Explaining Southern California's economy

How will small banks handle Bank Transfer Day?

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An Occupy Wall Street image for Bank Transfer Day.

Even though Bank of America has made the unusual decision to rescind its proposed $5 debit-card fee, apparently bowing to the consumer revolt that this fee provoked, plenty of customers may still move their accounts to credit unions and community banks on Bank Transfer Day this Saturday. Credit unions are launching efforts to promote themselves to prospective depositors; some are also expanding their banking hours.

There's skepticism that customers really will migrate from big banks to small banks en masse; a previous attempt to spur a revolt, promoted by the Huffington Post, didn't have much impact. And even if hundred of thousands of customers make the move, that's unlikely to significantly damage large banks, like BofA, Wells Fargo, and Chase, which have billions in deposits. There would need to be a Bank Transfer Day...pretty much every day to make a difference.


Bullet Points: The utter pointlessness of banking fees

Wells Fargo is about do it. So is Bank of America. Huge financial institutions with billions in deposits are struggling with post-bailout legislation and passing costs on to their customers. People who've gotten used to swiping their debits cards for every imaginable transaction are about to see that service run them as much as $60 a month.

In the New York Times, Ron Lieber and Ann Carrns assess the pros and cons. But when you get right down to it, there basically are no pros. Here's why:

  • Credit unions offer branch deposits. Online banks get dinged for not having a physical place where you can hand over cash or checks to an actual human person. But they don't have a monopoly on old-school, bricks-and-mortar banking. Credit unions also have branch offices — and in many cases are members of networks, so you get a collection of branches that's comparable with the Big Banks.
  • Online banking is easy and technologically sophisticated. ING DIRECT, for example, offers a suite of checking accounts that actually earn interest. That's right, they pay you to hold your money. Setting up an account is a relatively simple process. And because money is pretty much just numbers flying around in the electronic ether, it really shouldn't be a problem to adapt yourself to this no-so-brave new world.
  • There's no risk to not using a Big Bank. Deposits at BofA are FDIC-insured. But so are deposits at online banks. Credit union deposits are also insured, by the National Credit Union Association (NCUA). 
  • Not using a Big Bank may actually be BETTER for the Big Bank. Back in late 2009, Arianna Huffington, along with a group of finance folks, got involved with a project called Move Your Money. The idea was to, in a manner of speaking, take from the rich and give to the poor. With in this case the poor being local banks. The upshot would be an surge in funding to "Main Street" banks, which might enable the kind of small-business lending that the country needs to recovery from the Great Recession. And the Big Banks would in turn be less likely to pose a massive risk to the entire system.


Horrified by new bank fees? There’s always the credit union...


Last week, we posted a link on Facebook to a KPCC story about a hike in debit-card fees by Wells Fargo and asked for comments. What say yee, good folk of the banking-beleaguered Interwebs? Forty-three comments later, the results are in: people hate, hate, hate the idea of a fee of even $3 to use their debit card. 

You can’t blame them. Banks basically invented and marketed debit cards to generate higher profits by compelling customers to embrace electronic transactions. But that was then. Nowadays, big banks are doing whatever they can to restore the profits they’ve lost on credit cards and mortgages. Shareholders are demanding it. New regulations are also forcing banks to take a hit on overdraft fees, which means they need to get their money at the front door, so to speak, rather than the back.

Effectively, the era of big banks competing for business by waiving fees is coming to an end. Before the financial crisis, it was possible, even easy, to find a bank hungry for deposits that would allow you to keep next to nothing in your checking or savings account and still incur no fees. A big change from the good old days, when banks routinely charged fees for services.

Some people feel like they’re stuck with the banks, but as several of our Facebook comments demonstrated, they aren’t. Online banks with no brick-and-mortar operations are still an option, as are credit unions. Both are generally insured by the federal government up to certain limits, so your money is safe.

Another commenter argued (briefly) for a rudimentary financial strategy that actually keeps you off the hook for debit-card fees: Don’t use the debit card. Use a credit card instead and pay off the balance every month. This is savvy. You’re essentially borrowing money at 0 percent if you do this, while allowing your cash to sit in a savings account, earning interest. 

Rates are extremely low right now -- and will stay low for the next few years -- but they will eventually rise, so it’s worth it to see this approach in action. If you getting 1 percent on a savings account at, say, INGDirect, and you spend $500 on food during the month, you can pocket $5 on this piece of little-guy arbitrage. Sounds meager, but if interest rates move back into 4-5 percent territory, you can see some benefits -- $240-$300 per year. Obviously, you want to do this with a no-annual fee credit card. And you want to BE DISCIPLINED! Carrying a balance destroys this strategy, because even if you have a relatively low rate, it’s definitely going to be higher than what you earn on savings. 

Photo: Wikimedia Commons