High Fees? Here's How to Fire Your Bank

Rising fees at big banks have consumers looking for alternatives

Do you feel like it's time to fire your big bank?

If you're among the throngs of consumers who would rather stuff cash in their mattress than pay fees to a bank for the privilege of using their own money — particularly at a time when they're not earning much in interest on their accounts — there are alternatives to doing business with the big banks.

"Vote with your feet," Sen. Dick Durbin (D-Ill.) told customers of Bank of America after the nation's largest account holder said it would tack a $5 monthly fee on debit-card use for customers whose account balances didn't meet certain thresholds. The fee won't apply to ATM transactions. "Get the heck out of that bank," he said. "Find yourself a bank or credit union that won't gouge you."

Bank of America (NYSE: BAC - News) is not the only bank to respond this way to the Durbin Amendment which became law Oct. 1 that forces banks to slash the so-called interchange fees on debit cards. The fee is now 21 cents per transaction, plus 1 cent for fraud prevention and 0.05% of the total transaction. That's down considerably from an average 44 cents per transaction some banks had been charging. Interchange is the fee that retailers must pay banks when you swipe your debit to purchase goods. Some banks have blamed the law change for the need to raise what they now call "Durbin fees" to recover those lost revenues.

SunTrust Banks Inc. (NYSE: STI - News) and Regions Financial Corp. (NYSE: RF - News) already charge $5 and $4 fees, respectively, on certain accounts for using debit cards, while Wells Fargo & Co. (NYSE: WFC - News) and Chase (NYSE: JPM - News) banks are testing $3 monthly fees on certain accounts. This week Citibank (NYSE: C - News) said it would not charge customers to use their debit card but it would hit them with a sliding fee to have a checking account instead, if the accounts didn't exceed $6,000 to $20,000 on a monthly basis or they don't use direct deposit, depending on the type of account.

The outcry from consumers and consumer protection organizations has prompted some to call for a Congressional investigation into the new set of fees. "To pay $20 to access someone else's money is understandable, but paying a fee to access your own money is unbelievable and unacceptable," said John Ulzheimer, president of consumer education at SmartCredit.com.

This also presents an opportunity for online and smaller banks, which see this as a chance to lure customers disillusioned with the big guys and looking for a better deal.

"Consumers should be thinking about what opportunities they have in this situation," said Norma Garcia, manager of the financial services program at Consumers Union, the advocacy division of Consumer Reports. "There are smaller banks and credit unions that are eager for your business and not nickel and diming you like big banks."

Admittedly, it's a pain to move your money, direct deposits and withdrawals, and for many, your entire financial life, from one bank to another. That's part of the reason why the fees are in the monthly $3-$5 range: It's just low enough for you to justify it and budget for it so you don't have to take the time for the banking gymnastics.

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But a number of websites and organizations such as Consumers Union's DefendYourDollars.org or Arianna Huffington's MoveYourMoneyProject.org have been popping up in recent months to guide you through those mazes. And really, it shouldn't take too much time if you've got all your account numbers and debits and credits lined up. On the other hand, the $5 charge will cost you $60 each year.

Where to go is probably the hardest big decision. First figure out how you spend your money, how often you use debit vs. cash and credit, how you pay your bills, deposit your checks and save your money through accounts or certificates of deposits.

Then look for regional, community and online banks and credit unions that will fill the bill. If you're self-sufficient and shy away from visiting a bank, online banking may be your best bet. You can use sites like FindABetterBank.com or OnlineBanks.com to break down what's available.

If you long for the old days of personally knowing your banker, a regional or community bank might be a better choice. "Community banks are certainly open for business," said Viveca Ware, senior vice president of regulatory policy for the Independent Community Banker's Association. Community banks are exempt from the Durbin amendment and usually don't carry the same kinds of loan risks on their books that the big banks do. "They typically offer lower fees than the larger institutions and they're relationship-centric banks," she said. "They thrive on knowing their customers and being responsive to the needs of their customers."

Indeed, those options generally won't cost you as much and in many cases, won't cost you a thing.

"Doing business with a big bank is fine as long as you're comfortable with what you're being charged," Ulzheimer said. Big banks, for example, have branches on what seems to be every corner and a vast system of ATMs. That convenience alone might be worth the $60 annual charge.

But if you're looking to switch, here are some steps gleaned from consumer and banking experts and websites:

• Start small. Open a new account with a small deposit and slowly move your accounts over. "I'm of the school that says you should have a credit-union account even if you don't use it right away just to open that line of communication," SmartCredit's Ulzheimer said. "It's more effective to change accounts leisurely than under the gun when you have to jump through loops to do it in a couple of weeks."

• Make a list of all the automatic payments and deposits scheduled to help you organize and keep track of them as you transition.

• Make the call to your company or fill out the appropriate forms to change the routing on your direct-deposit paycheck to the new account before you start changing payments. Make sure that deposit has worked properly beforehand as well.

• Be sure to keep some money in the old account for at least a month to cover any uncleared or unforeseen debits.

• Consider virtual banks. Some have access both online and offline, though there are no bricks-and-mortar facilities to stop by. The State Farm Bank, for example, offers online and mobile services, such as remote-deposit capture, and trains its local insurance agents to handle your immediate banking issues. "A vast majority of them are bank certified so they are able to offer all of the banking products within their offices," said Andrea O'Connor, customer experience director at State Farm Bank.

• Community banks and credit unions boast of service-oriented attitudes and lower fees. That's because they don't have the same kinds of cost structures or risks on loans that big banks have. Community banks, just like big banks, are insured up to $250,000 by the Federal Deposit Insurance Corp. and must follow federal regulations. Federal credit unions, which aren't taxed in the same manner as banks, have their own insurance through a fund called the National Credit Union Administration. You don't technically "deposit" money in a credit union account, but put in "shares" because you're a "member" of the union. State-chartered credit unions may have NCUA insurance or may be covered by a state insurance plan. Check before you join.

• Look for banks and credit unions that offer the Switch Kit, a five-step program with forms and phone numbers to guide you through the transition that Deluxe Corp., the personal and business checks people, created for banking institutions.

• If you're on the fence about switching, pick up the phone and call your big bank, said Bill Hardekopf, chief executive of LowCards.com. "Ask your bank what fees it's going to assess on you and what you can do to avoid those fees," he said. "If it means not using a debit card, really assess if you need one."

• Remember that there are no guarantees. Just as we thought checking and debit cards would be free forever, don't expect everything smaller banks and credit unions offer will never have a fee attached.

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