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OAKLAND, CA - OCTOBER 13: A man walks his dog in front of a Chase bank office on October 13, 2011 in Oakland, California.
Controversial stuff from Bloomberg this morning about how banks are thoroughly unexcited about bread-and-butter customers who have less than $100,000 in deposits:
JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets, said about 70 percent of customers with less than $100,000 in deposits and investments will be unprofitable following regulations that cap lenders’ fees.
“I’m trying to give you a proxy for what the banking industry has to look forward to if you don’t take into account business bank clients and getting more of the affluent wealth wallet,” Todd Maclin, chief executive officer of consumer and business banking at the New York-based company, said today at an investor presentation.
The biggest U.S. banks are grappling with lost revenue from regulations such as those that cap debit interchange fees and overdraft charges, making customers with low deposits more expensive for lenders to manage. JPMorgan, run by CEO Jamie Dimon, sees its greatest opportunity with affluent customers that have more banking relationships with the company, Maclin said.
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.
A month ago, I blogged about how Wells Fargo was preparing to increase debit card fees. We had asked for opinions via KPCC's Facebook page and gotten back…a reaction that was almost uniformly unhappy about Wells Fargo's move.
Now Bank of America has followed suit. The consensus among observers of the banking business is that the practice is now here to say, after more than a decade of banks discounting their services or getting rid of fees altogether. I'm one of those people who's never paid a fee to use a debit card. And I use it for nearly every purchase I make.
But I don't bank with BofA, or Wells Fargo. I belong to credit union. Back in August, when we asked Facebook nation what it thought about Wells Fargo, the credit union option was repeatedly suggested. This time around, when I tweeted out my old post and made the credit union point, I received pretty positive feedback.
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