It's a new year and I'm back from my holiday hiatus so it's time to start acting on all those financial New Years resolutions you made, or you wish you had made, or you were possibly considering making but never quite got around to. It may be over a week into the new year, but it's not too late to start taking control of your finances.
One resolution you might want to consider: now is the time to switch your bank. Most people keep the same bank for years or decades mostly because it seems like it would be too much bother and expense to move. While moving banks is not simple, or free, it can save you money in the long run. In addition, you can have the satisfaction of knowing that you are choosing what financial institution you are supporting. All banking institutions are not the same. You don't necessarily have to work with companies whose business practices you abhor.
Before we get to the good stuff, I have an administrative note: I recently revamped the mailing list for announcing these diaries. If you want to get an email announcement each week when a new diary is posted, send me email: frugalfridays (at) gmail.com and I'll add you to the list. If you didn't get an email this week, you are not on the current list.
The topic today was prompted by a website I stumbled across recently called Move Your Money that is trying to inspire people to move their money out of big corporate banks into smaller community banks:
While I agree with their premise for the most part (people can get much better service for lower fees from community banks) I fear they did a disservice by not mentioning credit unions as perhaps an even more attractive alternative. Credit union membership is no longer limited to only a few select groups. There are quite likely more than one credit union in your neighborhood that you are eligible to join. Credit unions often offer much better interest rates and fee schedules than banks and you have the satisfaction of knowing that you are part of an institution that is building your local community. Don't take my word for it. Here's a cartoon I found on the internet that explains it all. It was on the internet (and it's a cartoon) - it must be true:
Pick a New Banking Institution
Where you bank includes more than just where you have your checking and savings accounts. It also includes all sorts of other services as well, such as credit cards, loans (home, auto, etc.), and retirement accounts. Having all these services at the same institution may not only save you the time and effort of dealing with multiple organizations, but it may save you money as well, since many banks and credit unions offer lower loan rates to their savings account customers, or other such discounts. Before you consolidate all your accounts with one institution, you may want to consider the benefit of spreading your business around a bit. As we have seen in the past year, banks can fail and while your accounts may be insured, there can sometimes be a delay in accessing your money. You may want to have a secondary account just in case.
To find a credit union in your community that you are eligible to join, you can use the search engine run by the National Association of Federal Credit Unions or search using the Credit Union National Association or just go to FindACreditUnion.com. If you are looking for a community oriented bank, you can start with the search engine at Mover Your Money. BankRate.com has a handy search engine that allows you to search either banks or credit unions by asset size, by safety rating and by location.
You probably want to start with a list of institutions that you are considering using and then pick the optimal institution for you by deciding which one offers the services most important to you. Here are some of the many features you want to compare:
- Office Locations: One of the great benefits of using a smaller institution is that you can establish a personal relationship with the employees of the bank. You probably want to pick an instituion with locations convenient to both your home and work.
- ATM locations: Smaller banks and credit unions have fewer ATMs for you to use. To compensate for this, many of them will offer to reimburse you for any out-of-network ATM charges you may incur when you use another bank's ATM. In some cases these reimbursements are automatic while with others they may require you to request a reimbursement each month.
- Interest rates: While you will want to look for institutions that offer interest bearing checking accounts, check the fine print to determine what fees or other requirements they have in order to qualify for these accounts. Rather than using an interest bearing checking, you may find it more profitable to keep most of your money in an interest bearing savings account that is automatically linked to your checking account. Just make sure that there are no (or minimal) fees for using this sort of overdraft protection. You will also want to look at interest rates on other investment vehicles such as CDs and IRAs and you will want to compare loan rates as well. Even if you aren't planning on taking out a new home or auto loan right now, chances are that you will sometime in the future, so pick an institution that will offer you competitive rates when that time comes.
- Fee Schedule: Banks and credit unions can be very inventive in thinking up new fees they can charge. Be sure to look at the entire fee schedule for all your accounts to make sure you will not be surprised by a new fee you didn't expect.
- Update [2010-1-8 16:29:0 by sarahnity]: Online Services: One area where smaller banks are often deficient is the availability of online services. If you are used to accessing your accounts online and this is something you need, be sure to ask about their setup before you open your new account. (h/t to webranding in the comments)
One thing to keep in mind is that while you are trying to pick the institution you will use for the next few years (or decades) there is no real guarantee that circumstances won't change in the future. One disadvantage with small banks is that they are prone to being bought up by other larger banks. You may start out with an account at a community bank you have carefully researched only to find tomorrow that you are suddenly the customer of a conglomerate. If that happens, you may end up going through this entire process again.
How to Switch
After you have picked your new banking institution, I would suggest making your transition a gradual process. First open your new account and test out their services. You may have to pay a minimum balance fee for a month or two as you split your money between your old and new institutions, but giving yourself some time to evaluate your new relationship may be well worth that fee.
You may just want to start by opening a new savings account, since these often have very low minimum balance requirements. Then, if you like the service you are getting and the atmosphere, you might consider adding more services such as checking, credit cards, and IRA accounts. Ask your new institution for a Switch Kit. This will guide you in moving all your automatic deposits and withdrawals to your new accounts. Make sure that you have transferred all automatic deductions you have already set on your old account to your new account before you close out your old account. These can include automatic bill payments and recurring charges.
Finally, a word of warning about debit cards and ATM cards. Most ATM cards that are issued these days are automatically branded as debit cards as well and can often function with or without a PIN (i.e., they are both debit and credit cards all in one). What this means in practice is that if your card is stolen it could be used fraudulently, even without your PIN, and the money would be immediately deducted from your account. While you can usually recover (most of) your loss, as long as you report the theft in a timely manner, you are going to be without the use of that money until the situation is resolved. I recommend that you not use the bank issued debit card and instead request that they set the credit limit for debit card (or "point of purchase") transactions to $0. In this way, you can still use your card at ATM machines, but you are more protected in case your card is lost or stolen. Apply for a separately issued credit card from your new institution and use that for purchases.