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Is your bank robbing you blind?

Mergers, acquisitions, higher fees and reduced services are banking's new trend. But does this mean financial disaster for consumers?

For the past few years, banks have been in a feeding frenzy. Sharks have swallowed minnows, only to be devoured in turn by whales. From 1985 to the first quarter of this year, the number of banks in the U.S. has fallen from 14,417 to 9,841, according to the Federal Deposit Insurance Corp. This merger trend is expected to continue into the near future.

Fewer banks mean less competition and higher fees. Customers, who used to be charged flat fees, are now being nickel-and-aimed for individual services. "Many banks are now putting prices on specific services that came without charges in the past," says Steve Rhoades, an economist with the Federal Reserve Board in Washington, D.C.

Hardest hit in this frenzy has been the checking account. There are monthly fees, per-check charges, fees for using automated teller machines--or not using your ATM card often enough--and fees for not maintaining a minimum balance. Then, add on annual credit card fees, monthly charges for debit cards, maintenance fees for inactive savings accounts and even fees to see a teller! The result is a bonanza for banks and a boondoggle for customers.

Reportedly, the number of service fees has grown from 96 to 250 over the past four years. Bankers attend seminars and subscribe to specialized newsletters just to keep up with the latest ways of squeezing all the juice out of your orange, $1 or $2 at a time.

What's more, these fees are by no means uniform throughout the industry--or even from one side of town to the other. There may be huge discrepancies in the fees charged by one bank versus another. Last March, Consumer Reports found they can vary by $40 a month between the lowest- and highest-cost bank accounts.

Despite this huge price differential, few consumers adroitly skip from one bank to another in search of better deals. "There's a surprising amount of inertia when it comes to banking," says Rhoades. "People may go from one store to another in order to save $50 on a television set, but they won't make any effort to cut the bank charges they incur every month."

As banks jockey for position, how can you protect your hard-earned dollars while making sure your financial needs are met? Fortunately, shopping for a bank is no different than department store shopping. With surprisingly little time and effort, you can get the lowest bank fees around with no sacrifice in the services you need.


Begin by looking at your bank statements for the past few months. Read them over carefully to see which fees have been charged to your account. (According to Smart Money, 30% of bank customers fail to read their monthly statements.) That's the best way to find out exactly how much you're now paying to use your bank.

Closely monitor your statements so you can pick out the fees that you weren't even aware of, suggests Gail Liberman, editor of Bank Rate Monitor. "Federal law requires nothing more than a notice on your monthly statement when your bank adds or increases a fee," she notes.

Today, with banks cutting back on tellers and customer service reps, it's up to you to keep track of all the costs to maintain your bank account. Be especially vigilant in August and December: Many new fees are added then since banks have discovered that customers making vacation plans won't even bother to open their monthly statements in those months.

When you calculate the expenses involved in banking, don't forget to include "opportunity costs." Say your bank requires you to keep a minimum balance of $5,000 to get free checking, which earns 1 1/2% (about the national average). You could, however, hold that $5,000 in Treasury bills, now yielding around 5%. Thus, your "opportunity cost" is $175 per year--3 1/2% of $5,000--added on top of whatever bank fees you're paying.


The first place to look for a better deal is at the bank you already use. "Make sure you have the best account your bank has to offer," says Virginia Stafford, director of public relations for the American Bankers Association. "Many banks have added new products in the past year or two. You may not be aware of what's available." For example, you may have a hefty sum deposited in an IRA at your bank but not be aware that this account will help you qualify for a free interest-bearing checking account. By linking the accounts, you'll be saving checking account costs while earning interest.

After you know the situation at your own bank, you can do some comparison shopping. Select a few other banks in your area and ask what they charge for various services (see chart for a list of common charges). Moreover, you don't have to limit your search to the megabanks that take out full-page newspaper ads. Other competitors worth considering include:

Newcomers. "A bank just coming into an area has to do something to lure customers," says Liberman. "Often, they compete for business by offering lower fees or special services." Meanwhile, a new federal branching and banking law has been created to encourage banks to expand into new territories, according to Joseph Anthony Romero III, the D.C. superintendent of Banking and Financial Institutions.

Employers' banks. Your employer may have worked out an attractive arrangement with its bank to provide company employees with special privileges. For example, if you agree to have your check directly deposited, you might get no-fee checking or some other benefit from your company, says Michael Moebs, chairman of Moebs Services, a Lake Bluff, Illinois, firm that provides information on bank fees to the Federal Reserve Board. Check out banks and credit unions where you or your spouse work as well as ones where you live, advises Moebs.

Small Banks. In many cases, says Liberman, the larger banks, which raise prices and expand their range of services subject to fees, are the price leaders. Smaller banks, which often have lower overhead, charge fewer and lower fees. "Community banks may offer more personal services as well as lower fees," says Venerable F. Booker, president, CEO and chairman of the board of American State Bank, a black-owned bank in Portland, Oregon. "At our bank, we know our customers by name. I even sit out where I can see what's going on."

Credit unions. These nonprofit organizations frequently offer lower costs as well as higher yields on savings accounts. Traditionally, membership in credit unions has been limited to specific groups such as union members or government employees. Recently, however, membership has become more broad-based, so there's a good chance you'll find a credit union available--if you wish to join--perhaps through a relative, church or professional association. Call the National Credit Union Administration at 703-518-6300.

Savings & Loans. Despite all the negative publicity, S&Ls still exist, and many are in excellent financial condition. "Because they entered the checking account field late, they may offer appealing terms to attract customers," says Liberman.

Asset management accounts. If you deal regularly with a particular brokerage firm, consider setting up an AMA as a supplement to, or even a replacement for, a traditional bank account. Most major brokerage firms, even discounters, have AMAs that offer check writing privileges and ATM access. The big plus is that your idle cash is likely to earn more than it would on an interest-bearing bank account--and that money can be easily moved into potential wealth-building investments. On the downside: you have to maintain a minimum balance--typically $5,000 or more--and ATM transaction fees are often steep.


Naturally, you can't spend your life chasing every bank, credit union and S&L in town. You can, however, choose five or six institutions to investigate. Then, a series of phone calls can elicit the information you need to make the best decision. Here are some of the questions you should ask:

* What is the minimum amount a customer must keep on account to qualify for a no-fee or interest-bearing checking account? Most banks offer a no-fee account with unlimited check writing privileges if you agree to keep at least $550 in your checking account or a combined balance of at least $2,500 in your checking and savings accounts, notes Brian Richards, vice president of business development for U.S. Datatron Inc., a Palm Beach Gardens, Florida, market research firm.

* What is the monthly charge for a basic checking account?

* Do you impose transaction fees? Per check or per ATM transaction?

* What interest rates are you now paying for six-month certificates of deposit? One-year CDs?

* How much do you charge for over drawn checks? Do you offer overdraft protection?

* Do you offer credit cards? What is the annual fee? What interest rate is charged on unpaid balances?

You probably won't spend more than an hour on the phone. Write down all the responses, then compare them to see which banks offer the best terms.


You should tailor your questions and your evaluation to your particular circumstances. If you never use ATM machines, for example, the ATM fees a bank charges won't be meaningful. If you expect to be buying a car soon, you might want to add a question about auto loans to your list.

Some questions may need follow up or further details. Banks often charge different fees for "foreign" ATMs, meaning those owned by other banks or networks--a practice becoming much more prevalent. What's more, the imposition of ATM fees may depend on whether or not you keep a minimum deposit at the bank. And even then, you still may be charged for using another bank's ATM if your bank has to pay that bank a fee!

This summer, the Boston-based Organization for a New Equality (ONE) issued a report focusing on ATM charges by New York City banks. It found that Chase Manhattan Bank (now merged with Chemical Bank) at that time (early July) charged 75 cents per transaction for customers using Chase ATMs and $1.50 for those using foreign machines. ONE reported these charges are far higher than those charged by other banks in the area, including rival Citibank, which charges nothing for customers on the network and $1 for transactions at outside ATMs. "Chase now charges its customers one of the highest rates in the nation and in the New York area for the use of ATMs," says the Rev. Charles R. Stith, ONE national president.

On the other hand, Chase insists that fewer than half of its customers pay any charges at all for using ATMs. Chase customers who maintain certain minimum balances and those who have other special accounts are able to avoid ATM fees, according to a bank spokesperson. (Chase recently announced a new deposit product line intended to save on customer fees.) Therefore, you better find out when you are charged for using an ATM. Some banks won't charge a fee if you keep $2,000 with them while others may require as much as $4,000 or 55,000," says Liam Carmody, president of Carmody & Bloom Inc., a Ridgewood, New Jersey, consulting firm.


Even after you have all the information on fees and costs, you shouldn't make a banking decision based on numbers alone. "Everybody doesn't buy the cheapest car or the cheapest television set. You may find that a bank offers something that makes the higher fees worthwhile," explains Stafford.

Certainly, convenience counts. A well-located branch with ample parking has some value. Or, you may want a bank with widely available ATMs. Telephone or computer banking can be another timesaver, if available. You might also prefer a bank that offers mortgages, retirement plans, mutual funds and other financial products.

But before moving your funds, investigate how a new bank would handle your money. "Find out what's the bank's policy when it comes to releasing your funds," suggests Carmody. "A bank may insist you wait for two to three days after depositing a check before you can use that money. For some people that may not be a major concern, but for others it's vital to have faster access to their paychecks."

Perhaps most important, you should feel comfortable with the people at the bank. "Get acquainted with your banker," says Booker. "Tell him or her your financial concerns. You'll be surprised how helpful your banker can be." You may also prefer a bank where you can stand in line for a reasonable time and deal "in person" with a teller rather than with a faceless ATM machine. All of these elements should be factored into your decision.


You might find that bank merger activity is not merely something you read about in the newspaper: your bank may be a player, either as an acquirer or an acquiree. If that happens, expect the resulting larger bank to boost fees paid by customers.

"Don't wait passively to see what the outcome will be," says Louis E. Prezeau, president and CEO of City National Bank of New Jersey (No. 12 on the BE FINANCIAL 25 list). Go to your branch manager right away and ask what will happen. Will this branch be closed? Will new management be brought in? If there'll be a new manager, arrange a meeting as soon as possible to find out what new services and fees are being planned for customers."

You may decide to stay with your old bank or start looking for a new one. The sooner you act, the greater your chances of getting the most bank services at the least cost. That's true regardless of whether or not your bank is involved in a merger. The more assertive you are in seeking the best banking values, the greater your chances of getting more for your money.
COPYRIGHT 1996 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1996, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:B.E. Management Special; includes a related article on small business and bank services
Author:Korn, Donald J.
Publication:Black Enterprise
Date:Oct 1, 1996
Previous Article:Mutual fund mania: B.E. showcases five of the hottest mutual fund managers who share their investment strategies.
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