Is It Time to Say Bye to Your Big Bank?

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Big banks get the blame for the financial crisis and all the other recent horrors,from the foreclosure mess to the JP Morgan Chase trading gaffe.
Yetfor most people, big banks are most culpable for their high fees and poor service.
Luckily, there are alternatives.
Credit unions, for instance.
Let's compare them: What makes them different? Large commercial banks are owned by their shareholders and of course are a for-profit business, while credit unions are owned by their depositors and are not-for-profit.
That does not mean that the credit unions are not profitable (i.
e.
, revenues exceed expenses) rather they seek to plow their excess earnings back into the business for the benefit of the depositors, also known as members, owners and shareholders.
Both institutions have deposit insurance up to $250,000 per account.
For banks, this is through the government's Federal Deposit Insurance Corporation (FDIC); for credit unions, the National Credit Union Administration (NCUA), also a federal agency.
1 Traditionally, commercial banks made a profit by lending depositors' money to borrowers at greater interest than they pay to the depositors.
Today, they make most of their profit through investment transactions, commissions, penalties and an ever-growing list of customer user fees.
Credit unions pledge to put customer service before profit motive.
They are structured just like banks except their boards of directors are typically made up of volunteers elected by the membership.
Banks offers their services to the world at large; credit unions offer services only to those meeting eligibility requirements.
You may qualify to join a CU because of your employer, your industry, a union or guild membership, a family member who has obtained membership, or even your home address.
Virtues and Vices of Scale.
Now large banks have some clear advantages due to their scale.
They offer many ATMs (some in foreign nations) and their branches are plentiful.
They have many product offerings, and mortgage rates may be lower than at a CU.
Sometimes, the large banks pay you cash bonuses just to sign up for products, like checking accounts with direct deposit.
Many credit unions offer better interest rates on checking, savings and money market accounts, and on long-term certificates of deposit.
Fees on credit cards and terms on auto loans typically are much better, too.
However, many credit unions may not offer you the same array of services and products that you find at a big bank, and some still have only one or two branches.
On the other hand, with the expansion of credit union networks, regional and nationwide access to money has really improved for CU members.
2 Besides big banks and the credit unions, there is another option for you - community banks.
Of all U.
S.
banks, 91% have assets under $1 billion and 34% under $100 million.
3 The community banks are like credit unions, owned by depositors, yet like big banks they are a for-profit business.
A combined network, called Kasasa, of 128 community banks and credit unions across 35 states pooled their advertising and marketing resources and offer more competitive products to their customers.
Usually, community bankers are involved in community affairs, live in the areas that they serve, and see themselves as a part of the community.
They also have a conservative management and investment philosophy, which explains why fewer of them needed federal bailout money.
These banks can be particularly effective for small businesses: Lending decisions are made locally by people who know the community and its business climate.
Lending criteria often consider character factors, as well as financial.
Big banks' fee mania.
Fees are out of hand.
Big banks commonly charge $2 to $3 for foreign ATM withdrawals, which is basically 5% to get $40 out of the ATM.
Big banks now charge account "maintenance" fees largely because they can.
After the financial collapse, they are searching to replace lost profits.
But maintaining your account is no more costly today for a big bank than it was five years ago.
Then come fees for not making minimum balance requirements.
Many lenders hit you with a monthly charge in the range of $5 to $20 if your savings or checking account diminishes below a set dollar amount.
Next, overdraft fees and returned items fees of $20 to $40, which are penalties when you overdraw your account, or leave it overdrawn for a period of time.
When you apply for a mortgage or a business loan, there may be a loan origination fee or "processing fee" of $20 to $100 involved.
Need to check a deceased account holder's balance? Make copies of deposit slips? Set up online banking? Obtain a reference letter pursuant to an international visa application? You name it, there's typically a "service fee" for it at a big bank.
A big bank's investment division may be modeled on a full-service brokerage, with commissions and fees exceeding those of discount brokers.
The good news is that you may be able to dodge some of these fees.
Just about any bank will still give you free checking if you sign up for additional services such as a direct deposit arrangement.
Many online banks will actually reimburse you for ATM fees.
Finally, perhaps the best thing about credit unions is that they haven't yet dreamed up fees for everything on earth.
4 Citations.
1 - www.
ncua.
gov/NCUASafe/Pages/default.
aspx [6/22/12] 2 - blog.
oregonlive.
com/finance/2010/02/credit_union_vs_bank_is_it_tim.
html [3/5/12] 3 - ICBA article, "CB Facts" 4 - abcnews.
go.
com/Business/money-101-tips-tricks-avoiding-bank-fees/story?id=14652687#.
T-TzN_WAlAE [10/3/11]
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