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Banks go to great lengths to appear trustworthy and totally on the customer's side.
Everything from the friendly tellers to the slick marketing materials built around concepts of dependability and faithfulness is designed to give you a "we're-here-for-you-and-we've-got-your-back-no-matter-what" kind of vibe.
Unfortunately, this perception is often not in sync with the real motives of the people running the banks (sub-prime mortgage crisis, anyone?). And often, banks' efforts to widen their profit margins take them into direct conflict with their customers' well-being.
Our latest example of bank greed and misbehavior being dragged into the limelight is Wells Fargo, whose employees ordered credit cards without customer approval, opened unnecessary accounts for customer, and even forged customer signatures. Why?
Because these employees were promised incentives for getting as many new accounts as possible. How they did it wasn't a big concern for bank leadership-that is until the LA Times released an expose on the bank's fraud.
Since the discovery of this fraud, more than 1,000 employees have been dismissed, the bank has been fined upwards of $185 million, and, just this week, Wells Fargo's CEO was forced to undergo a verbal flogging before the U.S. Senate Banking Committee.
Fortunately, in this case, the damage to customers themselves was minimal. Customers who hadn't actually ordered credit cards or requested to have new accounts opened could simply work with Wells Fargo's customer service to have those closed. But in past banking snafus, customers have paid dearly, often while banks got off scott-free.
This definitely applies to big bank transactions like mortgages and other loans, but the same is also true for all of the terms and conditions that often go unnoticed when you create a checking or savings account with a bank. Going into these more minor transactions unaware can cost customers in the long-run, so it's a good idea to know which ones to look for.
Here are five tips that can keep you from paying more than you bargained for on your next checking or savings account. Disregard them at your own peril!
1. Make sure you understand their fees
Fees of the overdraft and insufficient funds variety are a big business of banks. In fact, a report by the Consumer Financial Protection Bureau found that a whopping 61% of banks' checking account revenues come from these fees. With a revenue stream this sweet, you can bet that banks are going to be sheepish about bringing it up when you open a checking account. In fact, you might not even know they exist until the first one hits.
"Consumers make the mistake of not thinking clearly about how they're going to use a product, and how a fee structure would interfere with their intentions," says banking expert Dani Zabala. "Financial officers make the mistake of not bothering to explain it to them so as not to interfere with a sale."
Zabala also warns that these fees last as long as your account is open with the bank. For bank employees who probably won't stay with a branch of the bank for long, your long-term financial health is not top of mind. And remember, banks want you to pay these fees-at least, it's in their best interest.
That means the responsibility to know and understand the fees and penalties attached to the savings or checking account you're interested in rests squarely on your shoulders. Before you sign up, ask the bank employee questions and don't stop asking questions until you have a firm grasp on the fees you could potentially be paying down the road.
2. Make them address cases of fraud
If you haven't had your bank account hit by fraud in the last five years, consider yourself lucky. A report from Payments Cards and Mobile found that in 2012 alone Americans lost $1.57 billion thanks to debit card fraud. Fortunately, most banks are pretty cool about clearing these situations up-and not at your expense. But you have to bring it to their attention. Rarely will they call you to let you know that fraud has occurred on your accounts.
Much of the time, banks are ignorant to instances of fraud, but sometimes they are actually part of the problem. Investigations have revealed that some banks have known that fraud was being perpetrated by untrustworthy Internet retailers, but because they benefitting from the fraudulent transactions, they turned a blind eye to it.
In the end, the Justice Department found that the bank in question had knowingly allowed unscrupulous merchants to commit debit card fraud over two million times, taking more than $100 million from customers' accounts, without doing a thing to stop it.
Whether fraud is happening under a bank's roof intentionally or in ignorance, most banks need a nudge from the customer to give these cases the attention they deserve. The experts' advice: if you see an unexpected charge on your debit card, don't keep it to yourself. Call your bank's customer service line, bring it to their attention, and demand action.
3. Go with a credit union instead
It's true that credit unions are businesses that want to make money, just like traditional banks, but a number of factors make them a fairer and safer place to keep and manage your money. These stats speak for themselves.
Recent numbers pulled by the National Credit Union Administration this past summer found that the average rate on a 36-month car loan from a credit union was 2.66%; the same loan from a bank averaged 5.13%.
The same study discovered that the average bank-issued credit card had a 12.71% interest rate; those issued by credit unions averaged 11.64% interest.
Because credit unions tend to be local and closer with their communities, they tend to be more lenient/cautious when doling out banking fees. They also tend to be much better to work with on loans.
"While no lending institution is going to be careless with loans, community-based credit unions tend to be easier to deal with than megabanks," says Stacy Johnson from MoneyTalkNews. "Lending decisions are more likely to be made locally with more flexibility.
4. Keep an eye on those maintenance fees
Most people are familiar with the dangers of overdraft fees, but we often overlook maintenance fees. These often show up as monthly or annual fees, and it's easy to forget they're coming, especially if you're under the illusion that your checking account was free. The plus here is that, if you keep your account balance above a certain amount, the maintenance fee is usually waived.
What makes these fees especially dangerous, however, is how their rules on minimum balances tend to change over time, often without you being informed of these changes.
Banking guru Bob Sullivan explains:
"The minimum balance can be raised from $1,500 to $2,000, for example, with little notice."
He then recommends that customers, whenever possible, make a conscious effort to keep their accounts well above what you think is minimum balance amount, $500, $1,000, or even more.
"With savings rates so low, the cash won't do you any good in savings anyway, so just put $2,500 in that $1,500 minimum balance account and pretend it's not there," says Sullivan. "You are buying insurance against the occasional fee (and against overdrafts). If it saves you one fee, you will have "earned" more than anything else you could have done with that money."
5. Avoid savings accounts
Sullivan mentioned this above, but it's worth repeating: savings account are a losing game. Because the Federal Reserve interest rate is currently at an all-time low and holding, interest rates on savings accounts are also extremely low, to the point that inflation is actually higher.
"The result for consumers is earnings on bank deposits that don't even keep up with inflation," laments Megan Elliott at CheatSheet. "If your nest egg is sitting in a savings account, there's a good chance you're actually losing money."
Elliott recommends turning to credit unions for higher savings rates. It's not guaranteed, but it's probably a better option than shopping for savings accounts at the national banks.
You Have Options
Luckily, when it comes to banking, you still have plenty of options. Your best first step is to educate yourself about each bank's policies and practices. Then, once you've found a bank or credit union you're comfortable with, stay on top of incidents of fraud and those practices that will cause you to be fined by the bank. A little vigilance in this area is an investment that could reap big rewards in the future.
How do the biggest banks stack up to one another in terms of service and offerings? Visit our Banks Reviews page to read reviews from real customers.