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Are Big Banks doomed? Look at these survey results

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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.

This pisses me off like you wouldn’t believe. (By the way, here’s how you can negotiate out of bank fees: Part 1 and Part 2.)

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 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

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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:

Charles Schwab
ING Direct
PerkStreet Financial

* * *
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  1. I made the switch from Bank of America to Perkstreet and have been very happy. I had some initial difficulties with my account and when I called customer service, I got a human being immediately.

    Does anyone have a solution for people who dislike big banks, but need to regularly deposit cash? My parents would like to move away from BofA, but we live in a small town, there are no other local options, and the store they own does a lot of business in cash, so they need to be able to make deposits.

    • Why not deposit into BofA at the local level and then transfer through online banking into an online bank like Perkstreet. This way, they can run most of their banking online while having the local capacity to walk up to the teller and deposit cash. BofA can’t require you to keep money in the bank–at best they can charge a monthly checking service fee…but that would still be nominal.

  2. The other great alternative to big banks is your local credit union. They offer all the same services as a “big” bank, but for free. Do a search for any local credit union, and you’ll usually find checking and savings accounts with NO monthly fees (I found this for my personal AND business accounts), direct deposit, free online bill pay, savings accounts with higher interest rates, and ATM debit cards. Credit union accounts are also federally insured, so you don’t have to worry about your money. I love my credit union, and will NEVER go back to a big bank.

  3. Your post title talks about doomed banks. Why is ignoring small-time, high effort customers going to doom the bank?

    They still have high profit business customers, credit cards, all kinds of loans, investments, etc.

    We always knew banks didn’t care about customers, but they don’t make their profit from piddly account holder fees. Account holders cause expense because they need people and branches. Yes, they could offer lower rates to online only account holders, but would that allow them to close any branches?

    Online-only banks have lower cost structure to service the client, so they can lower fees while still covering expenses. But if your aging mom refuses to use the Internet then a bank will have to keep a building open and have people around to do her typing for her.

  4. CREDIT UNIONS. I’m surprised you don’t mention credit unions at all. My local credit union has incredible customer service, ATM refunds, a 3.5% rewards checking account, and they do manual underwriting for loans. Also? Free workshops and classes for members on financial literacy.

    Credit unions kick ass any day.

  5. I so agree with this. I haaaated BoA when I used it and I definitely regret signing up for them when I was eighteen. Thankfully, fees and fees later and thanks to your book, I decided to switch to Charles Schwab and it was so much better. No overdrawn fees and other stupid fees, great service, interest (as piddling as it may be sometimes) and ATM rebates (still the best part). I’ll never go back to a big bank. It can be annoying to transfer cash and paychecks there (before direct deposit goes into effect) but it can be done for free which works for me.

  6. I love banking with Chase. Their a big bank and I take advantage of their vast network of branches and kiosk that are on every single block. I can deposit or withdraw my money at any time and that convenience I value. For example, I can deposit my check or check my statement at a kiosk (since I don’t own a internet ready cell phone) when I’m grocery shopping. I keep only a certain threshold in my Case checking and the rest transfer to ING direct.

    What I like about Chase is that I also have my credit cards (one of the best gas rewards card) and mortgage with them and its convenient to see everything in one login and automated within Chase.

    If you know how to utilized the big banks, it doesn’t matter if you go with them.

  7. I’m very interested in the ING system because of the sub-savings accounts, however it doesn’t look like they offer a checking account. Does anyone know of a bank that offers both?

  8. I have my checking at an credit union and my saving at ING direct. Be fine since I started. No issues

  9. Yes, big banks suck more than BP’s oil cleaning strategy, which really suck (rather fail to suck). We’re big fans on Charles Schwab, ING Direct, and credit unions. A great ING Direct perk is the online mailing option, which will send out a check with free postage.

    We too hope big banks fail, but they won’t go out without a fight of course. Posts exposing them for the douche bags that they are will be of great help.

  10. I bank with a couple of community banks, and a big national bank. (YCB, and 53 )

    I think I am happy with both, since I have the free checking, and also the convenience of running up to the bank whenever I need to get a money order or any such stuff which needs an actual person ( Notarizing documents, getting signed bank statements) etc.
    I do not incur any “special charges”, neither is the banker trying to up-sell to me.

    These work well with me, since I need to get such services done on a regular basis ( about once a month ) ….. thereby making my switch difficult from the traditional banking to online banking.

    However, I am going to check out the other online banks you have mentioned here for my personal savings, and compare the different banks based on what my specific needs are for banking.

    Anyways, Ramit, just wanted to say that you are one of my inspirations for blogging, and being a tech-entrepreneur.