It may be time to revamp your banking relationships.
With financial reform choking off a variety of bank fees and other traditional sources of bank revenue, consumers are likely to see their financial institutions shift costs and service charges to areas unaffected by regulatory reform, said Adam Levin, co-founder of the credit-shopping website Credit.com.
That means your checking account might cost more, your credit-card reward program might provide less and your best bet for borrowing may not be the neighborhood bank.
“The landscape is changing radically,” Levin said. “You have to look at this whole thing like a chessboard. You can’t watch only one piece and think you’re seeing the whole picture.”
In an environment where banking wisely can be a strategy game, how do you set yourself up for a win? There are new options to consider these days.
Shop around. You need a checking account, but do you need a local bank? The answer to that question pivots on whether you bank in person.
If the last time you saw a teller was 1967, you may be the perfect candidate for a “reward checking” plan, said Gregg McBride, financial analyst with BankRate.com, a rate-comparison site.
What’s reward checking? It’s a free account with strings. Specifically, you must agree to have your checks directly deposited, use your debit card several times a month and pay your bills online.
If you do that, you earn interest on your checking balance that rivals CD rates, which are about 10 times higher than the typical rate paid on interest-bearing checking accounts.
A recent BankRate survey found more than 40 institutions offering these accounts, McBride said. The banks were predominantly small community banks, credit unions and banks that did business solely over the Internet. Customers can get cash through automated-teller-machine networks and the use of their debit cards, but the banks don’t have convenient branch networks.
“It’s not a fit for everyone, but for those who like banking electronically, you get paid for doing stuff you’re already doing,” McBride said. “You can earn 2.5 percent to 3 percent interest on your balance for having direct deposit, getting your statements online and using your debit card 10 times a month. For a lot of people, that’s like getting up and tying your shoes in the morning. It’s nothing that you wouldn’t do anyway.”
Connect your accounts. There are two reasons to connect your savings and checking accounts. One involves overdrafts; the other offers a potential for free checking.
By connecting accounts, you can avoid fees for careless errors, such as when you overspend by $5 at the grocery store and get hit with a $35 overdraft charge.
If you connect your checking account to a credit card or savings account, you’ll pay a fee to transfer money from savings to checking when necessary, but it will be a lot less than the standard overdraft charge for so-called automatic overdraft protection.
Banks must get you to “opt in” to this costly overdraft protection under new rules. Don’t. Connecting your checking and savings accounts gives you the same protection at a fraction of the cost.
The other benefit of connecting accounts is to vault over minimum-balance requirements that determine whether you can get your checking account free. In the new environment, it’s likely that minimum-balance requirements will rise, Levin said.
That may make it smart to put more accounts under one roof. In many cases, banks will look at your entire “relationship”—mortgage, checking, savings and credit cards—to determine whether to charge a fee for any given service.
And it’s common to aggregate the deposits you have in savings, checking and certificates of deposit to figure whether you meet minimum-balance requirements. Banks aren’t paying great rates on checking or savings accounts. But if having $2,500 in checking means you avoid a $6 monthly fee, that’s the equivalent of a 3 percent return, which isn’t half bad in today’s rate environment.
Manage rewards. If you’re a good credit risk, now is the time to shop for a rewards credit card, McBride said. Fair Isaac Corp., which developed the ubiquitous FICO score, says that roughly one-quarter of Americans are now in the ratings basement with scores below 600. But more than half of the population have enviable scores of 700 or more. That makes them attractive to card issuers, which are competing for business again.
Half a dozen banks have lengthened the duration of low-rate “introductory” offers, allowing customers to enjoy 12 to 18 months of cheap or free credit, according to Bill Hardekopf of LowCards.com, another rate-shopping site.
Several issuers have also revamped their reward programs. These new programs can help careful users get more points for their purchases, but they also give banks potentially valuable information about you.
“Credit card companies have always had a lot of information about what you’re buying,” said Murali Subbarao, founder and CEO of the website Billeo.com. “With these reward programs, they get some new information on how responsive you are to offers.”
Airline reward cards, the traditional favorite, are looking less attractive these days, McBride said. The reason: The cards provide as many “points” as before, but the airlines are making those points more difficult to redeem.
“If you are a good credit risk, now is the time to shop around,” McBride said. “There’s a lot of innovation going on in this space.”
Kathy Kristof’s column is syndicated by Tribune Media Services. She welcomes comments and suggestions but regrets that she cannot respond to each one. E-mail her at email@example.com.