.
Thus, if you default on a personal loan which has no collateral connected with it and you also have a car loan through them, they can come and repossess your car. Apparantely, Credit Unions are special over banks with regards to this. I’m not certain what it is that allows them to do this, but apparantely, they can.
The Accountant who told me this had a testimonial story about a friend of his who had a personal loan, his house mortgage, his boat, and his car all through the same Credit Union. Some life changing circumstance hit and he was unable to make payments on the loan for which he fell into default. They asked him for the entire remaining amount of the loan which, of course, he was unable to pay so they took his car and boat to make up for it. Well, without a car and boat, he was unable to keep his job and ended up also losing his house to Credit Union as well.
Moral of the story, BEWARE of keeping all your eggs in one basket, ESPECIALLY if the basket is labeled “Credit Union”.
Most of us don’t have that kind of debt, though – maybe a mortgage & a car loan is typical. But that’s the limit of most people’s collateralized debt. Not that many people buy cars.
For us, with our mortgage and no other debts, the credit union is perfect – unlike the original bank we had a mortgage through, who resold the loan and then the new bank switched processors and every time there was a change they managed to mess something up and then act surprised when we called them on it “Oh that extra payment that said principal was for principal? We usually assume those are payments against future interest payments, that’s what most people want.”
That is interesting to know.
Although when I googled this said that real estate isn’t included in cross-collateral:
http://www.flumelaw.com/cross-collateral.asp
If I read this link correctly, with standard loan language a bank can’t take your house if you default on another loan/overdraw an account at the same bank (but that they could do this on your car).
However, the bank can tap other accounts in the other direction – that is, if you default on a home loan, in general a bank can draw from other accounts at the same bank. State laws can differ, but at least in CT the practice seems to be that banks wait until foreclosure, and when (if) there is a deficiency judgement they tap any other accounts then.
Simplest solution: no debt
Next simplest: don’t borrow where you save or have checking
Least simple, but somewhat safe: keep minimal deposit account balances anywhere you borrow
Yeah this happened to me. I’m Treasurer for a club, and shared the club account with the President. He went through a nasty divorce, his ex put his SSN on some tax thing which she then didn’t pay; her account was empty, so they took ours.
Of course I didn’t know any of this at the time, I just knew that Wells Fargo had emptied our account with no notice and no explanation. We were very fortunate to have no checks outstanding.
We switched banks, & got a TIN for our club to avoid future problems. The President reimbursed the club’s money. I’m sure he could have pursued a fraud claim & tried to get the money from his ex, but I doubt it was worth it to him.
I agree completely that the switching costs have risen substantially with online bill pay and direct deposits. But those are also services that have real value. I’m happy to have them for “free” every day even if it means that I have more headaches the few times in my life when I want to change banks.
On switching costs, we need to look at bank fees just like any other thing we pay for. Ask the question “Is the amount I’m paying worth the 2 hours of my time it takes to make a change.” If the answer to that question is “no” then you need to make a switch. If you don’t, you only have yourself to blame for paying high banking fees.
Brian
I just switched banks from Wells Fargo to Ally. I moved to Boston and Wells Fargo doesn’t have any branches in Boston.
The switch was pretty annoying because of stuff like automatic bill pay. I tried doing it over a single month, but that’s because Ally has no minimum to open and I had plenty in savings to start my accounts off with $100 in each of them.
I like to hold two checking accounts (1 for expenses, 1 for discretionary spending) and one savings account. Once I opened the new accounts in Ally, I waited until all my bills were autopayed by my WF account, then I began to transfer money to my Ally account. I left $350 in my old WF account for another few weeks in case any other bills were slow going through. WF also requires a minimum of $300 in a checking account for you to not be charged a fee.
It was an annoying process but pretty smooth. Everything can be done online. The most annoying thing was switching which account my Netflix subscription got charged to. When you set up a debit/credit card with Netflix, Netflix check the account on the card by charging $0.00. Little did I know, Ally rejects any $0 charges automatically. I called both Ally and Netflix who are both aware of the problem, but they do not want to play nice and solve it.
To get around this problem, I have a paypal account that I can use to pay Netflix. The Paypal account automatically draws funds from my Ally account.
I use a credit union, but if I was at a big bank now I would definitely switch. I don’t buy into the “it takes too much time” argument. For me it’s a matter of principle, and I’d be more than willing to take the time to switch for something that would benefit me for many years to come.
With Andy on this one. It becomes about the principle of the thing at some point. That’s why I switched from WaMu years ago, just before they became chase. Switched to a credit union and havent looked back. Vote with your dollars and your feet, I say!
These ‘hassles’ are mostly built up in our heads. In fact, going through an exercise like switching bank accounts, forces you to audit your current architecture. You can eliminate payees you no longer need, links to accounts you might not use anymore. Its an opportunity to streamline and get in touch with your financial house. Yes, it requires a little attention, but taking your expenses off auto-pilot every now and again, can only benefit you.
Totally in agreement. Free bill pay, free checking, free savings, free overdraft protection, free financial advisors, free cooperative ATMs… and probably lots of other free stuff that I get from my credit union and don’t even realize. I can’t imagine ever paying the fees that people pay at banks. They already get to use my money, and they aren’t paying very much for the right.
I’m in the middle of transferring from BoA to a local CU right now. I wasn’t going to get hit by the debit card fee (since I never use my debit card), but I decided my laziness no longer outweighed my annoyance/fury at Too Big to Fail institutions and their lobbying to prevent any meaningful financial reform.
Opening the new account went smoothly, my first direct deposit has gone in, and I’m in full swing transferring my bill pay over before I close my BoA account. I read that BoA re-opens your account and charges you a fee every time something tries to access it, so I need to make sure I leave nothing still pointing at my BoA account.
Overall its been quite painless, and I got a free $25 due to a “switch” promotion being run by my credit union.
Really? We need the government involved in helping people switch banks?
It seems we have more important things to consider as a society than shortening the time someone needs to spend closing their on- line bill payments.
I have mixed feelings about this. On the one hand, I agree with you. On the other, being able to port your mobile phone number has been wonderful. It has opened up the marketplace and allowed greater consumer freedom. That’s a role I don’t necessarily mind government playing.
I have always wondered what the big deal was with switching. The lack of float money makes sense. I am one of those with both an emergency fund and a budgeted amount to cover irregular expenses. This includes keeping $1000 in my checking account “just in case” so I have never needed overdraft protection. I have a friend who is regularly paying overdraft fees so perhaps that is common, but it is crazy! And I am hardly in the 1%. I live with my two kids at about 30% of the median household income in my area. It never made sense to me to pay bank fees when there are many banks who charge none. My bank offers free checking, a cheap safety deposit box, and free on-line bill pay. And truly excellent customer service. I notice that there are many companies that accept credit cards to pay their bill with automatic billing. If you set up all of your bills that way and used only one card, you would only need to change one bill pay if you switched banks. Currently I only have 5 bills I pay on-line and only a couple of them are automatic. It does save me from buying envelopes and stamps, though. And, as I recall, when I opened the account two years ago I also got a $100 bonus.
I don’t get the big deal over switching banks either. It’s easy. And I’m poor (in the bottom 5% of earners, making well under the poverty line)! I’ve had accounts at BofA, HDCU, SunTrust, ING, PayPal, SBSU, and a couple other banks whose names I’ve since forgotten.
Switching is always fast and easy. You just withdraw what you have out of one bank, and stick it in the other bank. If the banks are long-distance, you have them wire the money between banks. It takes a day. Why is this tough?
And yes, I have free checking, and all that jazz. I’d never stand for BofA’s fees. Oh wait, that’s why I switched a LONG time ago. 😀
Annoyingly enough, my credit union has announced (small but irritating) fees for (pretty much) everything starting in January.
I’m not sure what I’m going to do mostly because what’s to say new bank/CU won’t start charging (worse) fees?
Mine too. I’m giving serious thought to moving my money, but I need to take the time to do research and figure out where to move it TO!
The bank has to make it worth your while to switch. Orange just sent me a check in the mail for $25 to open a savings account there. That was sufficient for me to hassle with the work of opening the account.
I recently closed an account at Citibank. The “branch” I went to to close it did not have any cash on hand (WTF?) however the nice woman there instructed me give the bank a call and request to be sent a check for the balance. So I learned that you do not physically have to go in to withdraw and close out your account. Wish I had known that sooner!
When we had our accounts with Bank of America we had problems with bank fees, wrong accounts being debited, and rude customer service representatives to name a few issues. It just motivated us enough to make the switch.
Our personal favorite is ING Direct which we currently use for most of our banking needs. We were a little hesitant at first since it’s an online only bank, but we’ve been extremely pleased with their services. We started a savings account to try it out, but quickly added an Electric Orange checking account with it.
I use US Bank and have for years since they were the only local bank that offered a Health Savings Account at the time. Unfortunately our mortgage was bought by BofA so I have to deal with them. Their customer service has been responsive to my emails, but doesn’t actually do what I’ve asked so far (re-establish a monthly mailed statement since their e-mail alerts do not work).
I don’t get the “lazy factor” especially for lower income people. I wouldn’t hesitate for a second to change banks if mine started imposing fees, even if they were a tiny % of my income. There are plenty of banks that still have free checking.
I haven’t had to switch banks since merger mania in the early 2000’s, but the last time I did, Citizen’s Bank gave me an incredibly hard time when I tried to close my account, asking for all sorts of ID and documentation to prove I was who I claimed to be, and stalled so long that I finally had to call for a manager (which they tried to avoid until I raised my voice so that everyone in the bank could hear me). And I’ve had friends who have had similar experiences with other banks (and with cable and phone companies) – that their customer service is instructed to give people who want to close accounts a very hard time to try and dissuade them from doing so. Can anyone comment as to whether this is still a common practice?
While I know automatic bill pay is loved by many, I prefer the one-time bill payments option and I go straight to the bill-holders’ websites (mortgage, utilities, credit card). It means I have to remember to do this, but it also means they can’t automatically withdraw money from any account. Thus if I needed to switch banks, it’d be a lot easier to do.
I agree with the point about it being much harder for people living paycheck to paycheck to make a switch, simply because they don’t have the cash on hand. (I would note that this doesn’t necessarily mean “low income” – it means those who don’t manage their money well, regardless of how much they make.) Sadly I think the big-box-banks rely on this.
I closed my BOA account about a year and a half ago, and I was worried about this very thing. I really steeled myself up before I went into the branch. But the teller just cut me a check for the balance and sent me on my way. I think she might have asked me for a reason, but there was no hassle at all.
I was a little worried about this too when I went to close my US Bank account. They did ask why I was leaving which was because I had moved away from any of their branches, so there’s not a lot you can argue with there. It was pretty mush hassle-free, but I had already moved most of my money and all my auto-payments to another account a while back.
I would love to bank with a local credit union (it’s the principle of the thing) but the last few credit unions I’ve banked with have had outdated websites with limited features and in some cases, lots of bugs. For those of us who do most of our banking online, this is a big deal.
The last time I had a credit union account, I got so frustrated with the website that I closed my account and opened a new one with a big chain bank. It’s such a relief to be able to check balances and transfer funds on a website that works smoothly. I do have to jump through a few more hoops now to avoid fees, but for me, it’s worth it.
Sharon, do you have a good regional bank option? I’m in the Boston area and use Eastern Bank (which recently acquired Wainwright Bank which I had been using), and I’ve had a very good experience. At least here, regional banks seem to have good websites (and no-monthly-fee checking with direct deposit and decent customer service).
A few years back I put off changing from Wachovia to my CU but after the announcement of new fees I made the move on principle. Plus the CU pays 1.75% apy on my checking after jumping thru a few hoops but I should have been doing this all along.
Plus, I just started charging ALL my purchases on my credit card and paying the balance in full each month. Basically using their money interest free, hey, it all adds up.
I can attest that changing banks is NOT as painful as we perceive it to be. I moved my business from Wachovia/Wells Fargo to a Credit Union. The credit union offers the same services.
I went into it thinking it was going to be a painful process but that was actually all in my head. I found it wasn’t. It was easy. I didn’t add all info into bill pay right away. As they came due, I added them. Since I don’t carry much debt this consisted mainly of utilities but it was easy.
Do not think it will be hard. It isn’t.
Wonderful post, one of the best, most informative, and most through provoking I’ve ever read on this site. Thank you!
Beyond all of these factors, I think there are also people who wouldn’t even notice the fees if not for the publicity. Many people don’t balance their checkbooks or look at online banking. As long as there is money in the account, they don’t give it much thought. It’s scary to think how many fees were/would have been collected without consumers being any the wiser. Just another reason why people MUST look at their accounts.
One of the annoying things about switching is that if you and your spouse have joint accounts then you both have to come in together to close them. I just switched to a credit union, worth it but the process was long and rather painful.
My wife and I switched a couple of months ago when the CU offered us some money for opening a new account. It took time, but I’ve been pretty pleased with the switch. We still have our account at the old bank as a back up, but I’m not sure for how much longer.
Like others have said, you have to vote with your money and your feet. If you do not live your values, then it is going to be incredibly difficult to make change happen in this world.
I use four different banks for checking and saving. One of those is BofA. I keep a really close eye on my statement every month. Just had fees reimbursed for a new savings acct. not properly linked to other accts. Don’t like BofA, but my other half has been with them for over forty years.
I don’t use on-line banking at all. Still write checks, which gives me a couple of days float, except when I pay cc and mortagage at BofA every month. Get float on all the other bills. I have had to wait up to half an hour to talk to a personal banker, but always got what I was requesting.
One bank, Discover, is only on-line. I use it for long-term savings. The third bank is also big box, and I only keep it because of a cc promotion that pays cash back. The fourth is a local state bank that I use for bill paying, and a mm checking acct.
It seems that no one is paying good interest right now; that used to drive my banking choices. Hopefully it will return one day soon!
The last time I ran from a bank, it was WAMU. My husband thought it was going to fail; so I got in too much of a hurry to close those accts. We had just moved to an area that had no WAMU any where near, so I couldn’t physically deal with them. I had ordered some furniture from Canada, and the payment didn’t clear for about three months. It wound up costing me about $1000. Needless to say; that won’t happen again!
So far using four banks is working out well; it has been over three years now.
I’m not sure I agree with you; I dumped our bank when they levied the fees and never looked back. I had been their customer for 20 years. The blog post I wrote (http://www.checkmatesystem.com/?p=572) was my most popular; it was written way before transfer day and by the reactions I received on a message board, I could tell that people were genuinely angry. The banks took a service we have to have and turned it into another tax. I’m not saying they shouldn’t be paid for their services but they’ve gone about it the wrong way for too long.
My husband & I pay the bills online with Bank Gloucester, a local bank, where we’ve done business for 32 yrs. We do not have automatic payments withdrawn; We manage the bills ourselves. If things are tight one month, we put off purchases, delay a charitble contribution or reduce our credit card pmt that month. If we wanted to change banks we wouldn’t have to worry about a float. We also have an acct at a credit union & been there 10 yrs+. We receive 3% int on our checking acct at Bank Gloucester (there are a lot of stipulations) and we never have more than $5-8K in there so we are not rich. People should look at small community banks. Here in Massachusetts, many are giving good interest rates to attract more customers.
More important than the 3% int rate we are getting, are the relationships we’ve built over the years. There were times when we had financial troubles & a small personal loan from the local bank helped us immensely. My father-in-law was a banker & he always encouraged us to build relationships. Even with Bank of America, I’ve found that going into a local branch to get things straightened out for my Mom hasn’t been too painful. I always ask for the same person.
As with most things, we all think it’s going to be a painful process, but it’s really not. I switched from Wells Fargo to a credit union (and I’m someone without too much of a cushion) and I didn’t have any problems. I made sure to find out when the automatic payments would switch over to the new account.
Now instead of me paying a bank, the credit union pays me!
I just dropped ING Direct and switched entirely back to my credit union. Interestingly, my credit union had just switched their bill payer system, so I’d had to update all those *anyway*. I had online billpay available with ING but no scheduled charges.
If anyone wants to know, if you write a check and it gets deposited and cleared for the wrong amount, the Federal Reserve (so I am told) can reprocess the transaction for the proper amount. ING staff was unaware of this, it seems, and repeatedly gave me bad information and did not get back to me, despite calls and emails by both me and my husband. As soon as my last transaction (transfer to my credit union) clears, we’re going 100% to the credit union. I won’t get as good a rate, but the amount of time and frustration I spent with ING is NOT to be supported. .9% and .2% are not worth the hassle.
Many years ago (20) I helped my first boss unravel an incorrectly cashed check. Had to track exactly who had the check (in those days, physical checks often traveled through several banks from writing to final payee) and find the error (took about 4 months), and then get them to issue a correction (another 2 months).
Hopefully it’s not quite as bad today!
Switched banks from Chase to Wells Fargo last year when we moved, since WF bought our mortgage and they had branches closer to us than Chase. We were thankfully in that group that always has a hefty savings account, so we could afford to take our time switching banks. Set up the new one and funded it, left our paycheck direct deposit still going to the old one till the very last payment was switched over, confirmed over the course of 2-3 months. Then we switched over the direct deposit, left the old one open with some funding in it for for another 2 months to make sure there were no surprises, and finally closed it. It was pain-free, and I couldn’t even tell you how long it actually took in actually making the switch since it was done in small increments over several months.
We have never paid a fee to WF for our checking/savings, since we’re meticulous about jumping through all their hoops to waive the monthly fees. Granted, we don’t have any bills we need to pay via bill pay, as everything is automatic.
A banker perspective (Community banker that is).
On average it costs a bank $200-300 annually to maintain a regular consumer checking account; which includes staffing branches, atms, online banking, statements, etc. When you consider that BofA wanted to charge $5 a month for a debit card and about $10 a month in maintence fees, at best they might break even. The real Irroney of the debit card fee deboccal(or a genesis busines move depending on your point of view) and the move your money campaign is that it actually helped BofA’s and the other big banks bottom line. The majority of customers that moved their money were the ones who could pick up easily and did not use a lot of services (i.e. Billpay) or have loans. Those that moved, in reallity, were unprofitable for the big banks and are now equally as unprofitable for the credit unions & local banks they moved too. Many of the credit unions are now facing the delima of having to many deposits, to which they can no lend out fast enough. Afterall, banks & credit unions still make the majority of their income from loans.
That being said, I am a huge beliver in banking locally and keeping your money working in your own community. After all, many of us allready shop & eat locally so why not bank locally too?
Thanks for the numbers, Anthony. It inspired me to try and find numbers for my specific CU.
I went to my credit union’s website and found their financials for the previous month. They claim to have 40,000+ members and listed operating expenses as (1,769,591). So if I divide that by 40,000 then the per member cost of running the bank is $44/month, or $528/year.
But their “TOTAL OPERATING INCOME” was $2,477,143, so it looks to my eye that things are comfortably in the black. Their year to date number averages out to profits that are close to that, so this month isn’t any kind of outlier.
If I’m so unprofitable for the CU, I’m surprised they would offer me/anyone and my referrer/their each $25 for me to join.
But you said, “Many of the credit unions are now facing the delima of having to many deposits, to which they can no lend out fast enough.”
That’s a different issue from profit? Or maybe I just don’t understand what you’re trying to say there.
To answer your question let me first provide some background.
The balance sheet of a bank is confusing because it is backwards from a regular business. Both banks and CU (CU’s are really just nonprofit banks so they don’t pay taxes) take in customer deposits (Liabilities) and turn them into loans (Assets); making a profit on the spread between why they pay for the deposits and the high rate they receive on the loan. The deposits a bank/CU holds are a liability to the bank because they have to pay that money back to the depositor and they compensate them for the use of the deposit in the form of paying interest & providing services. Their loans are Assets because they are owed the money and earn interest/fees on the loans.
The simple explanation of the problem that is facing many credit unions & community banks is their balance sheet is out of whack; they have more deposits (liabilities) and loans (Assets) on their books. In normal times this was not as big of an issue because they could invest the excess deposits (typically in short-term Treasuries) and still make some money. However all the safe investments they can make right now are paying close to or at zero. So now they have excess deposits that they can not turn into loans/invest and they are still having to pay the customer for the use of their money. This is a Negative Arbitrage situation in which they are borrowing money at a higher rate than they can invest it at. The bank/CU has to play the delicate game of balancing their loan-to-deposit ration so they maintain enough liquidity to fund their customers daily need for cash and invest everything else. Historically, banks have aimed to have a 80%+ ratio. (To high of a ratio is bad too because you are then borrowing money from the fed or other banks to fund your loans.) So as the ratio goes down the bank/CU is making less on its spread and has to increase fees or pay less interest on deposits to maintain their profitability; ultimately making them less competitive.
Both banks & CU’s need profit’s to cover loan losses, pay taxes, invest in new technology/services, pay their shareholders (Members for CU’s), etc.
I hope this helps. Anthony
Thanks, very informative. Just one thing I still don’t understand: why the most unprofitable people are the only ones supposedly switching.
Maybe other people know the answer to this too, but why would having your loan with a bank prevent you from switching your checking and/or savings to another bank? I know my BF has his home loan with BoA (because they bought out whoever gave him his original loan), but nothing else. I don’t understand how this ties anyone down.
And how does bill pay make money for banks? Do they get a cut when you pay your bill to someone?
Anthony, thanks for the informed comment.
I had my mortgage with BoA prior to bank transfer day, and as the decision time came on whether to refinance through a different bank or stick with BoA’s offer, I switched.
I was definitely influenced by the public outrage and didn’t want any more to do with BoA. They lost thousands of dollars from my mortgage alone.
I have a checking account with Wells Fargo, and I am wondering what I’m missing–I don’t believe I am being charged any fees. I don’t overdraw or do online bill-pay, and there’s no minimum balance on my account. I do have my paycheck direct deposited. I check my statement pretty regularly and I’ve never seen any fees or charges. Is there something I’m not seeing (as far as fees are concerned)? I know there are ethical issues but that’s another conversation.
If you’re checking and not seeing fees, you probably don’t have any. But it’s worth reading the small-print change notices they send packed in envelopes full of advertising, to watch out for changes.
It’s really a shame that we have all become so apathethic! It’s EXACTLY why the 1% has control now. We would rather let the BOA’s of the world dictate to us just because it’s inconvenient, takes time away from TV watching, we’re lazy (or whatever). Wake up 99%!!!! Pretty soon they will be telling you how much money you can make, what kind of car you are allowed to drive, what you can eat, where you can live and more! The whole bank bailout was just a test to see if we are paying attention and care. Are you? Do we?????
Really, are we reduced to class-ism here?
We’re talking here about taking personal responsibility for our money and the freedom of where we leave it and use it.
If you want to push the point then freedom and responsibility of your money by you is a “Conservative” ideal, not a “Occupooper” ideal.
BOA accomplished what they wanted, getting rid of troublesome customers which saves them much more money in the long run. They will get that money from their current customers (Illegal Aliens included ref:CNN, LA Times) in other ways.
I moved from BoA to a CU five years ago and haven’t looked back. I have proof that they delayed paying some checks and depositing money so they can stack payments to run up my bank fees. I got a notice that I’m part of a class action suit against them.
I now have multiple checking/savings accounts at a CU and more at another bank that is accessible when I travel.
I extensively use online bill pay and push all payments. I minimize the pulled payments and even those go through Paypal.
I think you really have to be unhappy to change banks. The debit issue with Bank of America was a public relations issue more than reality.
This is easy:
Use one credit card to pay bills and rack up points, dollars, miles etc. Use any bank account to pay the card off in 21 days no fees, interest etc…
I switched from BofA to USAA about a month ago and I’ve been very pleased so far. I’d been considering switching banks for some time but was dragging my feet b/c I already had direct deposit and several automatic payments on my BofA account. The switch ended up being easier than I anticipated though there was a 2-3 week period where I had to keep cash in both accounts while payments cleared. I save at least $10-15/month in fees and the customer service is much better at USAA.
I’m not a fan of the big banks, I’ve done some bank switching myself. Still, I don’t understand why people are trying to demonize the big banks. They are in business to make money like all the other businesses. I’m sure they did the math and said, “A customer who doesn’t keep at least X thousand dollars in their account is costing us money.” And then they came up with a fee that would make that account profitable. If the customer pays it, they’ll be happy to keep him, if he doesn’t, they they’ve gotten rid of a customer that was costing them money.
Think about it. Why were the credit unions accepting the “small fry” with open arms? Because they figured they could make money off of them.
While it may not be pretty, this is capitalism at work. The big banks can’t make money doing business with the small fry, but the small banks can. And once all the small fry have moved to the small banks, everybody will be happy. No one will be paying fees, and all the banks, big and small, will be making money.
I’d like to add to it, the employees of all these banks in your town are your neighbors too. The big banks do not bus strangers in from somewhere else every day to man those branches. The managers and tellers live in your community and their salaries come back into the local economy. I have banked with a variety of banks both professionally and personally and I have stayed with one of the big banks because I get great local service backed by the huge resources such as great online bill pay service and access to our money all over the country, When I need face to face service, I am sitting down with our local banker and seeing the same faces at the bank year in and year out when I do need to visit the branch. The smaller local banks are nice, but I find their technology integration isn’t as smooth because they don’t have the same resources at their fingertips. In my case, the technology and access are my primary motivators.
Do what works for you. As with anything, be conscious about your decisions and where you want to invest your time and money. This was a great post because Sarah pointed out that a lack of attentiveness and conscientiousness about what we want out of banking relationship can cost us money in the long run.
Nathan, I agree. Banks, just like any other business, have a right to charge fees and make a profit. And I as the consumer have a right to decide if those fees and services are worth my time and hard-earned money. I’m not “mad” at BofA for charging fees. I just found a bank that charges less, so I switched. Simple.
The prospect of changing banks can feel daunting. My suggestion is to use the same method that helps with any task that feels large and complicated: Don’t think of the task as a whole; instead think of and tackle one small step at a time.
First, open an account at your new bank or credit union. No need yet to close your old account.
Then as each bill comes due, set it up with your new account and pay it from there. The natural spacing of bill due dates will spread out the work of transferring accounts.
Keep the old account open for at least a quarter, to make sure all your obligations have cycled and you’ve set them up with your new account.
After you go a month without having to deal with your old account, shut it down.
You’re done! Yes it may take a few months, but big deal. That’s better than never transferring at all because the task feels too large. Patience!
Thanks for the post.
I use BoA, I am not far past living paycheck to paycheck, and watch my accounts regularly. I have yet to pay any fees. Plus, with the Keep The Change, I actually come out ahead.
So, in short, I pay no fees, plus make a little scratch. Why do I need to change banks again?
How do you make money off of Keep the Change? My understanding is that it’s simply rounding your purchase and moving money accordingly. For example, if you make a $1.50 purchase, it rounds it to $2, takes that much out of checking, and puts 50 cents in a savings account. That’s not making money.
i apologize, I meant they match for the first three months, so no fees plus that match puts me in the positive.
No wonder so many free offers with opening a bank account come with a requirement of making a specific number of online bill payments to get a freebie (I got my iPod Touch after making 3 bill payments a month for 3 months). I only have credit cards linked to my bill pay so it would be hardly a hassle for me, but I can see how costly it could be for someone who links all their bills to one account.
I’ve been writing quite a bit aboutmy recent frustrations with Bank of America. I have joint and linked accounts with two cards and two people, so I need quite a movement to change. But one of my near-term goals is to transition out of BofA. I don’t pay fees, but am frequently annoyed by policies that don’t make any sense (like the one discussed on my posts liked here).
I already use a local bank and a union bank that’s not local, so I didn’t have to change banks.
BUT am I the only one who finds that the recipients of the bills being paid can cause trouble as well as the banks when changes are made? I pay most of my bills automatically on credit cards, and these cards change expiration dates (and sometimes numbers and even banks!) quite often. When this happens, I have to notify the recipients, and there’s often a problem. Once when a credit card changed its expiration date, it took Cablevision 6 months to get it straight.
As Rosana Rosanadana said, it’s always something. But you have to try your best, especially when it’s a moral issue.
Foo on this noise. I changed from BOA to a credit union today and I’m already much happier with my decision.
For alle Americans out there: Banks can be cheaper.
I’m from Germany, and I pay nothing for my bank accounts (yep, more then one).
Most banks here have free accounts, at least if you have a regular income. Transfers cost nothing. Checks aren’t used, even big businesses often don’t accept them anymore.
You can do all your needs with a) real money (thats normal here) or with a debit card, which is also often free for your acount (or at a minimum sum like 10€ a year).
At my online bank I get 1,6% in the normal account if there is regular income.
In the last 3 years I paid 40€ in bank fees total, and 30€ where my fault. And I am not rich. One bank account is always between 50-100€, thats the account from which paypal gets money. As I use it only once per month or so, i manually transfer money from another account. (Paypal can give your bank data to everyone, so they got an extra account that I would otherwise had deleted)
Think why banking is cheap here. Legislature is not the only reason! (but id did help in some cases)
I got great results switching banks by canceling ALL automatic payments, switching direct deposit, paying bills manually as they were due until deposits switched, then setting up automatic payments with the new account. Switching is definitely not a one-day deal for accounts with bill-pay, but it was worth it. For the account without bill-pay, it was easy peasy. Walk into one, close the account, get the cash, walk into the other, deposit, done.
I don’t agree either that “it takes too much time and it’s too complicated to switch.” These days all banks and Credit Unions have switch kits, and corporations also make it easy to switch direct deposit accounts if you are switching banks.
How hard is it to fill out a new direct deposit work form for your paycheck to go to a new account? If you’re an organized person then it’s not hard at all.
How hard is it to sit down and make a list of where your bills are going?
Rent
Food
Utilities
Insurance
Entertainment
etc.
I don’t make a lot of money,I work and go to college as a NON-traditional student, but at the same time, its not hard and I’m not part of the 1%. You just have to be organized. Its not that hard to get organized either.
It doesn’t take an MBA to understand that. Keep it simple.
When I was in over my head with credit card debt I dealt with B of A, Chase and Capital One. What I learned was even though I paid my cards on time I was NOT a valued customer. All of them had there nickel and diming or at some point would attach a paid service that I had not requested. I love that they were so clear on how much they did not appreciate me because it spurred me on to pay off my debt to them faster and close the accounts.
I really wanted to be without a credit card but I did like some of the convenience it held. It took a while and many an interview but I finally found a bank that I trusted. One of the local banks in our town did not take the government bail out money. It also has a credit card that they finance (they use Visa as an instrument) and are not connected to any other big banks. It doesn’t have the ‘great’ rewards that some cards have but I don’t need those kind of rewards.
It did take work and time to get what I wanted and to be honest I didn’t even know if it existed.
There are community banks that are funded by their depositors and small investors. There aren’t many and some may say they are but you need to dig a little deeper to verify that.
When the bank switch day was coming I was so glad I had moved earlier- it’s such a pain!
I use a bill pay method I didn’t see referenced in the comments – it’s called mycheckfree.com. The site sends me emails for each bill I have set up on it, and I go to the site and pay the bills from my checking account. I used it to begin with because my bank charges for bill pay and I wasn’t paying for that, but this service is free to me. I am pretty sure the creditor is paying for it, but I don’t see a specific fee for the service. I have complete control over when, how much, from where, and if a bill is paid. I have been using it about 10 years now, from the recommendation of a friend, and I have had zero problems. It doesn’t have all of the local services, like my water company, but that is literally 2 blocks from the office, so I walk over there once a month. This makes a change in banks not a problem at all, and I have gotten the freedom of bill pay without a permanent draft on my checking account. No business affiliation with them; just a satisfied customer.
I had an account with a big bank (it bought out a local bank) and I was pretty happy with it, with the only bad thing being the ridiculously low interest rate. But all of the BoA hoopla made me investigate other options, and we’ve opened up an account with a credit union that pays us 4% interest. There are a few (simple) hoops to jump through to get it, but going from virtually no interest to 4% was too tempting to resist.
We did not completely close out our other accounts at the big bank though. Should we ever become unhappy with the credit union, it will be easy to switch back. And though so many people have spoken highly of CUs and local banks, I did some extensive research and contacting of financial institutions in the area. Only one local bank had an offer that could tempt me away from our national bank. The local credit union we could have joined never wanted to answer its phone. In the end, we went with a national credit union that does not have a local branch.
For the record, I have changed banks a few times, all based on a fee I didn’t like. I have no issue changing banks like underwear.
I have as many accounts as possible piped through my rewards credit card, get 1% back on bills, and pay off the credit card online each month. I started doing that after I switched banks the first time.
I’m currently going through Charles Schwab bank. Not only is everything fee-free, they reimburse any ATM fees I pay to other banks for money withdrawal.
Going through an internet bank was sort of strange at first, and I was a bit nervous–but other than small inconveniences (not able to deposit cash) it’s not bad.