In my book, I’m extremely critical of Big Banks like Bank of America and Wells Fargo, who routinely treat their customers like shit, offer terrible services, and use inscrutable fee schedules to make billions of dollars per year from worthless fees alone.
10 years ago, there weren’t many other choices for banks. Like a short, fat guy with no social skills, you took what you could get. But now, things have changed, and our short fat guy has turned into a prince with lots of options.
There are now dozens of other banks to choose from, especially from online banks that typically offer higher interest rates, better services, and fewer fees. And people are smart: They’ve been aggressively moving from some of the shittier Big Banks to online banks that offer them terrific service. For example, I use a combination of ING Direct and Schwab, pay no minimums or fees, and have automatic sub-savings accounts that I use in my automation system. I also withdraw my money from ANY ATM and get refunded 100% of ATM fees.
These choices are frightening the Big Banks, which are structurally poorly positioned for these insurgent banks. Since they have no other way to compete, what do they turn back to? Ah yes, the trusty trough of fat fees:
Starting July 1, Wells Fargo & Co. is ending its free checking account. Bank of America Corp. is testing an array of account options and fees to be rolled out later this year. Other banks are expected to follow suit. (via LA Times)
Bank of America Corp. and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans. (via The Wall Street Journal)
Starting in July, banks will no longer be allowed to automatically enroll customers in overdraft “protection” programs—and thus slap them with hidden fees when they overdraw their accounts. Instead, banks will be forced to obtain customers’ permission (opt-in) before allowing them to overcharge their debit card. (via ING Direct, which is obviously biased, so keep that in mind)
Recently, I partnered with my friend Rob Rubin from FindABetterBank.com to get some data on how we feel about our banks. We surveyed over 1,000 people and found some surprising insights about banks and the direction of the industry.
This is an exclusive analysis from I Will Teach You To Be Rich and FindABetterBank.com.
Online Banks Spell Doom For Branch Banking
By Rob Rubin (Rob is the creator of FindABetterBank)
Online banks have been around for a long time, but they haven’t been much competition for traditional banks – until now. The early online alternatives sputtered along because traditional banks provided the same or better technology-based services, many people required a nearby branch, they offered a limited set of products beyond checking and savings accounts and online banks didn’t invest enough into customer service.
But everything has changed. We surveyed IWTYTBR concerning their feelings toward their primary banks. Sixty percent of respondents were under 30 and a whopping 22% of these young adults identified an online bank as their primary banking institution (See Figure 1).
Here’s why traditional banks are in trouble:
Young adults don’t have old habits. People under 30 use bank branches less than older adults – even if they use a traditional bank. Not surprisingly, they are also more likely to utilize mobile banking services and log onto online banking frequently (See Table 1). This generation and the one’s yet to reach adulthood are more comfortable using technology then waiting on a line for the next available teller.
Today, online banks are kicking big and regional banks’ asses. We asked a simple question that says it all: “If you could have a do-over without any cost or inconvenience, would you choose the same bank you’re currently using?” Over 35% of people using banks with 100 or more branch locations want a do-over, but only 2% of people using online banks indicate they’d like to change their bank. Wow. (Attention big bank customers: Just for fun, join my new Facebook group “1,000,000 people who hate their bank”)
Why people love online banks:
“The ATMs are free, and they have an amazing (FREE) bill pay/automatic check generator feature- so cool!”
“Refunds from ATMs, even internationally; 2% cash back; got me to open a brokerage account.”
“They aren’t out to get me. BEST web/mobile banking.”
“They have the highest quality customer service that I’ve seen for an FI. Plus, I get free investment advice!”
Why people want to switch away from big banks:
“Every time I walk in to make a deposit I am confronted by a sales person trying to up sell me.”
“They keep changing the rules, adding more and more fees and restrictions on savings and checking accounts because I have no loans etc.”
“I hate what they’ve done to this country.”
“I’ve realized that I’d rather be banking with a smaller, community bank rather than a corporate behemoth”
New features negate the need for branch banking. In the past, adoption of online banks was held back because consumers didn’t have a convenient way to make deposits and withdrawals. But now the advent remote deposit services, ATM fee rebates and easy funds transfers has leveled playing field.
“Ability to deposit checks from home using my scanner!!!!”
“Ability to use any ATM location – refunded fees.”
“With ING’s new ATM finder app I’m falling in love all over again.”
“Their Instant Line of Credit is awesome. You pay a little interest on the money you borrow but no NSF or overdraft fees and the interest they pay usually covers what you’ve borrowed.”
“Amazing online interface and mobile banking app!!!”
If you haven’t yet made the move to an online bank, here are good choices to consider:
For more analysis of the survey, read my latest post on Huffington Post.