Is your bank giving you the best deal?

If you haven't checked in a while, you could be paying too much in fees or missing out on account options and services.

By Leslie Kane
Senior Editor

If you're like most people, you probably selected a bank 20 years ago when you moved to town, and haven't given it a second thought since. But mergers and acquisitions have been rampant in the banking field—JP Morgan merged with Chase Manhattan; Bank of America joined with Nations Bank; Summit Bank and Fleet Bank became one. And new partnerships often bring new fee structures.

"If your bank has recently merged, or if you haven't checked its rates, fees, and policies in years, you should review your account and see what the bank offers now," says Tracey Mills, spokesperson for the American Bankers Association, in Washington, DC. "You may not be so pleased." For one thing, when two merging banks have different fee structures for transactions, the higher fees often reign.

"Also, your needs may have changed," says Mills. "Banks differ in the services they offer, the rates on checking and savings accounts, CDs and money markets, investments available, thresholds for personal banking service, number of ATMs, and other factors. So it pays to shop around."

Your first step is to determine what you need, says Mills. "Is it convenience? Do you want all your finances—checking, loans, investments—in one place, or are you comfortable keeping separate accounts at different places?

"If you'll need a mortgage or a personal loan for a child's education soon, look at banks that offer a variety of products and services, and compare their rates." You can do this by visiting each bank's Web site or setting up a meeting with a bank account representative or officer, advises Mills.

Don't forget to check the bank your hospital or medical practice uses, Mills adds. "You might benefit from using the same one. You have more impact when you're part of a bigger entity. Banks like to establish a strong relationship with a customer. If you have a lot of money invested, the bank may see you as a preferred customer."

Among the other things to consider:

Personal banking services.If you have at least $100,000 to deposit (more at some banks) and want investment or money management advice in addition to a checking and savings account, you may want a personal banker. He or she will act as an account manager for your money.

"A personal banker provides extra services," says Steve Austin, chief operating officer at Bank South in Tulsa, OK. "For example, he can often get you better rates on CDs, savings and money-market accounts, and other investments, than are advertised. And if you're hit with a fee that you feel is inappropriate, he can step in and get rid of the charge."

Some personal bankers specialize in helping clients in certain occupations. One who's already knowledgeable about physicians' needs could prove particularly helpful with money management. Some personal bankers even visit busy clients at work.

"One client was refinancing his mortgage and needed to switch his closing date at the last minute so he could play in a tennis league game," says Austin. "We did that; a mortgage company that doesn't know you is less likely to make the effort."

Austin also tells of clients whose checks and ATM card were stolen from their car. "The couple also worried that robbers would be writing checks on their account. We took care of the situation with minimal effort on their part."

Choosing a personal banker is as important as selecting the right bank, says Austin. "Referrals are helpful. Ask colleagues for the names of the bankers who take care of them. Find out whether they feel they've been treated fairly, and whether their banks have given them good rates on loans. Look at each banker's credentials and background, although that may matter less than what kind of job the banker does for his clients."

ATM locations. "The ATM network is a big factor," says Austin. "You want easy access to your money without paying fees."

Local or regional banks may fall short here; they may offer only a limited number of outlets where you can use ATMs for free. Banks regardless of size may restrict the number of ATM transactions, so it pays to check.

The bank's stability. Most large, national banks are well capitalized and financially sound, but bank failures do occur. "If the bank is new or has closed some branches recently, that could be a warning sign," says Austin.

There's no simple way to determine a bank's stability, but you can check its financial statements at the Federal Deposit Insurance Corporation's Web site ( www.fdic.gov ). "Look at how its equity capital has grown or shrunk, which can give you an idea of how the bank is doing," advises Austin.

Rates for CDs and savings. Rates can vary from one bank to the next. For instance, Wachovia recently was paying a 1.05 percent annual percentage yield on 12- to 17-month CDs. But a 12- to 18-month CD in the same amount earned only 1.01 percent at Fleet Bank.

When comparing CD options be sure to ask whether signing up for other products or services might get you a higher rate. For example, at Fleet, the APY on an 18-month CD jumps to 1.26 percent for those who also opened a FleetOne Gold or Premier account, which have minimum balances of $10,000 and $25,000, respectively.

FDIC insurance. The FDIC insures amounts on deposit in member banks—up to $100,000 per depositor—so that in the event of bank failure, you can recover up to that amount of money. But not all banks are members of FDIC, so be sure to check. You can do so at the FDIC's Web site or the bank's own site.

"If you keep more than $100,000 in savings, you might want to hold different accounts in different banks, to protect yourself," adds Mills. Also keep in mind that FDIC insurance doesn't protect you against market losses; it doesn't cover money in investments, such as stocks or mutual funds.

If you plan to deposit significantly more and would prefer to keep it in one place, you might consider putting it into an investment account at a brokerage instead of a deposit account at a bank. All brokerages protect up to $500,000 of invested assets through the Securities Investor Protection Corporation. As with FDIC insurance, this protects you only if the brokerage fails, not against investment losses or investment fraud.

Size and reach.Large national banks tend to have more locations and ATMs. They usually offer private money management to high net worth individuals, and more investment choices. Large national banks usually offer Internet access to your accounts; small banks may not.

"With a small bank, you often get more personal relationships and individual services," says Mills. "Banking is a very competitive industry, and banks play to their strengths. Large banks meet the needs of the masses and cater to high volume; they have standards and policies that they apply to most situations. Smaller banks can be more flexible for individuals."

Special services. Some banks don't return canceled checks to customers; they copy them, often onto microfilm. Customers may have to pay to get copies of the checks. Overdraft protection, to avert a bounced check, is another service that some banks offer. The bank essentially makes a short-term loan to cover an empty bank account. You may have to pay a fee for the overdraft service, but it could be cheaper than a bounced check fee.

Also, if a bank offers linked accounts, your savings balance may offset your checking account balance requirement.

One-stop shopping. Besides loans and mortgages, many banks offer IRAs. Some offer brokerage services, life insurance, annuities, auto insurance, and homeowners insurance as well. So if you're in the market for any of these services, you may want to look for a bank that can provide some or all of them.

Do you even need a local bank?

Internet banking has grown in popularity. You can keep accounts and make deposits through financial companies that have no physical branches; they conduct banking only through the Internet.

For example, ING Direct, which operates in 65 countries and has more than $700 billion in assets, is an Internet-only bank. Such banks often have savings or CD rates that beat those at brick-and-mortar banks, since the Internet bank has much lower overhead. At ING Direct you can earn a 2.2 percent annual percentage yield on a 12-month CD, compared with 1.1 percent or less at most traditional banks.

If you're considering an Internet bank, look through its literature to make sure that deposits are FDIC-insured. Review the company's annual report, earnings, and assets to assure yourself that the company is financially stable, or have your accountant review them. Talk with others who have used the bank.

You may also want to make a small "trial" deposit in a virtual bank before you put all your money there. That way you can see if the Web site encounters technical problems, if you have difficulty logging on, or if you're able to get your account questions answered quickly.

And keep in mind that traditional banks are more hands-on than Internet banks, says Steve Austin, chief operating officer at Bank South in Tulsa, OK. "We can replace a lost or stolen ATM card fast, wire money, jump in if checks were stolen, expedite loans, and provide more services than you may get by calling an 800 number to talk with a service representative for an Internet bank."

Rather than virtual banks, some consumers use brokerage houses as substitutes for traditional banks. Many brokerages offer basic accounts where you can write checks, make direct deposits, and get interest on your money. However, you may be required to keep a higher balance than you would in a bank checking account. Also, the money in your brokerage cash account may not be FDIC insured, since it's not considered to be on deposit.

And unlike cash in an investment account, it's not SIPC protected, either. If you're using a basic brokerage account mostly for check-writing purposes, you may be better off with a bank. Likewise, if you'll need a mortgage or a loan, you're likely to get better service rates through your local bank, which may give preferential loan treatment to existing customers.

Leslie Kane. Is your bank giving you the best deal?.

Medical Economics

Jul. 11, 2003;80:36.