Is your bank robbing you blind?

Black Enterprise, Oct, 1996 by Donald J. Korn

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.

CHECKING UP ON YOUR CHECKBOOK

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.

DO YOUR HOMEWORK, THEN SHOP AROUND

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.