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Eliminating Fees

Your neighborhood branch is making $1 million a year in hidden fees

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Banks make a lot of money from basic checking and savings accounts. It may seem surprising that boring, basic accounts remain such big money-makers for the banks, but banks are making billions every year, largely because we stay with large traditional banks for no apparent reason. Banks call it “inertia,” and they profit from it.

promo-savings-halfOn savings accounts, banks make money by paying depositors virtually no interest. Most major banks pay an interest rate of only 0.01% on their savings accounts. And then they use the money customers deposit to make loans at much higher rates. So, we are basically giving interest-free loans to banks.

There is good news: we no longer have to settle with 0.01%.

Branch-free banks are challenging traditional banks by paying interest rates of 1% or more. That may not seem like a big number, but it can be. If you have a $20,000 savings account, that is the difference between earning $2 or $200 of interest a year. We have compiled a list of the highest interest rate savings accounts, which we update daily. The banks do not pay us, so our recommendations are completely unbiased.

After raking in money on savings accounts, Banks turn their attention to checking accounts. Banks make most of their money by charging the following fees:

  • Overdraft fees: which represent approximately 60% of the fees charged by banks. Only 10% of the population pays 75% of the fees, and they tend to be the most economically vulnerable, including our troops.
  • ATM fees: which can add up quickly. If you go out of network, you pay ATM fees to two banks: your bank, and the bank that owes the ATM
  • Monthly fees: which most people get waived. A direct deposit or minimum balance usually takes care of this fee.

And these numbers add up quickly. We have used FDIC data to see which banks charged the most per branch in fees on checking and savings accounts. Although we expected big numbers, even we were surprised at how much fee income was generated. Bank of America was the worst offender of the big banks, generating nearly $1 million per year per branch in fees. Every time you drive by a Bank of America branch, remember that the bank is earning $1 million in annoying fees alone.

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We list the fees per branch below. But, just like with savings accounts, there are new alternatives out there. You can now get a bank account with no monthly fee (and no direct deposit requirement), no ATM fees (including reimbursement of other bank ATM fees) and no overdraft fees. Some of our favorite options include Bank of the Internet and Ally Bank. But you can compare all of the account on our checking account page.

If you are drowning in overdraft fees, or travel and are tired of ATM fees, then switching is a no-brainer. But, you may be thinking that you never pay any fees and don’t really have any problems with your bank. I was in that camp. But then I decided that I didn’t want to stay with an organization that just waits for me to make a mistake, and then charges an outsized fees. Like any other industry, I want to reward better organizations with my business, and I switched to Ally.

Stay Up to Date

price checker thumbnailAt MagnifyMoney, we want people to get in the habit of comparing, ditching and switching. If you find a gas station with cheaper gas, you switch. But, most Americans just stay with their bank. We want people to pay attention to the rate, tricks and traps and be ready to switch when a better deal is out there.

To keep you informed, we created our PriceChecker email, which goes out twice a month. With a quick glance, you can see if you have the best rate on your savings account. We also show the best mortgage rates, credit card deals and cashback rewards. And, whenever we find a fine print trap, we let you know about it. You can sign up for our email list here.

#1 on the list is Fort Hood Bank, targeting the people who serve our country in the armed forces.  Their customers will likely have limited assets, and the fee revenue will likely be dominated by overdraft and NSF fees.

#2 on the list is Cole Taylor Bank, which has made news targeting college students on financial aid, who also have limited assets.

#3 on the list is The Northern Trust Company, a private bank.  The average account generated $477 in fees last year. They have 77 offices.

#4 is Bank of America, with 5,319 branches. BofA looks particularly bad when compared to the other big 4 banks:

  • Bank of America charges, by far, the most fees per branch.  23% more than Wells Fargo and 27% more than Chase.

  • Citibank only generates $278,210 per branch, 72% less than Bank of America.  Citi does not have an extended overdraft fee.

At MagnifyMoney, we believe that the overdraft market is ripe for disruption. The revenue generated from the activity bear no relation to the cost of providing the service. My thoughts on how we can make the system better are here.

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Eliminating Fees, Reviews

FamZoo Review: a Virtual Family Bank to Teach Kids About Money

FamZoo Review

When it comes to banking, most kids learn the hard way just how expensive their mistakes can be — with every sting of an overdraft fee or bounced check. Parents who would rather teach their kids how to manage their money without the risk of fees might consider FamZoo, a virtual family banking program. For a modest subscription fee, FamZoo provides the tools parents need to teach their kids about money management and banking.

Is FamZoo worth the cost?

In this review we cover:

  • What is FamZoo?
  • FamZoo Fees
  • FamZoo Benefits
  • Who Should Consider FamZoo?
  • FamZoo Drawbacks

 

What is FamZoo?

FamZoo is a “Virtual Family Bank” that allows parents to teach their kids about banking without requirinScreen Shot 2016-07-20 at 2.42.25 PMg kids to pay fees (as a parent, you will pay a monthly subscription fee).

FamZoo has two versions. The first version is a virtual IOU account that formalizes and tracks money flowing between parents and kids, but is not a bank at all. The second version gives prepaid debit cards to parents and kids that can be used anywhere that debit cards are accepted (including ATMs). Both versions cost the same amount for parents.

In addition to basic banking, FamZoo offers family oriented features. For example, family member can request reimbursements from other family members, and parents can offer loans to their kids and teach them to pay back loans in installments. With parent approval, money moves between family accounts instantaneously. FamZoo allows parents to fund allowances, and it helps kids divide their money between saving, spending, loan repayment and giving. As a parent, you can set a parent paid interest rate to encourage savings.

If you opt for prepaid debit cards, the cards will not allow your kids to overdraft, and parents and kids have access to a website to check balances, to review transaction history and more. Kids can also withdraw money fee free from in network ATMs.

FamZoo Fees

Subscription fee: Parents pay $5.99 per month (or $60 for 2 years with pre-payment) for up to four prepaid debit cards including a parent loading card. If you want more than four cards (for example to separate giving, saving and spending accounts, or if you have more kids), you pay a one-time $2 fee per card. If you lose a card, you can receive a replacement card for free.

Aside from the monthly subscription fee and the one-time extra card fee, FamZoo does not assess any fees, even if you manage to overdraft (which is possible if your transaction “settles” for an amount greater than was initially assessed).

Load fees: Depending on which financial products you use, as a parent, you may pay a fee to load your card. If you have access to Wells Fargo Sure Pay, Dwolla or PayPal, you can transfer money to your FamZoo account for free, or you can fund the account for free via direct deposit from your paycheck. Other loading options cost between $.95 and $7.00 per transaction. The institution where you initiate the transaction charges these fees, but FamZoo doesn’t add any extra fees.

ATM fees: FamZoo is part of the MoneyPass ATM network and withdraw cash at no fee. However, FamZoo warns that the other institutions usually charge a fee for out-of-network ATM use, and these fees aren’t reimbursed.

FamZoo Benefits

Parents have control: FamZoo is a stripped down bank that gives parents banking control, but it also has a few mainstream financial benefits. For example, MasterCard Zero Liability Protection backs FamZoo cards which means that they have fraud protection. Like other debit cards, they offer transparency, the ability to freeze an account if the card is lost or stolen, and the ability to track spending.

Helps teach saving and budgeting: The primary benefit of FamZoo is the way helps parents raise financially savvy kids. The software allows you to teach your kids to track expenses, set budgets, and split money into various accounts (a modern version of the envelope system). As a parent, you can add complexity (adding interest, loans, etc.) as your kids mature.

FamZoo Drawbacks

Older kids outgrow the account: Teens and college students need a supplemental checking account for depositing paychecks, so FamZoo won’t work as a primary banking option for them. Once kids need their own checking account, parents and kids should treat FamZoo as a supplemental banking account rather than a primary account.

False sense of real-world banking fees: FamZoo puts guardrails in place, so kids don’t get hurt when they fail to manage their money well (they can empty out their bank account, but they won’t pay overdraft charges and they cannot go into debt except to their parents), but parents who use the software also need to teach their kids about banking fees outside of FamZoo. This will be especially important as teens set up their first checking accounts.

Who should use FamZoo?

FamZoo suits parents with kids who don’t yet have jobs or their own bank accounts who want to teach their kids financial principles. FamZoo makes teaching basic finances easy, and if your kids make mistakes, they don’t have to pay outsized fees.

Parents of early elementary through early high school will appreciate the valuable teaching opportunities that FamZoo provides, and parents with older teens and college students can advantage of transferring money with ease.

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What the New DOL Fiduciary Rule Means For You

Geeting advice on future investments

Over the past several months, everyone from politicians to personal finance gurus have been weighing in on what the U.S. Department of Labor’s new fiduciary rule will actually mean for the financial industry and consumers. Six years in the making, Department of Labor Secretary Tom Perez finally made announcements about the final version of the long-awaited rule at the Center for American Progress last past week.

Aimed at saving consumers billions of dollars in fees in their retirement accounts, the Department of Labor’s new fiduciary rule will require financial advisers to act in your best interest. However, the final rule includes a number of modifications, including several concessions to the brokerage industry, from the original version proposed six years ago. Here’s what you need to know about these new rules and how they may affect your money.

What is a Fiduciary?

So what exactly is a fiduciary? According to the Certified Financial Planner (CFP) Board, the fiduciary standard requires that financial advisers act solely in your best interest when offering personalized financial advice. This means advisers can’t put personal profits over your needs.

Currently, most advisers are only held to the U.S. Securities and Exchange Commission’s suitability standard when handling your investments. This looser standard allows advisers to recommend suitable products, based on your personal situation. These suitable products may include funds with higher fees — with revenue sharing and commissions lining their own pockets —  which may not reflect your best possible options.

What is Changing Exactly?

Affecting an estimated $14 trillion in retirement savings, the Department of Labor’s new fiduciary rule is meant to help you receive investment advice that will aid your nest egg’s ability to grow. Many investors have been pushed toward products with high fees that quickly eat away at profits.

All financial professionals providing retirement advice will soon be required to act as fiduciaries that must act in your best interest. This applies to all financial products you may find in a tax-advantaged retirement accounts. Because IRAs offer fewer protections than employment-based plans, the Department is concerned about “conflicts of interest” from brokers, insurance agents, registered investment advisers, or other financial advisers you may turn to for advice.

Despite these new protections, the Department of Labor also made some key concessions. Previously, brokers were required to provide explicit disclosures about the costs of products to their clients. This included one, five, and ten year projections. However, this requirement has been eliminated. After heavy pushback from the industry, the Department of Labor also agreed to allow the use of proprietary products.

Additionally, the Department of Labor has pushed the deadline for full implementation of their new rules. Firms must be compliant with several provisions by April 2017 and fully compliant by January 1, 2018. Although the rules have been finalized, a court challenge is still possible.

Despite all of these concessions, the Department of Labor’s highest official insists the integrity of their rule is still in place.

Exceptions You Should Know About

Although advisers working with retirement investments will no longer be able to accept compensation or payments that create a conflict of interest, there’s an exception many brokers will likely pursue.

Firms will be allowed to continue their previous compensation arrangements if they commit to a best interest contract (BIC), adopt anti-conflict policies, disclose any conflicts of interest, direct consumers to a website that explains how they make money, and only charge “reasonable compensation.” The best interest contract will soon be easier for firms and advisers to use because it can be presented at the same time as other required paperwork.

How These New Rules Might Affect Your Investment Options

Although these new rules don’t call out specific investment products as bad options, it’s expected advisers may direct you to lower-cost products, like index funds, more regularly. New York Times also predicts the new regulations may also accelerate the movement toward more fee-based relationships. They also suggest complex investments like variable annuities may soon fall out of favor.

What Will the Larger Impact of These Changes Be?

Backed by extensive academic research, the Department of Labor’s analysis suggests IRA holders receiving conflicted investment advice can expect their investments to underperform by an average of one-half to one percentage point per year over the next 20 years. Once their new rules are in place, they are anticipating retirement funds will shift to lower cost investments, savings consumers billions of dollars.

What You Can Do To Protect Yourself

Although these new rules are a positive step for consumers, it’s important to remember there are still a wide variety of financial professionals out there. And the quality of the advice you receive can vary greatly based on their level of education, experience, and credentials. In order to find someone who is equipped to handle your unique financial situation, you will still need to do your homework.

You may want to start by looking for a fee-only financial planner. Due to the nature of how they are compensated, fee-only financial planners operate without an inherent conflict of interest. They are paid a fee for the services they provide and they don’t earn commissions from product sales.

Once you’ve narrowed down your options you’ll want to ask about their credentials, what types of clients they work with, what types of services they offer, while carefully checking their background and references. Like any professional working relationship, you’ll want to feel comfortable with someone you are receiving financial advice from, so it’s important to make sure your personalities and priorities are aligned. Remember, no one cares more about your money than you do. That’s why it’s essential to carefully vet anyone who is working with you to secure a healthier financial future.

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Your Script For Negotiating Credit Card Fees

Credit Card Fees

You probably already know that you can haggle over items at a flea market or the price of a new car, but the one thing many people don’t haggle over — but should — is credit card costs. Whether it’s the first time you’ve missed a payment and you’re being charged a fee, or your interest rate is too high or you want to increase your available credit line, everything is negotiable.

If the thought of haggling with your big, scary bank keeps you up at night, fear not — we have the scripts you can use for just this situation, so you’re more likely to stay calm, level-headed and actually get what you want.

The first thing to remember is that in many situations, you should act fast. The quicker your reach out a bank, the better your chance of getting the situation resolved to your liking. Most consumer protections related to fraud disappear if you wait longer than 60 days to bring it up, so missing this window could mean assuming liability. Your goal with disputes related to a fee the bank has a legal right to charge (think overdraft or late fee) is to get the bank to overturn it as a gesture of goodwill, probably because you’ve been a responsible customer.

When you do call, ask to speak first to a customer service representative, and when you get one, be friendly and succinct. In life they say you catch more flies with honey than vinegar, and the same is true in banking. No matter what you’re asking for, you’ll want to point out how long you’ve been a loyal customer and why you’re valuable to them (aka how much you spend with them), and explain what you want in simple terms. For example, you might say:

I’ve been with this bank for 10 years, and I spend at least $2,000 on my credit card each month. If you can’t help me resolve my problem, I will have to ask that you close my account.”

 If you’re requesting that a late fee be removed, and you believe the fee has been charged in error, you have even more leg to stand on. Then you might add:

“I don’t believe my recent late fee is justified. I submitted my payment on November 6th, which is the same time I submit it every month, but for some reason I was charged a late fee this month. I would like for the fee to be reversed, and for you to ensure that no reporting has been done to the credit agency.”

It also behoves you to thank the customer service rep in advance for any help by saying something like:

“I understand mistakes happen, and I really appreciate your help. If we can resolve this today I’ll be sure to recommend your services to friends.”

If the customer service rep can’t help, ask to speak to the team that handles complaints, or to the manager. At the end of the day, banks really hate to lose a customer, so threatening to leave (even if you don’t really plan to) is a good tactical maneuver. What’s more, when you are transferred to a Retention team after threatening to leave, you will often be offered further incentives to stay, which could then include options to reverse your fees, reduce your APR or increase your credit limit.

If at the end of the day you can’t get what you want from your bank, and you really think it might be time to cut your losses, remember that you can close an account, even if you carry a balance. Just say:

“I’m going to close my account and use another card issuer. I’ll transfer my remaining balance over to them with a balance transfer. It would be really easy for you to stop me, but if you can’t [insert what you’d like done here], then I’ll have really no choice.”

Check out more information about haggling with your credit card company (whether via phone or social media, which is another good way to go) in this story.

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Should Millennials Use a Robo Advisor?

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If you’re like most 20- and 30-somethings, you don’t feel so sure about investing in the stock market. After all, it’s a volatile place that can take a nosedive based on factors outside of your control. Investing in stocks feels a little like gambling with your hard-earned money, and Wall Street is the house.

Of course, the reality is that investing to grow wealth is a savvy money move – but you need to know how to invest wisely. If you’ve worked through your fear of putting money in investment accounts, you may get tripped up by another common stumbling block for Gen Y: one in four millennials doesn’t trust anyone for financial advice.

But figuring out investments on your own is not easy (or smart). Traditionally, people have turned to financial advisors – but millennials may struggle to find an advisor they can connect with. Most require asset minimums that people in their 20s and 30s can’t afford and the average age of an advisor is about 55 (which creates a big disconnect between them and their young clients).

So where do you turn to if you don’t feel like you can trust the advice you’re getting? How can you find a way to get help in managing your money to grow your wealth?

Automated investment platforms, nicknamed robo advisors, hope to provide you with a solution.

What Are Robo Advisors?

CNN called robo advisors the next big thing in investing for younger generation, and for good reason. These platforms are technology-driven, run off algorithms that consider the variables you plug in and then manage your money for you. That’s all there is to it – no broker to worry about, no “advisor” who’s actually a commission-based salesperson and provides you with bad advice to enrich themselves.

Computers automatically adjust your asset allocation, attempt to help you save in taxes, and provide beautifully designed dashboards so when you log in to check on your money, you can get a big-picture view of your investments all in one place. You can get simple and affordable investment management without having to figure it out all by yourself.

There are a number of robo advisors out there, including:

  • Betterment
  • Wealthfront
  • Personal Capital
  • Jemstep

Each one offers something a little different, but at their cores they’re all striving to make investment simple, straightforward, and easy for beginner investors to use.

Is a Robo Advisor Right for You?

One of the biggest advantages to robo advisory platforms is the fact that most don’t require asset minimums out of the reach of the average millennial investor. Many traditional RIAs (or registered investment advisors) required you to already have $500,000 or more before they’d work with you as a client. And not many Gen Yers have half a million lying around just waiting to be invested with an advisor.

Robo advisors provide you with a way to get your money in the market, which is a huge hurdle for most people to overcome. Confusion over what to do or who to do it with prevents many people from getting started at all.

A robo advisor may be right for you if you know you need to get started investing — with whatever you have – but aren’t sure how to do it yourself and feel uncomfortable paying a traditional financial advisor. As your financial situation changes, you may want to find a way to acquire individualized guidance. But an automated approach from a robo advisor can help you get started on the right foot.

The Drawbacks of Automated Investment Platforms

Some argue that robo advisors are much too simple for serious investors with big money to invest. Most use Modern Portfolio Theory to determine where to place your money. For those willing to do some research, they can set up similar portfolios on their own and cut out the robo advisor’s fee.

For example, Betterment uses Vanguard ETFs in its investment plans. You could easily go straight to Vanguard and buy into those funds yourself instead of doing it through Betterment.

Essentially, the robo advisors offer a one-size-fits-all solution. And you’re an individual, so these plans may not be the absolute best option available. It makes it simple and easy and keeps you from having to figure it out all by yourself, yes. But it may not be as robust of a solution for you as it is for the person down the street who has a different financial situation.

And the biggest drawback to these platforms is also the most obvious: there’s no one to talk to about your money. While it may be easier for Millennials to trust they’re getting objective financial advice from an unbiased, completely logical computer, you do lose something in the technology translation.

When It’s Time to Call in the Pros

Not everyone should rely on robo advisors for their investment management needs. That human connection is incredibly valuable.

Here’s the deal: developing a good financial situation is like developing good health. We all know the fundamentals are simple. Eat healthy and exercise. Save money and invest wisely.

Simple, but not easy.

This is the value of an advisor who can work with your individually and have real, live, human conversations with you. They can talk about your goals, walk you through complicated situations, and stand between you and a silly mistake — like pulling your money out of the market when it’s crashing (when the rational move is to leave your money alone and stay the course so you can ride the wave back up).

You should consider getting in touch with a financial advisor if you want a comprehensive financial plan, and not just help in managing your investments. Remember, investing is only one part of your much larger relationship and situation with your money.

You should know how to look for the right financial advisor for you, and you should know where to look too. Start by searching NAPFA, the largest professional organization of fee-only financial planners, or check out XY Planning Network, the leading group of fee-only financial planners who specialize in helping Gen X and Gen Y.

Both groups adhere to a fiduciary standard and do not earn commissions off product sales. Also, you may want to focus on only considering financial planners who don’t have asset minimums.

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Best Bank Accounts for College Students

Best Bank Accounts for College Students

For most students, the college experience is like dipping one’s toes into the “real world”. Yes, a student may be living away from home but their parents are probably still helping financially. Before anyone blushes, it’s okay. According to a University of Michigan study, more than 60% of adults between the ages of 19 to 22 still receive financial support from their parents. They receive, on average, $7,500 per year. This includes costs like college tuition, rent, and transportation. This makes it important that parents find an economical, fee-free way to send money to their children.

But remember, college is typically a transition period in which child should begin having more control over their financial lives, which means finding the best checking and savings accounts. Our round up of bank accounts for college students below offer options for parents to send children money without fees, stellar overdraft protection and even foreign ATM reimbursements.

For Parents Sending Money to Students

Bluebird by American Express

You may have seen these blue cards at Walmart checkouts. They’re quite popular. The Bluebird card serves as a prepaid debit card of sorts. It’s free to set it up online. It costs $5 for an in-store Set Up Kit to begin using right away.

It doesn’t cost anything to send or receive money. Parents can load the card in a number of ways. The fastest way is to send money to the card via an electronic bank transfer (yes, there is an app). Simply connect a checking or savings account to the card and begin transferring funds. It’s just like transferring funds from one bank account to another. Funds can also be added at a Walmart checkout register via cash or debit. Finally, parents can also load the card even by sending in a paper check.

A cardholder can request money for free. They can simply send a request for ‘new shoes’ and a parent can simply transfer ‘x’ amount of dollars to cover the cost. It’s pretty simple.

Another unique aspect of this card is you can add Walmart Buck$. These are funds that can only be used at Walmart. The funds cannot be redeemed as cash, cannot be withdrawn at ATMs and cannot be transferred to a bank account. This may stop the hold holder from using the money irresponsibly.

Fees and Fine Print

  • No activation fee
  • No monthly fee
  • No annual fee
  • No overdraft fee
  • No ATM fees when in-network. Out of network ATM transactions are $2.50 each plus any surcharges from the bank that owns the ATM. $2.50 is a pretty high fee.

Bluebird

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Best Bank for Overdraft Protection 

Ally Bank

This is our pick because Ally Bank offers a unique overdraft protection plan. Simply link an Ally savings account to an Ally Checking account and it’s protected from overdrafts. However, if the savings account balance isn’t sufficient, an overdraft fee of $25 will be charged. The overdraft fee $25 and is charged a maximum of once per day. But that is still low compared with most banks, with the Big 4 Banks all charging over $30 per incident and often four or five incidents per day.

Ally also provides $10 worth of ATM fee reimbursements per monthly statement cycle, which enables you to take out money at out of network ATMs and still get refunded. But what about other fees?

Fees and Fine Print

  • No monthly maintenance fees
  • Free standard checks
  • Free cashier’s checks
  • No fee for having a zero balance
  • No incoming wire fees (domestic or international)
  • Free Allpoint® ATM usage (43,000+ in the US) plus $10 worth of ATM fee reimbursements each month.

ally

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Best Bank Account for Free ATM Reimbursements

Charles Schwab High Yield Investor Checking Account

Thinking about studying abroad? The Charles Schwab High Yield Investor Checking account reimburses all ATM fees, even internationally. This account is ideal for traveling students. Even for those not studying abroad, this may be a good option for any travel overseas.

Charles Schwab High Yield Investor Checking Fees

  • No ATM fees
  • No monthly service fee
  • No overdraft protection fee. Although owners must also have a Charles Schwab brokerage account or savings account to link for overdraft protection. Should funds in the overdraft account be insufficient, a $25 fee will be charged for up to 4 incidents daily. This overdraft protection is pretty abysmal when compared with Ally.

charles-schwab

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Brick-and-Mortar Options

If the parent is more comfortable with having physical locations, there are still brick-and-mortar banks, which offer good benefits and low fees. Before committing to a big bank, check the local credit unions. They often offer a better value. Compare the credit unions with the other banks listed in this post. Ask about overdraft protection, overdraft fees, minimum account balance, and monthly maintenance fees. The good thing about a local credit union is the customer service. Don’t be too shy to ask about fees.

The downside to local brick-and-mortar options is the parent may be in one location and the child in another, making it difficult for one party to withdraw or deposit money. However, most credit unions today have good online banking systems. They may not have mobile deposits or an intuitive app but they have what counts. If ease of use is still a concern, look for a big bank with many locations. Fees will likely be higher and interest lower, but convenience is very important for a college student. After all, they need to spend their time studying.

Don’t Be Afraid to Break Your Routine

Technology has really changed the way banking works today and it’s provided an option for fewer fees and easier transactions. Just because you’ve always banked at a certain establishment, doesn’t mean you should stay there – especially if you’re trying to make it cost-efficient and simple to send money to your college-aged children.

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Ally Bank Checking Account Changes: Fees Are Increasing

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Ally Bank is making changes to its checking account, which will go into effect on August 15th. Existing customers will start receiving notification today from Ally. I spoke with a representative of Ally, who explained the changes to me.

Here is the summary:

  • Unlimited reimbursement of ATM fees is gone: Ally Bank will now reimburse up to a maximum of $10 per billing cycle. Ally is joining the Allpoint ATM Network, and use of those ATMs will remain free.
  • NSF and Overdraft fees are increasing: Ally Bank used to charge a maximum of $9 per day for overdrafts. That charge is increasing to $25.
  • All other features remain the same. If you link your Ally savings account, you will continue to receive unlimited overdraft transfers. There remains no monthly fee with no minimum balance and no direct deposit requirements.

We view these changes as unfortunate. Unlimited ATM reimbursement was a big selling point of the Ally checking account. Many customers were willing to take a lower interest rate on their savings account in exchange for the convenience and value associated with the checking account. Ally is paying 0.99% compared to market-leading rates of 1.25%, which can be found on our Savings Account page.

The NSF and Overdraft fees will only impact a small number of customers. However, we liked that Ally was taking a leading position on keeping fees as low as possible. It is unfortunate that the small number of people impacted by this fee will now have to pay more.

And we generally are not big fans of the Allpoint network. Searching for the closest convenience store with an Allpoint ATM is not the same as choosing the closest traditional bank.

How Does Ally Bank Compare

The checking account is now less competitive.

Unlimited ATM Reimbursement

If you are looking for unlimited ATM reimbursement, there are still some good options out there:

  • Bank of Internet USA offers Rewards Checking, which offers unlimited ATM reimbursement (except international), with the fees reimbursed the next day
  • Charles Schwab offers High Yield Investor Checking, which offers unlimited ATM reimbursement both domestically and internationally

Overdraft Fees

Ally Bank still offers the best deal for linking a high yield savings account to a checking account for overdraft protection. You can keep your checking account balance low and have free, automated transfers from your savings account to your checking account. Large, traditional banks typically charge $10 or $12 to transfer funds from a linked Savings Account. And those savings accounts usually pay very low interest rates.

However, if you are running low on cash and need overdraft protection, you may want to consider a different bank. Capital One 360 offers an affordable overdraft line of credit and does not charge an NSF fee.

The Verdict

Ally Bank has long offered the best checking account in the industry. It was an obvious choice. You could use any ATM in the country for free. You could keep your balance low in your checking account and cover transactions from a high interest rate savings account with free, automated transfers.

These recent changes make the calculation a bit more difficult.

The typical ATM fee is $3. If you use an ATM more than 3 times a month, you may need to re-think your strategy. And if you travel frequently and use the ATM a lot, this account can start to get expensive.

If you tend to go overdraft often, you should consider Capital One 360 instead of Ally Bank.

However, if you only use an ATM once or twice a month and never go overdraft, these changes will not impact you. We regret the changes regardless. Ally Bank created a product that was the absolute best. Now it is no longer so clear.

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Consumer Watchdog, Eliminating Fees, News

Banks Generate $30bn Of Abusive Overdraft Fees

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Banks generated $7.65 billion of overdraft revenue during the first three months of 2015, according to the Wall Street Journal. On an annualized basis, banks are poised to generate $30.6 billion in overdraft revenue this year. Despite the passage of Regulation E, multiple lawsuits and the threat of regulation from the Consumer Financial Protection Bureau (“CFPB”), fees have only reduced by 4% compared to 2014. Overdraft fees have historically accounted for an outsized percentage of checking account revenue at the largest banks in the country, and it looks like these fees will remain a meaningful contributor to revenue in the near future.

Are Overdraft Fees Predatory?

The average overdraft fee is about $30 per incident. In addition, many banks charge extended overdraft fees. At Bank of America, it can cost $70 to borrow $6 for six days as a result of the extended overdraft fee. Even worse, nearly 50% of banks in the country will re-order transactions to increase the number and amount of overdraft fees charged. Rather than debiting money from your checking account in the order that the debits occurred, banks often debit your account in the order that they wished the transactions would have occurred.

Because overdrafts are so expensive, the vast majority of people avoid them. In Europe, an overdraft line of credit is a cash management product that makes sense for everyone. Keeping too much cash is expensive, because it could be better invested or placed into a long-term certificate of deposit. People of all economic backgrounds take advantage of generous overdraft lines of credit, which charge very low interest rates. Borrowing $6 for six days would only cost a few pennies in most large European banks.

However, American banks have made going overdraft a sin and high overdraft fees the punishment. As a result, people with money have completely avoided overdrafts. Only a small percentage of the population uses the overdraft product. 8% of bank customers generate 75% of overdraft fees. Overdrafts have become a short-term borrowing mechanism for people who have no other option. And overdrafts offered by banks are often more expensive than payday lenders. The typical payday lender charges $15 to borrow $100 for 2 weeks. As I mentioned in the Bank of America example, large banks are charging much more than that.

A banking practice is considered predatory when it meets a few definitions:

  • It targets people with low income or limited financial means
  • It charges a price that is dramatically higher than the cost of providing the service
  • It has opaque and complicated pricing that makes it difficult to understand the true cost of the product
  • It charges the fee when someone is in a vulnerable position and has few alternatives

Overdraft fees meet all of those requirements. The price of an overdraft is dramatically higher than the cost of providing the service. Banks charge an average of $30 to decline a transaction, which costs the bank close to nothing. When banks approve a transaction, credit risk is taken. However, the banks are charging effective interest rates above 400% in the form of fees. The banks are addicted to the revenue, which is why the revenue remains despite the backlash.

As overdrafts become more expensive, fewer people will use the service. Banks will extract more revenue from people who have fewer funds and a lower net worth. In my opinion, overdrafts are predatory and action is required.

Isn’t The Situation Improving?

Most headlines have reported the reduction in overdraft fees. And a 4% reduction is material. This reduction has come from banks eliminating high-to-low transaction ordering and putting limits on the number of overdraft fees that can be charged per day. At many banks, it used to be unlimited.

However, banks have not reduced the headline rate. Bank of America has been bragging about its commitment to the customer. But lets look at what they have really done:

  • The overdraft fee remains $35 per incident, and 4 incidents can happen each day
  • The extended overdraft fee remains in effect, charging $35 after 5 days
  • The bank eliminated the option to opt in to debit card and ATM overdraft fees. However, very few people are opting in to this service

In short, the changes have been cosmetic. And without rules from the CFPB or competitive pressure, I doubt the policy will change. The poorest Americans will continue to find Bank of America more expensive than most payday lenders.

What Alternatives Exist

I personally do not like doing business with institutions that create intricate webs of “gotcha” fees. That is why I switched to Ally Bank, which has virtually eliminated overdraft fees from its product offering. Most internet banks have done the same thing, and you can compare accounts here.

Unfortunately, if you need a branch, most branch-based banks remain expensive. And most credit unions are not far behind, charging $25 when the big banks are charging $30. Community banks, credit unions and large banks are all getting fat from these fees. Despite the regulatory pressure, lawsuits and negative press, our nation’s poorest will give banks another $30 billion of overdraft fees this year.

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