You may not realize it, but there are many different types of banks operating these days. And depending upon your purposes, being with the wrong type may cost you anywhere from hundreds to thousands of dollars a year.
There are large national banks that you'll find on every street corner no matter what city you're in. The country's largest are Chase, Bank of America and Citibank.
There are small local or regional banks that operate much the same way. They too offer saving, checking, credit cards, mortgages, etc. — but you only find them in your neck of the woods.
Credit unions are like not-for-profit banks. They have an even smaller, more individual presence than small banks. Some have a system of branches, some do not. But they're known for charging lower fees and offering higher rates of interest than banks. The catch is that you have to be a member to get a good deal.
Finally, there are online banks. These don't have a bricks-and-mortar presence at all. (Or if they do, they tend to be very sporadic.) You do all of your business by mail, by direct deposit, or on the Web. As a result, you don't pay as much for the services.
When determining what type of bank is best for you, it's really a matter of looking at what kind of bank customer you are. How often do you need particular services? And, it's important to understand, you may not want to limit yourself to dealing with just one. You may want two savings accounts for different purposes. You may want to have your credit card with one and get a mortgage with another.
The following is a list of different types of consumers, the sort of banks that are best for them, and how much they might be able to save by switching.
Frequent ATM users
If you're traveling around the country or even around your city or state, you want to be able to get cash without paying an arm and a leg each time you do it. One way consumers get eaten up by bank fees is by paying money every time they withdraw cash at an ATM. These surcharges, according to a new study by Bankrate.com, have gone up again and now average $1.78. If you pay those surcharges two times a week throughout the year, you're looking at a cost of $185 a year. And there are people who visit the ATM more often than that. The solution is to choose a bank that has a large network of ATMs, or one that will rebate you for a certain number of ATM transactions each month as a few smaller, Internet banks or credit unions will do.
Go With: A big bank
Savings: $185 a year
Citibank 19,000 ATMs
Bank of America 16,000 ATMs
Chase 8,500 ATMs
Washington Mutual 3,750 ATMs
According to a new report from Forrester Research, one-third of consumers who hold more than $10,000 in liquid assets in the bank never check on savings account rates. That could be costing them big time — particularly in this day and age when savings rates have finally crawled out of the dungeon and are available (if you look for them) to pay you 5 percent or more. The best savings tend to come from Internet banks that have made this their calling card as a way to lure deposits. Move your money from a savings account at your local bank earning 1.3 percent to one at, say, ING Direct earning 4.3 percent (no minimum deposit required) and on that $10,000 balance you net an extra $300 a year.
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Go with: Internet bank
Savings: $300 a year on a $10,000 deposit
AmTrust Bank 5.36% APY
HSBC Direct 4.31% APY
ING Direct 4.30% APY
The downside to internet banking — in some cases — is access to one's money. With some banks, it's tougher. ING Direct, for instance, doesn't link to ATMs so that if you want to get your money, you have to do an online transfer into a traditional savings account and then make a withdrawal. Others do link to ATMs, however. Ask when you open your account. To find the best savings rates, go to www.bankrate.com.
If you tend not to have a lot of money in the bank at one time, interest is not your biggest concern because you won't be earning that much of it anyway. Instead, fees are your biggest concern. You don't want to have an interest-bearing checking account that is laden with monthly service fees. People in this category should consider a free account with no balance requirement and no monthly service fees for the privileges of writing checks whether you do it online or off. (I advocate online because you save about $70 a year in stamps alone, as well as 24 hours per year in time saved when you pay bills electronically rather than by hand.) On an interest-bearing checking account, the average service fee is $11.72 a month and the average balance required is about $1,000. That's 10 times the balance required in a non-interest/typically no-fee account.
Go with: Credit union (though some banks will offer accounts like these as well — here the account is more important than the institution)
Savings: $140 a year
Capital Credit Union, Bismarck, N.D.
Apple Federal Credit Union, Fairfax, Va.
USA Federal Credit Union, San Diego, Ca.
Home equity or mortgage borrowers
If you're in the market for a home equity loan or a mortgage, you really need to shop around. Not only do you want to survey online lenders to see what sort of deal they can find for you, but talk to your current lender if you have one, to the country's largest lenders, and to small local banks. I know this sounds like a lot of work, but the savings can be REALLY significant. And you may be surprised by the response. Small banks are more and more the best way to go for these loans. Why? On home equity, they frequently offer more competitive pricing because they're not able to compete on marketing — doing heavy-duty advertising, for instance — so they compete on price. This is true for both home equity loans (which are fixed) and home equity lines of credit (which are variable). On mortgages, smaller lenders are — these days — more competitive for a different reason. Because the credit markets are tightening up, you'll get the best shake from lenders who do not package their loans to sell into the secondary markets. Smaller lenders are more likely to keep loans in their own portfolios and service them themselves.
Savings: On a $50,000, 10-year Home Equity loan at 7.24% versus one at 8.59%: Save $35.59/month. On a $300,000 30-year-fixed Mortgage at 6.125% versus one at 6.50%: Save $73.37/month
Bogota Savings HELOC 6.25% New Jersey
Liberty Bank HELOC 6.75% Chicago
US Bank 6.12% San Carlos, Ca.
Car loan borrowers
Whether you're buying a new or used car and in need of financing, or have a car that you financed with a loan that's not so great and think you can do better, you may know that you can secure financing outside your dealer's showroom. In fact, going into any dealer with financing in your back pocket, is the best way to ensure that the dealer will come to the table with the best financing they can offer as well. Just like small banks have decided they want to own the home equity market, credit unions have decided that they want to own the market for auto loans. The average rate on a 48-month new car loan at a credit union is 6.16 percent vs. 7.49 percent from a bank. On a 48-month used car loan, the average is 6.41 percent vs. 8.09 at a bank.
Go with: Credit union
Savings: 48 month, $25,000, new car loan: $739; 48 month, $15,000 used car loan: $563
Digital FCU 5.95% Maynard, Mass.
Credit Union Of Texas 5.90% Dallas, Texas
Hudson Valley FCU 6.25% Poughkeepsie, N.Y.
Jean Chatzky is an editor-at-large at “Money” magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today” show and is also a columnist for “Life” magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day” (Portfolio, 2004). To find out more, visit her Web site, www.jeanchatzky.com.
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