Is it time to say goodbye to big banks? 29 Sep 11

Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. Picture taken November 3, 2009

By Linda Stern

WASHINGTON | Wed Sep 28, 2011 1:52pm EDT

(Reuters) – The big boys like Bank of America and Citibank are having problems with share prices and profitability, and the upstarts are hitting them while they’re down.

New banks and bank-like companies including BankSimple and PerkStreet are creating cheaper online accounts. Traditional niche players like credit unions and community banks are banding together in networks to grab your business. Online-only banks like ING Direct and Ally Bank are pushing their higher interest rates on savings.

With the major banks regularly changing (by which I mean raising) their fee structures and paying minuscule rates of interest on savings, it’s worth asking: Is it time to go small, new and different?

That’s a tough call for most consumers, because bank industry offers, terms and services change daily. But here are some ways to approach that decision.

– Check out the newbies. BankSimple hasn’t even launched yet, though it will very soon. It’s an intermediary firm that looks like a bank and partners behind the scenes with smaller banks. It will offer checking without monthly or overdraft fees. PerkStreet is an Internet bank offering big rewards for debit card users. New banks and quasi banks are coming on line more frequently; there may be more competition from them going forward.

– Figure out how much you are willing to pay for convenience. The big banks do offer everything under one roof and state-of-the-art bill-paying. They have wide networks of ATMs and branches, allow you to easily move money from one account to another and offer specialized rates and deals to the customers who keep the most money and accounts all in one place. For all of that, you may end up paying higher fees or giving up the best possible deal on your savings and mortgage.

If you really want that convenience, and have enough money in play to get their best rates and fee waivers, stay big. But be aware “that bundled pricing is not optimal pricing,” says Bankrate’s Greg McBride.

– Resist that urge to consolidate, especially if you have less cash to play with. Everyone wants all of your money and all of your accounts under their roof, so they can cross-sell to you and see at an algorithmic glance what you’re likely to buy and how much you’re willing and able to pay for it.

But there are benefits to spreading the money around, says Steve Schultz of Pageonce.com, an on-line account aggregator and personal finance management service. If you maintain accounts at more than one institution, you may get access to the better credit card or auto loan when you need it.

– Consider a credit union, even if you have another bank. They tend to have lower fees and better rates on loans, says Ken Tumin of DepositAccounts.com, a comparison Website. The big criticism of credit unions — that they lack the big footprint needed for convenience — is no longer such a problem, because they have joined into national branch and ATM networks like the Credit Union Service Centers Network (www.creditunion.net.) With one credit union account, you can make deposits and withdrawals at branches or ATMs all over the country now. And if you’re hooked on using your debit card, consider switching to a credit union or small bank — they won’t be as affected by the new limits on debit card fees as the big banks will.

– Keep your personal accounting and bill-paying independent. Once you’ve arranged to have all of your bills sent to your bank and paid automatically by your bank, how likely are you to switch to a different institution? On-line bill-pay and spending reports makes bank sites “sticky.” If you use independent accounting services, like Quicken or Mint, and bill-paying services like Paytrust from Intuit or MyCheckFree from Fiserve, you’ll be a little bit freer to move your money from one institution to another as your bank terms change. You’ll only have to change one account number in the program, and not dozens of them.

But that’s a space you will have to keep revisiting. Independent bill-pay services are fledgling, and not currently at the level offered by the major banks. New services are in the offing and should be announced in coming weeks and months. So, watch that space.