Many people never start investing because they have trouble coming up with any money to save. But the real challenge comes after you start saving, because you'll always find financial institutions trying to take their cut of your money.
Chief among the casualties of the financial crisis were the reputations of banks, especially big Wall Street institutions. After getting taxpayer-funded bailouts, banks have repaid their customers by making a host of customer-unfriendly moves, including tightening loan requirements and boosting fees. And as banks work increasingly hard to try to lock in profits, those anti-customer measures are just getting worse.
The long and the short of bank fees
A recent survey from MoneyRates.com provides some hard numbers behind the trend toward higher fees. The average cost of monthly fees that banks impose rose above $12, jumping more than 7% just since the end of 2011. ATM fees have also risen, while the average fee for overdrafts is rapidly approaching the $30 mark.
Traditionally, customers with a bit more money could expect to get preferential treatment, including waivers of certain fees. Yet it's getting more costly to earn those perks as well, with the average amount you need to keep on balance to avoid monthly fees rising more than $850 to almost $4,450. Just over 35% of all accounts qualified for free checking, down from almost 39% six months ago.
Even opening an account in the first place is getting harder for many cash-strapped customers. Minimum opening balances rose by more than 4% since the end of 2011, jumping above the $400 level on average.
Haves and have-nots
The key to navigating the bank-fee environment is to realize that not all banks are created equal. Depending on where you live and what types of banks are available to serve you, you can often find a good deal.
One big distinction comes from big banks versus smaller rivals. According to the survey, average monthly fees were more than 40% higher at big banks than at small ones, and small banks had more than twice the percentage of free checking accounts that big banks had.
When you consider the relative financial hits that different parts of the banking industry took during the financial crisis, that bias toward higher fees at big banks makes plenty of sense. Many of the surviving small banks from the financial crisis got through the mortgage meltdown in a lot better shape than Bank of America (NYSE: BAC ) and Citigroup (NYSE: C ) did with their much larger loan portfolios. Moreover, many big banks, including B of A, Wells Fargo (NYSE: WFC ) , and JPMorgan Chase (NYSE: JPM ) , ended up acquiring other troubled financial institutions during the crisis, inheriting or adding to their own woes.
Those big hits left those big banks under far more pressure to shore up their finances and start generating profits. Although smaller banks certainly have a profit motive, they also understand that since they can't offer the reach of their larger counterparts, they have to compete on more subjective factors like customer service and providing a more comfortable experience for their account holders. For instance, Huntington Bancshares (Nasdaq: HBAN ) has done a good job of recovering from the financial crisis by focusing on the Midwest, devoting substantial resources toward small businesses and avoiding landmines like European sovereign bonds.
Credit unions have even less incentive to charge big fees, as they're owned by their members. For the most part, fees at credit unions are geared toward treating customers fairly rather than as profit centers, properly accounting for the actual costs that things like overdrafts can impose on a financial institution.
Give it a try
From a customer perspective, the big question remains whether the value you get from a bank with a nationwide footprint justifies what you pay to be a customer there. Fees aren't automatically bad if you get good value from them. But with the rise of electronic banking and with many banks offering fee rebates on out-of-network ATMs, there are fewer reasons to feel tied to a big Wall Street bank if you're not satisfied.
If you're paying a fee at your bank, take a few minutes and scope out the competition. The money you save could make you glad you did.
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Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter @DanCaplinger.