4/4/2011 3:00 PM ET|
12 new ways to outsmart your bank
It's a game of wits between you and the folks who handle your money. They have some new moves, but with the right countermoves, you can win -- and save.
Most people don't read the bank notices that pile up in their mailboxes, with their inscrutable legalese and migraine-inducing fine print. But there has been some important news in those envelopes lately.
Banks are undergoing the biggest changes in decades, and the majority of their customers will feel the impact. Many of the reforms are coming from Washington, through new regulations meant to level the playing field for consumers and address some of the problems that led to the 2008 financial crisis.
The 2009 Credit CARD Act toughened the rules under which credit card issuers can raise interest rates and charge a variety of fees. The Dodd-Frank financial reform law enacted in 2010 includes rules likely to make banking less risky but also less profitable. Another issue under debate in Washington could change the way that banks, retailers and consumers use debit cards. And banks have implemented some reforms of their own, to cope with bad loans, a punishing economy and the changing needs of consumers.
Most of the regulatory reforms are meant to make financial products easier to understand and more equitable. But they're also raising costs to banks, forcing them to find new sources of revenue -- which means more fees and fewer services for customers. Here are a dozen of the biggest changes, with strategies for how consumers can minimize fees and get the best perks:
Less 'free' checking
It's not going away, but fewer people will qualify for free checking as banks look for ways to earn more revenue from low-balance customers. Bankrate.com, in a 2010 survey, found that the number of checking accounts with no monthly fee and no balance requirements fell sharply, from 76% in 2009 to 65% a year later. The portion is probably even lower now.
Strategy: Most banks still waive monthly fees if you keep your balance above a certain minimum or park other assets with the bank. Ask how to qualify, and remember to watch for fees on your monthly statement, in case the terms change. A few banks, like PNC of Pittsburgh, are retaining free checking for everybody but taking away other perks, like reward programs for debit cards.
More annoyance fees
Banks are still allowed to charge fees for a mind-boggling number of things, such as: using another bank's ATM (often called a "foreign" transaction fee, although it has nothing to do with overseas banks), an excessive number of transactions, writing too many checks, using the teller window too often, talking to a live customer-service agent on the phone, transferring money, and wiping your feet on the mat in the lobby. (I'm kidding about that last one, but maybe I shouldn't give the banks any ideas.)
Strategy: Consumer advocate Ed Mierzwinski of the U.S. Public Interest Research Group advises asking your bank for its full "fee schedule," which is more detailed than the glossy brochures usually sitting on the counter. If the people at your bank demur, remind them that they're required to provide a fee schedule upon request. Once you know the fees, avoid those you can and minimize the rest.
Sneaky low-balance fees
Banks have surprising leeway in how they handle your deposits and payments, and some of them manipulate funds to push down your balance -- so they can charge a fee for going below minimums, or even for bouncing checks.
Strategy: Watch out for automated, recurring payments deducted from your account earlier than they used to be, plus another trick that allows banks to deduct bigger payments before smaller ones, regardless of chronological order. Complain if you notice these tactics and ask if you can stipulate your own payment dates. If not, a third-party bill-pay service like Paytrust or Quicken will give you more control over your own payment schedule, for a monthly fee of $10 to $15 or so.
New fees on mortgages
Regulators in Washington are finally starting to grapple with how to fix flaws in the mortgage system that contributed to the housing boom and bust. A final solution could take years, but in the meantime, fees are likely to rise for borrowers with a down payment of less than 20% and for some first-time buyers who qualify for an FHA loan. That's in addition to any extra costs that might come from rising interest rates.
Strategy: You'll get the best rate and terms if you have a down payment of at least 20%. To help get there, consider buying a smaller home, or making other compromises. The savings might help finance an addition or other home improvement down the road.
More come-ons for new customers
The iPod is the new toaster, with some banks giving away trendy gizmos to customers who open a new account and meet certain rules. Other banks are offering gift cards, higher interest rates, or cash back.
The recurring theme: Banks want as much of your business as they can get, so to qualify for giveaways, customers typically need to meet balance requirements, have multiple accounts or do a sufficient amount of business with the bank.
Strategy: Don't chase offers. It can be laborious to change checking accounts -- which banks know -- so switch banks or open a new account only if you think you'll stick with the new bank.
Limits on debit card use
New rules being worked out in Washington will reduce the "interchange" or "swipe" fees that banks and credit card issuers charge merchants every time a customer buys something with a debit card. The changes, which must be finalized by April and will go into effect in July, would lower costs for retailers and possibly lead to slightly lower prices for some products. But a few banks have argued that because of lost revenue, they might have to put limits -- say $100 -- on debit card purchases.
Strategy: Since these new rules aren't yet finalized, it's hard to know if banks are bluffing. But new limits on debit card purchases would leave three main choices for consumers: Use a credit card, use cash or simply skip the purchase. Credit cards, of course, come with steep interest rates that effectively raise the cost of the purchase if you carry a balance. So the best alternative is to use cash, which has an added benefit: Consumers tend to spend less when they're forced to fork over paper currency.
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