Bankers at Gringott's Bank at Universal Studios, Orlando. Photo: Sarah Ackerman, Flickr
Sometimes, assuming that things you've heard are true are actually true can be hazardous to your wealth. That's often the case when it comes to banks. It's easy to think of banks as your kindly local helpers, storing your money and lending to you when you need funds. But remember that banking is a multibillion dollar industry, aiming to increase its profits from year to year. Thus, it's worth spending a little time making sure you're not falling for any myths. Here are three that we'd like to debunk for you:
Dan Caplinger: Overdraft fees are one of the most infamous bank charges that checking-account customers have to pay. Banks have acquired a well-deserved reputation for hitting customers hard when they write bad checks or do debit-card transactions without enough money in their accounts to cover them. In that light, overdraft protection sounds like it would be a great solution, but in reality, it's often just another excuse for banks to charge additional fees.
The concept of overdraft protection is great. As typically set up, overdraft protection involves your bank transferring money from your savings account to your checking account to cover any overdraft. What's not OK, though, is the fact that many banks charge almost as much to execute those overdraft-protection charges as they would on a pure overdraft. Given that it's often your money that they're using to cover the overdraft, the idea of paying more than minimal fees is particularly heinous. For overdraft protection involving lines of credit, a fee might be more justifiable, but it's still hard to explain why fees should be anywhere close to what a true overdraft would cost. Because of those added costs, you should actually think twice before automatically accepting overdraft protection -- it can end up costing you far more than you'd ever expect.
Image: Got Credit
Sean Williams: When it comes to money there are always bound to be myths; and with banks at the heart of money management they have their fair share of myths stored up in the vault. Perhaps none is more pervasive to me personally than the myth that branch-based banking is dead.
You've likely noticed a shift from major and even regional banks to move toward mobile-based platforms. The move is being made for the up-and-coming millennial generation which has grown up around technology and values their time. Besides helping meet customers' needs, mobile and online banking is significantly cheaper for banks than a teller-based transaction. JPMorgan Chase recently announced the closure of 300 branches by the end of 2016 in order to reduce its expenses in lieu of this push toward digital device banking.
However, just because online banking prevalence is on the rise doesn't mean you'll be abandoning your branch of in-person interactions anytime soon (if ever!).
If financial surveys from the Financial Industry Regulatory Authority are any clue, millennials need all the in-person interactions and tutorials they can get. A five-question survey of millennials in 2012 discovered that just 24% could answer four or five questions out of five correctly. These were fairly basic questions pertaining to interest, risk, and the effects of inflation on your money. It puts into context that any trusts, mortgages, or IRAs being set up by millennials should probably be done in-person with a knowledgeable bank representative.
Furthermore, a TD Bank Financial Education Survey conducted last year found that more than half (54%) of millennials regularly head to their local bank branch for information on financial products and services.
Bank branches serve as the foundation for personalized engagement more so than a mobile banking app or online website ever will. Long story short, the death of branch-based banking has been overstated and is nothing but a myth.
Image: Mighty Travels, Flickr
Selena Maranjian: Many people mistakenly believe that while credit unions are nice, they're not as good or useful as banks. That might have been true long ago, when many credit unions didn't offer many services, but today credit unions are quite competitive with banks -- and preferable to them in many ways.
For starters, they often require a deposit of just $1 or $5 to open an account. Then you're eligible to take advantage of a wide range of products and services, such as mortgages, car loans, business loans, personal loans, life insurance, home and auto insurance, financial advising, credit cards, mobile banking, widespread ATM access, online bill payment, and more.
Since they're nonprofits, they can put customers ahead of profits, and their interest rates reflect that, typically better than bank rates. Check out these comparisons from National Credit Union Administration (NCUA) data from December 2014:
|
Product |
National Credit Union Average |
National Bank Average |
|---|---|---|
|
5-Year CD, $10,000 |
1.41% |
1.18% |
|
6-month CD, $10,000 |
0.28% |
0.22% |
|
Money Market, $2,500 |
0.16% |
0.12% |
|
Credit Card |
11.62% |
12.79% |
|
30-Year Fixed Mortgage |
4.05% |
4.08% |
|
Home Equity Line of Credit, 80% |
4.05% |
4.36% |
|
Used Car Loan, 48 months |
2.83% |
5.30% |
|
New Car Loan, 60 months |
2.74% |
4.89% |
Data: www.ncua.gov
A credit union won't always give you the best deal, but it often will. (They tend to charge lower -- and fewer! -- fees, as well.) Plus, credit unions, like banks, offer deposit protection of at least $250,000 per depositor. Since credit unions are owned by their members, not shareholders, they sometimes receive dividend checks sharing excess funds.
In short, don't fall for the myth that credit unions are not competitive with banks.
