Personal Business: Banking
GETTING SOAKED BY SOARING BANK FEES?
Not so long ago, banks gave away color TVs to entice depositors to open accounts. Now, you practically have to offer the bank an incentive to take your money. Despite record earnings, banks keep cranking up fees on accounts and depositor services. In addition to the old standbys, such as increasing charges for money orders or requiring higher minimums for no-fee checking, some institutions have devised creative new ways to build fee income--from charging customers for talking to a live representative to passing on part of the cost of protection provided by the Federal Deposit Insurance Corp. (FDIC).
Bank fees have been moving up sharply for the past few years. The cost of an average account rose from $155.30 in 1990 to $184.16 in 1993, according to a study issued this summer by the Consumer Federation of America and the U.S. Public Interest Research Group (USPIRG). The 18.5% increase was nearly twice the rate of inflation.
WIDE RANGE. Banks raised fees even though their profits soared 79%, to $32.2 billion, in 1992 over 1991. Meanwhile, the average annual interest they paid on accounts fell 63%, to less than 3%. According to the study, California, District of Columbia, Florida, New York, and Texas have the highest fees. States with the lowest include North Carolina, Oregon, Vermont, Virginia, and Washington.
At the high end is $27.50 for a bounced check or stop payment--almost $10 above the national average--at First Union National Bank of Florida and Barnett Bank of Tallahassee. Fleet Bank in New England and Barnett Bank charge $3 and $5, respectively, to transfer funds automatically from your savings account to cover a checking overdraft. Most banks now routinely assess customers for using "foreign" automated teller machines (those not owned by the bank). They take in about $1 per transaction, but San Francisco's Wells Fargo charges up to $3, depending on how much you withdraw.
Then, there are inventive new levies: You have to pay $2 for calling a human at First Chicago if your question or transaction could have been handled by its Bank-By-Phone service instead. At San Francisco-based Wells Fargo, the first three calls in a statement period to the 24-hour customer-service line are free; after that, each inquiry put to an agent costs $1.50; to a machine, 50 . "Employing a human being costs more than using some automated equipment," explains Wells Fargo spokesperson Lorna Dubet. "Our pricing decisions reflect the value the customer receives from the service."
"MORE HONEST"? And some banks--primarily in the Southeast--are making customers help underwrite the cost of FDIC insurance. First Tennessee in Memphis and AmSouth in Birmingham, Ala., charge 11 a year per every $100 to go toward FDIC insurance. So a $1,000 deposit would cost 10 a month; $100,000 would cost about $9 a month. "To us, this was more honest and up-front than raising monthly service fees," says Anna Grehan, First Tennessee's marketing vice-president. "The customer only has to pay his share."
More depositors are also shelling out for the privilege of getting canceled checks returned with their bank statements (about $2), closing an account within a certain period of time ($10-$25), or letting an account lie dormant (up to $12.50 a month). And many banks won't pay uncredited interest if you decide to close your account in the middle of an interest cycle.
The best antidote to most of these fees is to keep a minimum balance--usually $1,500 to $5,000--on deposit. If you can't afford to leave that much on hold, you're out of luck. "Fees are waived for Mrs. Gotrocks, while the less affluent person gets hit," says Robert Heady, publisher of The Bank Rate Monitor.
Consumer advocates are pushing legislation to control bank fees. Some states, such as New Jersey, already require banks to offer at least one kind of account with basic services at cost. Meanwhile, you might want to pore over your bank statement--and pay attention to the "stuffers" that come with it--to assess how much you're paying.
FINE PRINT. Thanks to the recently enacted truth-in-savings law, banks must disclose all fees on accounts and calculate interest in a standardized way so it's comparable from one institution to another. Ask prospective banks for fee information in writing so you can compare accounts. "Once the consumers get the disclosure statement, it's important to raise questions about anything you don't understand," says Gail Lieberman, editor of The Bank Rate Monitor. "Ask what they mean by 'transaction.' Does it include checks, ATMs, and deposits?"
If you want to switch banks, "look for totally free checking," says Ed Mierzwinski, director of USPIRG. "One out of 20 banks offers it--generally the smaller banks in the smaller markets." Credit unions often offer better deals as well. Many don't have minimum-balance requirements, yet pay higher interest on savings and throw in such services as traveler's checks and foreign ATM use for free.
The two most important things to look for in an account are a high annual percentage yield and a low minimum balance to avoid fees, says Kent Brunette, co-author of Money in the Bank: How to Get the Most Out of Your Banking Dollar ($9.95, Putnam). The best interest rates are compounded continuously or daily. Avoid quarterly compounding, the book explains: It pays 0.4% less than continuous or daily.
Relationship, or linked, accounts can ensure that you don't sink below the minimum. But beware: If part of an individual retirement account is invested in securities, which are not FDIC insured, that part may not be counted toward your minimum balance. Also, be sure to get overdraft protection. Most banks offer credit lines to cover the occasional bounced check. Interest is around 18%, but it's bound to be cheaper than coughing up $27 a check.
FLAT IS BETTER. Interest-bearing checking accounts usually have higher minimums than regular checking--and higher fees if you don't make the balance. But if you want a regular checking account instead, the ones with a flat rate and no per-check charges are usually cheapest.
It may well take more work on your part, but it pays to be vigilant about these sneaky little fees. After all, you don't want your bank to nickel and dime away your savings. Pam Black EDITED BY AMY DUNKIN