Fees are at an all-time high at the nation’s big banks, while the interest they pay is at an all-time low. Worse yet, evidence recently has come to light of the criminal abuse of a practice common among large banks since the fall of Glass-Steagall: cross-selling.
Cross-selling is rooted in consumer research that large financial institutions tend to salivate over. It shows that customers are more profitable for longer when they own more products. How else could they get us to settle for deposit products for which we pay them? Does this absurdity leave you, the bank customer, wanting to bolt from the big banks?
Fortunately, you have alternatives. Here are some options:
I’ve been using an online bank for several years now and haven’t paid a single ATM fee for that entire time — and I can go to any ATM in the known universe (seriously). In the past year alone, I’ve received more than $200 in ATM fee rebates.
I recommend that you choose an online bank that best serves your needs and lifestyle. Mine, for example, offers unlimited ATM reimbursement, but others will cap the reimbursement amount or restrict you to a (typically large) number of “free” ATMs. Those banks, however, may pay a higher level of interest than my bank. NerdWallet did an excellent job summarizing the best online checking accounts of 2016.
Beyond daily banking, however, it can still be good to have a relationship with a local bank or credit union, because they also tend to offer higher rates on deposit products and lower rates on loans. You may also want use them for a financial-planning tool that I value very highly for unexpected opportunities or emergencies: an unused home-equity line of credit (preferably with a rate no higher than Prime plus one, no origination fees, no annual fees and no prepayment penalties).
Regardless of whether you use an online or physical bank, the only options you should consider are those with Federal Deposit Insurance Corp. (FDIC) protection.
You can create your CD ladder through traditional, big banks, but it’s likely easier to purchase “brokered CDs” in your taxable accounts, although this strategy certainly requires more skill.
Given these readily available alternatives, are there any good reasons to stay with a big, traditional bank? Not really, unless you’re interested in strengthening the bottom line of banks deemed “too big to fail.”
This commentary originally appeared October 17 on CNBC.com
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