Bank of America Finds New Way to Say Sorry and Make More Money

With a new account offering, the bank may be able to recover some of the confidence of its non-preferred customers.

Mar 7, 2014 at 9:00AM

Bank of America (NYSE:BAC) is reportedly offering a new, simpler account to customers aimed at reducing the stress associated with carrying a low balance. But will the bank's "Safe Balance" account make up for its despicable overdraft practices, all while providing a revenue boost?

Customers first
The new account offering is targeting customers that consistently carry a low balance and sometimes hit zero. At the bargain price of $4.95 per month, the bank will guarantee that a customer's account won't fall into the negative by disallowing charges that would send it into the red.

The new, check-less account is great news for customers commonly plagued by overdraft fees, which cost you $35 a pop if you're a Bank of America customer. According to a Pew Charitable Trust survey, 20% of Americans report paying at least one overdraft fee a year.

The bank hopes the fee is appropriate becaase of the bank's participation in meetings with regulators and consumer advocates, along with listening to customer demands. The new accounts really have a clearer focus that investors should appreciate.

Costly accounts
Since Moynihan took the helm at Bank of America, he's been leading the push to find new ways for average checking accounts to produce profits. As Foolish contributor John Maxfield reported last year, the average checking account costs a bank between $350 and $450 per year, while revenue per account tops out at $268. Hence the emphasis on collecting various fees for such accounts.

Bank of America is certainly not the only bank suffering from unprofitable accounts. PNC Financial Services's (NYSE:PNC) CEO Bill Demchak announced in 2013 that the bank would start phasing out free checking, proving that the benefit of attracting new customers through bottom-rung accounts is not necessarily the most advantageous tactic.

But with questionable practices, like shuffling transactions to rack up more overdrafts, Bank of America has earned a reputation among customers that is far from flattering.

Smart move
Enter the new accounts, which will try to kill two birds with one stone.


Source: Flickr/OptoScalpel

On one hand, the account's assurance that no hidden fees will see the light of day and customers can be certain Bank of America is watching their back when the balances get low are small band-aids to try fixing the bank's relationships with its clients. This has been a key focus for Moynihan for quite a while.

On the other hand, the accounts will stifle some of the losses carried by the bank's traditional free checking accounts. Unlike the bank's other two checking offerings, the monthly $4.95 fee of the "Safe Balance" account is not eligible to be waived though the maintenance of a certain balance or direct deposit each month. Though it's small, the $59.40 in annual fees from the "Safe Balance" accounts would start to ease some of the losses from unprofitable checking accounts.

Investor takeaway
The new accounts may only make sense to a segment of the market that struggles with low balances, but the commitment to no hidden fees may bring in new customers that would otherwise avoid banks or that have run into trouble with overdrawn accounts in the past.

And though the negative reputation Bank of America bears hasn't proved to be poison to its operations (so far), anything the bank can do to improve how customers view it should be welcomed.

Whether its operational improvement or reputational, these new accounts may prove a handy tool for Bank of America.

The big threat to big banks
The negative reviews of Bank of America are far from being unearned, but management continues to look for new ways to earn its customers faith back. Do you hate your bank? If you're like most Americans, chances are good that you answered yes to that question. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. For the name and details on this company, click here to access our new special free report.

Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and PNC Financial Services. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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