This post explains how your big bank may be taking advantage of you through abysmal interest rates and exploitative fees and why you need to consider a breakup.
You guys, it’s time to have one of those oft dreaded breakup talks. No, not with your boyfriend, girlfriend, partner, or spouse. Well, maybe, but I can’t help you there. This break up talk is about you and your bank. If you’re banking with one of the biggest, most popular banks in America, you might be in an exploitative, almost abusive, relationship without even realizing it. This post will will talk you through some of the pitfalls of banking with large banks like Wells Fargo and Bank of America, and will help you identify whether you should explore alternative options. First, let’s talk about some of the downsides to America’s major banks.
Abysmal Interest Rates
A major drawback with many of the big banks is the abysmal, effectively non-existent, interest rates you get on your savings accounts. For many, the rates are near zero. Let’s look at the current rates for some of the most popular accounts out there*:
Wells Fargo Way2Save® Savings: 0.01%
Wells Fargo Platinum Savings: 0.01%
Bank of America Regular Savings Account: 0.01%
Bank of America Rewards Money Market Savings® Account: 0.03%
As you see above, a big bank savings account likely offers you an interest rate of just 0.01%. This would get you a paltry $0.05 a month on a savings account that has a balance of $5,000. At the end of the year, you wouldn’t have earned enough to buy a small drip coffee at your local coffee shop. And that $.05 is assuming you’re able to keep $5,000 in savings, which is out of reach for many students and young people living on small stipends and entry-level salaries. With rates this low, having one of these accounts has little to no financial benefit for you. Walking the streets looking for dropped pennies has more financial payback than having your money in these big bank savings accounts. The only one benefiting from you having an account like these is the bank. And so we come to the second major reason why you need to break up with your bank—fees.
Fees and Caveats
A second major drawback to big banks is fees. Have a period where you don’t have the minimum required balance in your savings account? That’s going to cost you between $5 and $12 each month depending on your savings account. Let’s explore the Bank of America Rewards Money Market Savings® Account, the one with the highest interest rate of the accounts listed above, in more detail.
This account has a monthly service charge of $12 per month unless you maintain a balance of at least $2,500 in the account or have it linked to a Bank of America Interest Checking Account. The linked checking account has no monthly service charge so long as you maintain a $10,000 balance across your checking, savings, and linked Merrill Edge® and Merrill Lynch® investment accounts, but otherwise you pay a whopping $25 a month for the checking account. Confused? They want you to be. If you’re confused, you’re apt to mess up, and when you mess up, they get paid.
Many of the big bank accounts have a confusing array of requirements that you must meet every month in order to avoid being charged a service fee. These often require who you to have two or more specific types of accounts open with them and you must meet specific criteria with each of those accounts in order to not pay fees. What’s worse, the requirements and criteria often change, so a setup that helps you avoid fees when you open the accounts might not be fee-free a few months later. They might raise the minimum balance required in order to not pay a fee, for example. Don’t have that money right now? No worries. They’re happy to deduct money from your account each month.
Big banks are set up to treat you especially badly when you’re young and haven’t yet accrued much wealth. There are often better rates and additional perks for people who are able to maintain large deposits of $10,000 or more, but the perks for students and young people are relatively non-existent. If you’re paying any fees and have interest rates as low as these outlined above, you are being exploited. Just one $5 maintenance fee is the equivalent of more than 8 years worth of interest you would earn with a rate of 0.01% on a $5,000 savings balance. Let me reiterate, if you pay just one maintenance fee on your checking or savings account, you are being exploited, and you need to get out.
Ready to end your abusive relationship with your bank? Here’s what’s next…
In the next few posts in the Break Up With Your Bank series, I will walk you through alternative checking and savings account options that have fewer caveats and much better benefits. Breaking up with your bank might sound unpleasant and intimidating, but I’ll be here to help walk you through it. You’ll be better off in the long run, I promise.
*Note: Interest rates were current at the time of posting. See the corresponding bank websites for the most current rates.