Credit & Money Management

Banks That Put You First

Looking for higher rates and lower fees? Switch to a small bank or credit union.

By Laura Cohn, Associate Editor

Joan Goldwasser, Senior Reporter

From Kiplinger's Personal Finance magazine, August 2009

When Timothy Stitt of Leeper, Pa., first heard about a new checking account at a small western Pennsylvania bank, he was intrigued. The "preferred account" from S&T Bank would give him free ATM transactions and a debit card with cash-back rewards. That appealed to Stitt because he frequently uses his debit card to purchase equipment for his landscaping business. So he signed up for an account. "It was something I couldn't pass up," says Stitt. "It was a no-brainer."

The icing on the cake was the personal service: The bank's account executives took the time to answer all of his questions. And they helped him refinance his mortgage, to a 15-year fixed-rate loan at 5.5%.

Community banks, credit unions and online banks are luring refugees from the big money-center banks by offering lower fees, better rates on savings and a level of personal service that may remind you of George Bailey's building and loan. And just in case that's not enough, they're offering freebies to sweeten the deal -- the 21st-century version of the free toaster.

For example, when you set up an account today, you may get a cash-back debit card or a free iPod. KeyBank hands over a Garmin GPS device. BBVA Compass, of Birmingham, Ala., gives you the chance to win a Mini Cooper. If you refer a friend to Chevy Chase Bank, which serves the Washington, D.C., area, you'll be rewarded with a three-day getaway (not including airfare) to St. Thomas, Las Vegas, Orlando or another vacation spot. "This is a great time for consumers," says Jon Paul, president of Value Added Finance Resources, a consulting firm. "Banks are very hungry for your deposits."

Big banks want your money, too, but they're turning customers off with higher fees and tighter lending -- not to mention stress tests and troubled assets. They continue to raise fees, even as the grab for business intensifies and consumers are more cost-conscious.

Bank of America recently raised the monthly maintenance fees on some of its checking accounts; for example, fees for MyAccess Checking went from $5.95 a month to $8.95 a month. Wachovia, now a Wells Fargo company, boosted its transfer fee to cover checking-account overdrafts from $5 to $10 on some accounts. Charges for using credit cards overseas are also on the rise.

Bank customers are ready for a change. A survey by Aite Group found that just 2% of consumers have a high degree of trust in banks. And satisfaction with the major banks -- such as Bank of America, Citigroup and JPMorgan Chase -- has either leveled off or dropped, as measured by the American Customer Satisfaction Index and TowerGroup. "Banks are just not where they need to be," says Kathleen Khirallah, of TowerGroup.

Find a better deal

Community banks appeal to customers like Stitt because they have close ties to local residents and tend to offer more personal assistance than the big money-center banks. "Community banks are in the relationship-building business," says Karen Tyson, senior vice-president of the Independent Community Bankers of America. They tend to have fewer -- and lower -- fees than the major banks. And they generally offer lower rates on loans and higher yields on savings.

Likewise, credit unions are focused on their members (and almost anyone can join one). According to a study by the Credit Union National Association, credit unions charge an average of $25 for overdrafts; banks charge an average of $30. Similarly, banks sock you with a $35 fee if you're late paying your credit-card bill, but credit unions charge $20. Interest payments on a $25,000, 60-month car loan from a credit union would be $184 a year less than they would be if you got the loan from a bank, according to an analysis by Datatrac. Over five years, that would save you nearly $1,000. And average closing costs on a mortgage are lower at a credit union: $2,280, versus $2,309 at banks.

Online banks are another good option, particularly if you want to avoid ATM fees. If you need to use a brick-and-mortar bank's ATM, many online banks will reimburse you for any fees it charges. For example, UFBDirect.com reimburses its free-checking-account customers up to $4.50 a month for ATM charges from other banks. If you open a checking account at Charles Schwab, you'll get a refund of all ATM fees.

Plenty of perks

Looking for a better shake on a specific product? We found deals on checking accounts, savings accounts and loans.

Checking accounts. Free checking is available at 78% of financial institutions. But it's hard to find interest-paying checking accounts that don't require a minimum balance or charge fees.

Some 600 financial institutions -- many of them community banks -- offer high-yield checking accounts, reports BancVue, which provides the programs to the banks. The accounts pay 3% to 5% if you sign up for direct deposit, use your debit card a certain number of times or log on to online banking each month. The yield drops to the bank's standard payout if you don't meet the monthly qualifications. Another bonus: The accounts charge no ATM fees -- and reimburse surcharges from other banks.

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