Tag: Wells Fargo

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Wells Fargo Discovers 1.4 Million More Fraudulent Accounts

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Wells Fargo’s fraudulent practices have put the company in the public spotlight once again. The bank announced Thursday that employees wrongfully created up to 1.4 million more unauthorized accounts, on top of the discovery last year that employees falsified more than 2 million bank accounts without customer permission. 

According to a company statement released Thursday, an expanded analysis of new accounts opened between January 2009 and September 2016 revealed a total of 3.5 million “potentially unauthorized consumer and small business accounts.” That’s almost 70% more fraudulent accounts than previously thought. 

The company said Thursday it will provide customers with $2.8 million in total refunds—in addition to the $3.3 million the company pledged last September after the initial scandal was unearthed.

How we got here

After the original news broke in September 2016, Wells Fargo revealed it had fired 5,300 employees in recent years for behavior related to the creation of unauthorized bank accounts. Employees who created the accounts did so in order to increase their earnings and boost sales, a motivation that was later attributed to the hypercompetitive corporate culture at one of the worlds largest banks 

So how did Wells Fargo find more fraudulent accounts almost a year later? The bank says it learned about the additional fraud by studying a total of 165 million accounts created since the beginning of 2009, an expansion on the 93.5 million examined last September. The study also found more of these unauthorized accounts incurred fees and charges than originally thought—190,000 versus the 130,000 initially reported last year. 

Unauthorized accounts aren’t the only damaging news the company has dealt with recently. In the past year, the bank has been accused of scamming mom-and-pop shops, admitted to charging up to 570,000 customers for auto insurance they didn’t need, and settled a $108 million lawsuit for concealing loan and mortgage fees from veterans.

What to do if you are a Wells Fargo customer

To determine whether or not you’ve been a victim of these unauthorized accounts, check your credit score and your bank’s website, which will show every account opened in your name.

Those who had accounts opened in their name without their permission should inform Wells Fargo immediately, as filing a complaint will put them in the pool of customers who will all split the bank’s $6.1 million of promised restitution. These customers will also receive a portion of the $142 million the company has agreed to pay as part of a class-action suit finalized in April. 

Wells Fargo’s response

Wells Fargo CEO Tim Sloan apologized Thursday in a press release for the San Francisco-based company’s failings and attempted to reemphasize some of the bank’s key values.   

“Our commitment has never been stronger to build a better bank for our customers, team members, shareholders and communities,” Sloan said in the release. 

Despite expressing remorse, the company has fought privately to avoid dealing with the repercussions of its actions. Currently, Wells Fargo contracts contain a provision that forces customers to settle disputes with the bank through arbitration, as opposed to through class-action or individual lawsuits.   

This essentially means that any customer who believes they have been treated unfairly is forced to settle with the company on its own terms, rather than on a level playing field in court. While the Consumer Financial Protection Bureau (CFPB) recently drafted a bill that would prevent this practice, Congress may vote to overturn this measure before it becomes law, thus allowing Wells Fargo to continue dodging class-action suits, says Amanda Werner, an attorney for the Washington, D.C.-based Americans for Financial Reform and Public Citizen. Werner specializes in combatting forced arbitration rules.

Ways to avoid fraud

In order to prevent your bank from getting away with similar practices, Werner suggests checking your credit score at least a few times each year. The credit score may indicate if any unauthorized accounts have been opened in your name. You can also get a free annual credit report (which contains more detail than a credit score) from each of the major credit reporting agencies at AnnualCreditReport.com.

Additionally, Werner recommends taking any problems you may have with your bank directly to the CFPB, because its complaint process is typically much faster and more efficient.    

“I’ve heard a lot of stories from people who spend hours on the phone with customer service trying to settle something, and then they file a complaint with the CFPB and suddenly the bank is ready to listen to them,” Werner says.  

How will other banks respond?

Beyond negative press, Wells Fargo has suffered few consequences for its recent scandals. While speculators are concerned about the company’s reputation hurting its overall value, the bank’s stock has continued to grow, albeit a bit more slowly than expected

Werner worries this, along with the overall lack of legal action against the company, will send the wrong message to other banks dealing with similar fraudulent practices.

“If I’m another bank and I’m doing something shady—but maybe it’s not as bad as 3.5 million accounts—then I feel like I can get away with it because Wells Fargo got away with something worse,” Werner says.

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here

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Reviews

Wells Fargo Way2Save Savings Account Review: 0.01% APY, $25 Minimum Deposit

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Wells Fargo is a major bank with 6,000 physical branch locations and 13,000 ATMs. It acquired Wachovia for $15 billion dollars in 2008 and now serves 70 million customers globally. You’ve probably seen Wells Fargo make headlines recently for news that’s a little less pleasant than the huge acquisition.

In 2016, Wells Fargo accepted responsibility for employing sales associates and managers who were opening fake debit and credit card accounts under customer names without their consent to meet sales goals.

Wells Fargo was fined $185 million dollars for the account fraud. The bank refunded $5 million dollars to customers affected and terminated 5,300 employees tied to the misconduct. Wells Fargo announced the removal of sales goals at retail branches to dial back on the aggressive sales culture that led to fraud. And executives went on an apology tour at the end of 2016 to restore consumer faith.

Despite the scandal, Wells Fargo is still one of the largest U.S. banks and offers many products, from savings accounts to mortgage and education loans.

In this post, we’re going to dive into the Wells Fargo Way2Save Savings account to review the terms and how this account could fit into your savings strategy.

Wells Fargo Way2Save Savings Account Basics

The Wells Fargo Way2Save Savings account has the traditional fees and terms that you can expect from a brick-and-mortar bank. There’s a monthly fee if you don’t follow certain rules and a minimum balance required to open the account.

Here’s an overview of the account fees and terms:

  • Minimum deposit required to open an account – $25
  • Annual percentage yield (APY) – 0.01%
  • Monthly fee of $5, unless:
    • You maintain a $300 daily balance, or
    • You set up and maintain monthly automatic deposits of $25 or more into the account
    • You are under the age of 18 or 19 in Alabama

Wells Fargo Way2Save Savings Account Tools

Extra features of the Wells Fargo Way2Save Savings account include tools that encourage you to save more money.

If you sign up for the Save As You Go transfer tool, Wells Fargo will move $1 from your checking account to your savings account every time you:

  • Pay bills through Wells Fargo Bill Pay
  • Make a debit card purchase
  • Make automatic payments from the connected checking account

Let’s say you make 20 qualifying transactions a month. In this scenario, $240 per year will be transferred into your savings account automatically. That can add up.

You can also set up monthly or daily transfers from a linked checking account to your savings account. If you set up monthly transfers, the minimum you can transfer each month is $25.

If you do daily transfers, you have to transfer at least $1.

How to Apply for the Way2Save Savings Account

To apply for a Wells Fargo savings account, you’ll need your:

  • Social Security number
  • Valid ID (driver’s license, state ID, or Matricula card)
  • $25 to deposit (If you already have a Wells Fargo account, you can transfer $25 from it; you can also use a debit or credit card, or check for this deposit.)

Filling out the application gives Wells Fargo permission to pull your credit history. Your application can be denied if you have negative history from other bank accounts like unpaid overdraft fees.

A Comparison of Fees and APY Against Our Top Choice for Savings

The APY offered by Wells Fargo for the Way2Save Savings account is nothing to write home about.

Wells Fargo offers the Way2Save Savings account with just 0.01% APY when other online-only and credit union savings accounts offer as much as 1.05% APY.

We have a roundup of the best savings accounts that we update regularly here for you to check out.

As for fees and account terms, there are also several savings accounts in the roundup we mention above that have the Way2Save Savings account beat.

Wells Fargo charges $5 per month in the event that you can’t maintain the minimum $300 daily balance and you don’t have enough money to set up $25 monthly automatic transfers from checking to savings.

Let’s be real here, life happens, and there may be a situation where you’re in a financial pinch and can’t meet these conditions.

In comparison, you can easily earn 1.05% or more with one of the top online savings accounts.

APY of the Way2Save Savings account from Wells Fargo vs. a 1.05% APY online account

Most online savings accounts charge no monthly fee and compound interest daily and pay out monthly.

If you keep $1,000 in a Wells Fargo account for 12 months at 0.01% APY, you’ll earn just $2 in interest for the year. Barely enough for a coffee.

If you put $1,000 in an online account at 1.05% APY, you’ll earn about $21 in interest. That’s a few mornings worth of Dunkin’ Donuts coffee.

APY-Way2save-2

Of course, this is savings you shouldn’t be using for a caffeine fix, but you get the idea. When your money is sitting in a savings account, it should be earning you as much money as possible.

Downside of Having Savings Connected to Checking

Wells Fargo touts the ease of connecting your Wells Fargo checking account to a savings account as one of the Way2Save Savings account benefits, but that’s not always ideal.

Keeping all of your cash in accounts that are connected to each other may cause you to rely on savings more often than you should. If you’re already a Wells Fargo checking account customer, keeping a Way2Save Savings account for emergencies in addition to an online-only account could be a good savings strategy.

In fact, it’s the strategy that I use as a Wells Fargo customer. I put money that I may need more urgently into the Wells Fargo savings account. The rest I put in a savings account that’s harder to reach. It can be easier to resist temptation and grow savings when money isn’t sitting pretty in an account you have access to instantly.

Should You Open a CD Instead?

To answer this question, CDs can be a good choice. A CD with Wells Fargo — not so much.

A certificate of deposit is an account that you put money into for a certain term, and the money earns interest. During the CD term, you’re not able to deposit any money into the account. You can get charged a fee if you withdraw money before the CD matures. The longer you hold money in a CD account, the more interest you’ll earn.

This type of account is one you may want to open instead of another savings account if you have extra funds that you do not need for a long period of time.

Wells Fargo offers standard and special CDs requiring a minimum deposit of $2,500 to $5,000. These accounts earn 0.01% APY to 0.50% APY plus an interest bonus if you have the CD linked to a Portfolio by Wells Fargo product. Find out more about Wells Fargo CDs here.

Interestingly enough, the APY for Wells Fargo CDs is lower than what you can get from one of the regular high-yield savings accounts we have in our “best of” roundup. You can check out that roundup here.

If you’re shopping for a CD with a more competitive rate and a minimal initial deposit, you can find a roundup of our other favorite CDs here.

Taylor Gordon
Taylor Gordon |

Taylor Gordon is a writer at MagnifyMoney. You can email Taylor at taylor@magnifymoney.com

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Credit Cards

How to Request a Credit Limit Increase With Wells Fargo

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Wells Fargo Bank

If you want to continue to increase the amount of credit available to you without constantly applying for more credit cards or loans, requesting a credit limit increase is a reasonable solution. However, like most things in life, there are pros and cons to requesting a credit limit increase.

The pros of requesting a credit limit increase:

There are at least two reasons why requesting a credit limit increase may be a good idea for you. First, since you have already proven yourself as a valued customer, it can be easier and faster to request and receive an increased credit line as opposed to applying for a brand new line of credit. Second, if approved, it can increase the total amount of credit available to you, which can potentially improve your credit score. That’s because your utilization rate — how much credit you’re using vs. how much credit you have access to — makes up 30% of your credit score.

The cons of requesting a credit limit increase:

There are also some downsides to requesting a credit limit increase. First, the request will likely trigger a hard check on your credit, which can lower your credit score by a few points. Second, if you are requesting the increase so that you can spend more each month, the advantage of lowering your credit utilization to improve your credit score would disappear. Additionally, it becomes a slippery slope; the more you spend, the harder it can become to pay off the credit card each month, which could lead to credit card debt.

How a credit limit increase can help raise your credit score even if it initially dips

Any hard checks on your credit will likely result in your credit score dropping a few points temporarily. However, the benefit of an increased credit limit and its impact on your credit score will make up for the few points it dropped from the hard credit check.

The number of hard credit checks on your account is not a huge factor in determining your credit score. What is a huge factor in determining your credit score? Credit utilization. In other words, how much of the credit available to you are you using? Ideally, you want to keep your credit utilization under 20%. An increase in your credit limit will immediately lower your credit utilization percentage. However, this will only be the case if you don’t increase your spending with the increased credit line.

Since your credit utilization has a larger impact on your credit score than the number of hard checks, requesting the credit limit increase is likely to help raise your credit score. As improving your credit utilization will do more to improve your credit score than the hard check would lower your credit score, it’s worth it to ask for a credit limit increase.

How to request a credit limit increase with Wells Fargo

Before asking for a credit limit increase with Wells Fargo, you should make sure you meet the minimum requirements of having an account that is at least a year old. If you don’t satisfy these requirements, then your request is likely to be denied. If they do a hard check on your credit and ultimately deny your request, you will still see the negative impact of a few points from having the hard credit check without the benefit of increasing your credit utilization.

Unfortunately, unlike many other banks these days, Wells Fargo does not have a simple online process to request a credit limit increase. According to the Wells Fargo FAQ, if you want to ask for a credit limit increase, you will need to call 1-800-642-4720. As with any request for a credit limit increase, be prepared to have them run a hard check on your credit and to answer questions regarding your current income level.

You can find the information on the Wells Fargo website by going to the “Loans and Credit” section and then clicking “Credit Cards.”

Then click “See credit card FAQs.”

 

The information on how to increase your credit limit by calling the number mentioned above is listed toward the bottom.

How to improve your chances of getting the credit limit you want

 

While ultimately the decision to increase your credit limit is up to the bank, there are a few things you can do to improve your chances. According to credit card expert Jason Steele, banks like Wells Fargo will “look at your reported income, which would demonstrate your ability to repay the loan. They would also look at the length of your relationship with Wells Fargo, and how long your account has been opened. Finally, they might also look at your payment record, and of course, your current credit utilization.” So by ensuring you have an excellent repayment record and a good relationship with the bank and the accounts you have with them, you can give yourself a better chance of being approved.

When looking at those who received the credit line increase they wanted and those who didn’t, the biggest difference appeared to be how active a customer was with Wells Fargo. Meaning they regularly used their credit card and paid it off, and they also often had another type of account with Wells Fargo, such as a mortgage.

Liz Stapleton
Liz Stapleton |

Liz Stapleton is a writer at MagnifyMoney. You can email Liz here

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How the Wells Fargo Scandal Could Impact Your Credit Score

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Wells Fargo Bank

Since 2011, roughly 2.1 million accounts were opened by Wells Fargo Bank for existing bank customers who didn’t actually intend to apply for them on their own. While some legislators are calling for the company’s leadership to face further scrutiny in the wake of the scandal, the bank’s customers are left wondering how their finances will be impacted in the long term.

If you’re a Wells Fargo customer, you probably have just one question:

What should I do if I’m one of the bank’s customers who ended up with accounts for which I never applied and what’s best for my credit scores?

We asked our resident credit expert John Ulzheimer to weigh in:

The fake accounts opened by Wells Fargo employees fell into four separate buckets of account types, according to the Consumer Financial Protection Bureau. Three of those four account types could result in some sort of credit score reduction: Deposit accounts (checking, saving); Credit card accounts; debit card accounts.

Credit Card Accounts

According to the CFPB, Wells Fargo submitted roughly 565,443 credit card applications that “may not have been authorized.” The application likely resulted in a credit report being pulled and a credit inquiry occurring, which as I explained above can cause a score to go down, albeit a minor decrease and in some cases has long since been removed. The more meaningful issue regarding credit cards is what to do with the open credit card account that is almost guaranteed to be on your three credit reports.

The impact of the credit card account can fall into one of three categories as it pertains to your credit scores; positive, negative or neutral.

Positive impact: If the account has no balance and a large credit limit then it’s very likely helping your credit scores because of the positive influence it’s having on your credit card balance-to-limit ratios. If this is the case then leaving the account open, assuming you actually don’t mind having it, may be the best course of action especially if you’re about to go out and apply for some sort of credit and need the best credit scores possible.

Negative impact: If the credit card account is relatively new then it may be lowering your scores because it is lowering the average age of the accounts on your reports. Closing the account isn’t going to change that because closed accounts still have a “date opened” and a young closed account is considered the same way that a young but open account is considered. If this is causing too much of a score problem then asking that it be removed may be your best bet. The deletion will back out any impact on your scores.

Neutral impact: If the credit card is unremarkable then it is likely not having any measurable impact on your credit scores. So, no huge credit limit helping your balance-to-limit ratios and the age of the account isn’t helping or hurting your scores.

In that case you can either live with the account and leave it open or you can close it or perhaps even ask that it be removed.

Deposit Accounts and Debit Card Accounts

According to the CFPB Wells Fargo opened roughly 1.53 million deposit accounts and an undisclosed number of debit card accounts that may not have been authorized by the customer. Deposit accounts generally include checking, savings and money market accounts…any place where you can make a deposit. Deposit accounts and debit cards are never ever reported to the credit reporting agencies so if one was opened in your name it’s not on your credit reports.

However, if the bank pulled a credit report prior to opening the deposit account or issuing the debit card (not unheard of) then there could be a credit inquiry on your report that you didn’t instigate. If that happened then there’s a chance your credit score went down as a result. Having said that, the inquiry would fall into one of these 3 categories and would be considered accordingly…

  • If the inquiry is over 24 months old then it has already been deleted by the credit bureau/s and is no longer being considered by any credit scoring systems.
  • If it is between 12-23 months old then it is still on your credit report/s, but is not being considered by any credit scoring systems.
  • If it is under 12 months old then it is being seen and could result in a lower credit score on that one credit report. If possible, I’d ask that any unauthorized inquiries be removed because they have no redeeming value. Point being, inquiries never help your scores.

While it was not mentioned in the CFPB’s Consent Order, in many scenarios overdraft protection on checking accounts is reported to the credit reporting agencies as an unused installment loan, normally with a line of no more than a few hundred dollars.

If that did, in fact, occur with these Wells Fargo checking accounts then the installment loan could result in a lower score but only if that loan is significantly lowering the average age of the accounts on your credit reports. The age of your credit history factors into your credit score. If it’s too low, it could drag your score down.

John Ulzheimer
John Ulzheimer |

John Ulzheimer is a writer at MagnifyMoney. You can email John here

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Auto Loan, Reviews

Review: Wells Fargo Auto Loan

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Wells Fargo Auto Loan

Updated November 16, 2015

Shopping for a new (or new to you) car can be an all-consuming process. Between reviewing your budget and determining what payment you can afford, obtaining financing at the absolute best rate, and then actually shopping for the car your family needs, you can be looking at a stressful process.

Online banks and credit unions are quickly becoming the most competitive when it comes to auto financing, but big banks like Wells Fargo is still looking for your business.

The Offer

Wells Fargo auto loan provides flexible financing for new and used vehicles, as well as lease buyouts. Its rates range from 3.89% to 10.51%, and it loans up to $100,000. Auto loan terms with Wells Fargo start at 12 months and top out at 72 months, but it does not allow online approval.

How To Apply

In order to apply for a Wells Fargo auto loan, you should be prepared with the following information:

  • Personal Information: Your Social Security number, address, any previous addresses, mortgage amount and information or rent payments.
  • Income Information: Your gross income, current and previous employment history, employment status.
  • Current Vehicle Information: The VIN, year, make, model, and mileage of the car.

To make sure you have all of the necessary information, use Wells Fargo’s Loan Application Checklist

The actual online application is fairly simple, and you will receive an answer as well as your rate in 5 to 10 minutes. If you do not wish to complete your application online, you can visit a Wells Fargo branch and discuss your application there with an Auto Finance Specialist.

If you are approved for the loan, you will receive your funds within a few days.

The Fine Print

Auto loan rates with Wells Fargo depend on creditworthiness, type of purchase (new or used), term, and the amount financed. The following are the starting APRs for different types of purchase:

  • Refinance: 4.63%
  • New Purchase From Dealer: 3.89%
  • Used Purchase From Dealer: 4.13%
  • Used Purchase From a Private Party: 6.90%
  • Lease Buyout: 4.15%

The starting APRs listed above assume a loan amount greater than $22,000 and that is less than 85% of the car’s value. This means that if you have the credit history to qualify for the starting rates, you may have to have a down payment.

You can choose to finance 100% of the vehicle, and not need to provide a down payment, but your rate will be higher.

The starting APRs also include a 0.25% relationship discount. To qualify for the relationship discount, you must maintain a qualifying Wells Fargo consumer checking account and make automatic payments from a Wells Fargo deposit account. You can only receive one relationship discount per loan, and auto loans where the dealer is the lender to not qualify. If you choose to cancel automatic payments or your qualifying checking account, your relationship discount will be cancelled.

Auto loans from Wells Fargo come with a $99 origination fee, which is financed with the loan and reflected in the APR. There is no need to pay this fee out of pocket.

The minimum loan amount Wells Fargo will finance is $5,000. Wells Fargo has the ability to finance up to $100,000 for an auto loan, but the maximum amount you are approved for will be determined when you apply. Terms for new vehicles are as long as 72 months, but for vehicles 7 years or older, the maximum term is 48 months.

Wells Fargo finances most vehicles with the exception of commercial vehicles, salvage vehicles, or conversion vans. Titles cannot be registered to a business.

Also worth noting is that Wells Fargo does not finance auto loans in Louisiana.

Pros

  • Rates From 3.89%
  • Terms of 12 to 72 months
  • Loans from $5,000 to $100,000
  • 25% Relationship Discount
  • Online application approval or denial in 5 to 10 minutes

Cons

  • Rates max out at 10.51%
  • $99 Origination Fee
  • No online pre-approval
  • Not available in Louisiana
  • No commercial or salvage vehicles
  • No conversion vans
  • 48 months maximum term for vehicles 7 years and older
  • Rate is unknown until you apply

Wells Fargo

 

Other Auto Loan Options

Wells Fargo’s rates are easily beat by many other auto loan lenders, regardless of whether you’re buying new, used, or refinancing.

LightStream

LightStream offers similar loan terms, 24 to 84 months, and will finance up to $100,000 with rates starting at 1.74%. Unlike Wells Fargo, LightStream charges no origination fee and does allow you to obtain online pre-approval before setting foot in a dealership.

LightStream

 

PenFed

For a less complicated loan experience with lower rates and fewer fees, you could also consider PenFed Credit Union. You have to become a member, but anyone can gain membership in PenFed Credit Union with a one-time donation to a PenFed selected charity. It offers rates from 1.49% to 2.99%, terms from 12 to 84 months, and will loan up to $100,000. It charges no origination fee, but does not provide the option for online pre-approval.

Penfed

 

A Good Option in Select Cases

Wells Fargo may be a good option for an auto loan if you prefer to buy used from a private party, need a lease buyout, or already have a relationship with the bank. However, in most cases you will be better off looking elsewhere. Between the high interest rates, complicated terms, fees that few other lenders charge, and no ability to get pre-approval online, an auto loan from Wells Fargo may be more trouble than it’s worth.

Find other auto loan options here.

Gretchen Lindow
Gretchen Lindow |

Gretchen Lindow is a writer at MagnifyMoney. You can email Gretchen at gretchen@magnifymoney.com

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College Students and Recent Grads, Reviews

Wells Fargo Student Loan Review

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

college-grad (1)

Is the Federal financial aid you received, along with scholarships and grants, not enough to cover the cost of your tuition? For some students it’s not, and private student loans can help bridge the gap.

Wells Fargo has undergraduate student loans for traditional colleges and universities, career and community colleges, and nursing and health programs. For the purpose of this review, we’ll be looking at the student loan covering traditional schools, but be aware there are other options if you’re considering a different path through college.

Details of the Wells Fargo Student Loan

Wells Fargo states its loan will cover 100% of your eligible college expenses, but there is a minimum of $1,000 and maximum of $120,000 you can borrow. Just like Federal loans, there’s a six-month grace period after graduation where you’re not required to make payments, and you also don’t need to make any payments while you’re enrolled.

The standard repayment term is 15 years with a Wells Fargo student loan, and you can choose to have a fixed or variable rate. Variable APRs range from 3.40% to 8.60%, while fixed APRs range from 6.17% to 10.51%. However, a 0.25% interest rate deduction applies if you enroll in automatic payments, and there are additional deductions that apply for Wells Fargo customers.

Wells Fargo also checks the amount of funds you request against what your school says you need. This allows you to borrow exactly what you need, so you don’t end up with more debt than you need to.

A payment example looks like this: if you borrow $10,000 on a 15 year repayment term with a fixed APR of 6.62%, your monthly payment will be $118.07. With a variable APR of 3.40% under the same conditions, your monthly payment will be $155.67.

How Does the Wells Fargo Student Loan Compare to Federal Loans?

Before you consider borrowing funds for school privately, you should fill out a FAFSA and see what Federal financial aid you qualify for. Grants and scholarships are always good to apply for as well, as they don’t need to be paid back. Private student loans tend to have higher interest rates and less favorable terms, and should be seen as a last resort to cover any tuition or living expenses you may have.

That said, how does Wells Fargo’s student loan stack up to Federal loans? On the lower end of the range, its interest rates are comparable – a Federal Stafford loan has a fixed APR of 4.29%, and a Federal Direct PLUS Loan has a fixed APR of 6.84%. Wells Fargo’s fixed APR starts at 6.17%, and its variable APR starts at 3.40%. Of course, you (or your cosigner) will need excellent credit to get the best rates offered with Wells Fargo, and on the higher end, its interest rates aren’t as competitive.

A word on variable rates in case you’re new to borrowing – they can change at any point. That means your loan can become more expensive a few years into repayment. Having a fixed rate loan means you’ll lock in the rate you were approved for over the entire life of the loan.

While fixed rates are higher, they provide peace of mind variable loans don’t. You may start out having a lower payment with a variable rate, but it could increase over the course of the ol15-year repayment term.

Speaking of, Wells Fargo has a repayment term of 15 years, and 10 years is standard for Stafford loans. An “extended” term is good and bad: you’ll likely have a lower monthly payment with a 15 year term, but a longer term also means you’ll pay more over the life of the loan (due to interest).

While it may seem like you have years until you need to worry about paying your loans back, it’s smart to consider the consequences now. As there’s no prepayment penalty with this loan, you can pay it back as quickly as you want so you don’t pay as much interest.

Eligibility Requirements

To apply for a Wells Fargo student loan, you must:

  • Be enrolled in an undergraduate program and working toward a degree, certificate, or license
  • Be a U.S. citizen, permanent resident alien without conditions, or an international student with temporary alien status (you’ll need a current U.S. address)
  • Have an existing credit history and be able to meet Wells Fargo’s income and employment requirements

If you don’t qualify based on these criteria, or you doubt your credit history is sufficient; you can always apply with a cosigner. The good news is cosigners may be released from the loan after 24 on-time, consecutive payments. Other private lenders may not offer cosigner release.

Application Process and Documents Needed

When you apply, you’ll be brought to a screen asking you to choose a loan type, your school, field of study, and citizenship.

Wells Fargo recommends having the following information available before applying to make the process go smoothly:

  • Your college or university information
  • Social Security Number
  • Personal information (address, contact information)
  • Salary
  • How much you need

If you’re applying with a cosigner, they’ll be able to fill out their section of the application after you’ve completed yours.

The entire loan process takes around two to three weeks, so be sure to start your application sooner rather than later. The funds will automatically be sent to your school according to when the school requires it.

Remember, when you apply, a hard credit inquiry will be run on your credit (and on your cosigner’s credit, if applicable).

The Fine Print

There are no origination or application fees, and there’s no penalty for making payments early. However, if you miss a payment, a late fee may be assessed. This happens at the individual loan level, so it will vary from borrower to borrower. Wells Fargo provides you with late fee information on your billing statement, though.

Repayment Assistance Options

Wells Fargo offers a few repayment assistance options in case you fall on hard times and can’t afford to make a payment. Forbearance options include an extended grace period, military forbearance, and deferred payments if the area you live in is affected by a FEMA disaster. Note that with these options, interest continues to accrue even though you’re not required to make payments.

Additional assistance options include no payments required for two months, provided you’ve made consistent on-time payments in the past; six months of no payments due to financial hardship; and a loan modification program that will temporarily or permanently reduce how much you have to pay per month.

Who Benefits the Most from a Student Loan With Wells Fargo?

Just about any student can benefit from a student loan with Wells Fargo. You don’t have to be an existing customer to apply, although it does make the application process a bit easier. If you or your cosigner has excellent credit, you may be able to receive rates comparable to the Federal Direct PLUS Loan.

Again, make sure you exhaust all your Federal options before going with a private student loan. They offer numerous benefits private loans don’t, and aside from PLUS loans, they also don’t require a credit check or a cosigner (in most cases).

Get the Best Rates Possible

Want to get the best rates available to you? Then be open to shopping around at a few different lenders. Filling out several loan applications within a 45-day window is looked at as one single inquiry by the credit bureaus, and your credit score won’t take a huge hit. The biggest factors you want to compare with each lender are the APRs offered (and if variable rate loans or fixed rate loans are offered), repayment term(s), and if repayment assistance options are available.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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Reviews, Small Business

Wells Fargo Small Business Loan Review

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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There are many online lenders offering small business loans these days, and for good reason – banks are notorious for their long underwriting process. If you want to get funding quickly, a bank typically isn’t your best option.

Getting a small business loan with Wells Fargo won’t take months, but it may take a little longer than an online lender.

It offers quite a few small business loans that are worth a look, especially its Fast Flex and Wells Fargo Business Loan Term Loan. The Term Loan is the most basic of its small business loans, and a good fit for any business looking to expand or get working capital.

You don’t have to have any accounts with Wells Fargo to apply for a Term Loan, but you will need to apply in person, so having a branch nearby is ideal.

A Fast Flex loan can get you instant approval, but you need a Wells Fargo checking account with deposits over $50,000 open at least 1 year.

Wells Fargo Small Business Loan Details

With a Wells Fargo small business loan, you can borrow $10,000 to $100,000 on 2, 3, 4, or 5 year terms. Fixed APRs start at 7.5% – and vary based on the length of the loan and your credit history.

There’s a monthly repayment plan with this loan and a $150 opening fee. No collateral is required.

Fast Flex Loan Details

A Fast Flex loan has a short, 1 year term, and ranges from $10,000 – $35,000. You can apply online, get funds as soon as the next business day, but there is a one time $195 opening fee.

Interest rates start at 13.99%, not including the impact of the $195 fee.

Use this loan if you need money quickly, but expect to pay a higher rate and the higher upfront fee as the cost of faster money. It will be more expensive than a standard Wells Fargo Small Business Loan if you pay it off in a year, but it will be less expensive than many alternatives that can get you the money the next business day.

The Pros and Cons of a Wells Fargo Small Business Loan

Pro: Unlike other bank loans, this is an unsecured loan, so Wells Fargo doesn’t require any collateral.

Con: Wells Fargo will send a check directly to you once you’ve been funded. Most online lenders will deposit the amount you’ve been funded for directly into your business bank account. While Wells Fargo claims to have a quick process, this could slow things down a bit.

Pro: Many lenders are only offering loans up to one or two years. Having a five-year term could make payments much easier to manage, as they’ll be lower. This is beneficial when paying once a month, as payments will be larger.

Con: If getting paid by check wasn’t inconvenient enough, to apply for a small business loan with Wells Fargo, you also need to apply in person. While there are plenty of branches located in the United States, you might not have time to set up an appointment and go. Online lenders make it easier to apply as you can upload all your documentation through their portals.

Pro: The APR range isn’t bad at all when compared with other lenders. Some are as high as 40%, and 4.25% is a very low starting point.

What Businesses Are Eligible For a Loan With Wells Fargo?

Wells Fargo says this loan is “ideal for established business owners who want credit for business expansion, leasehold improvements, and other business opportunities.”

It further expands on this in its lending principles document. Wells Fargo takes the following into consideration when deciding whether or not to loan to a business:

  • Personal credit history of the primary business owner – timely payments and responsible use of credit are a must
  • Your company should have decent cash flow, enough to support making payments
  • Liquidity in the business – if you experience a slow season, Wells Fargo wants to make sure you have other means of repaying the loan
  • You have the best chance of being approved if you’ve been in business for at least 3 years
  • Your business credit should be clean. Wells Fargo won’t lend to businesses with judgments or liens in the past 10 years
  • Your business should be showing a profit, at least in the last two years
  • Ideally, you have five open lines of credit for a strong credit history

Even if you only meet most of these requirements, you still have a chance of being approved for a small business loan. Wells Fargo places a lot of emphasis on good, strong credit history as well as business cash flow. You need to be able to show that your business is capable of repaying the loan.

Application Process and Documents Needed

Wells Fargo offers a handy list of things you should have ready before applying on its website, but here are the most important things:

  • Business bank account number and balance (bring statements if possible)
  • Annual business revenue (having tax returns will help)
  • Personal bank account number and balance (for the owner applying)
  • Basic business and personal information

Wells Fargo states it takes around three business days to review your application and documents. Expect to hear back about an approval by then. Remember, you’ll get sent a check via express mail, so actually receiving the funds may take another day or so, and that’s if no additional documentation is needed.

If you’re not approved, it could take ten to fifteen days to hear back with an explanation of why you were denied.

The Fine Print

There are no prepayment penalties, annual fees, loan documentation fees, or closing fees associated with this loan.

However, there is an opening fee of $150. This can be waived if you choose to open a Wells Fargo Business Services Package, and include your loan as part of it. The additional benefit you get from opening an account with Wells Fargo is a 0.25% rate discount when you set up automatic payments.

Which Businesses Benefit the Most from a Loan With Wells Fargo?

Businesses with good cash flow and great business credit that also have owners with good personal credit will benefit the most. As stated, the business needs to show that it’s profitable. If you’re looking to expand because you’ve been experiencing rapid growth, now is a good time to apply for a loan.

If you’re struggling to pay off any debt you have, or worse, have liens or judgments against your business, you likely won’t qualify for a loan.

Additionally, business owners with a Wells Fargo branch nearby will benefit even more, as you must apply for a loan in person. The closer the branch, the more convenient it will be for you.

Wells Fargo

Other Alternative Small Business Lenders

Wells Fargo does things a bit differently than online lenders. If you’re not a fan of having to drive to an appointment to receive a business loan, or don’t want to wait for a check to arrive in the mail, take a look at these alternative lenders.

Funding Circle offers loans of $25,000 to $500,000 on terms of 1 to 5 years. Its interest rates range from 4.99% to 26.99%, and its origination fee ranges from 0.99% to 6.99%.

Your business must have over $150,000 in annual revenue and 2+ years of operating history. A profit must have been reported on one of the last two years’ tax returns. You must not have had any bankruptcies within the past 7 years, and no more than 5 tax liens in the past 10 years. A minimum credit score of 620 is needed to qualify.

FundingCircle

Smartbiz SBA Loans offer financing on $30,000 to $350,000 with a term of 10 years. APRs range from 7.00% to 8.00%, and the origination fee is around 4%. You need at least two years in business (two years of tax returns must be filed), and positive cash flow. A minimum credit score of 600 is needed to qualify.

Smartbiz

Each of these alternatives also has a monthly payment.

Shop Around – It’s Worth the Time

While applying for a business loan online is easier than applying in person, it still pays to shop around for the best rates and terms. Small business loan programs vary wildly between lenders, and based on the industry your business is in, you could receive better rates from other lenders that have experience working with your industry.

If you think Wells Fargo has exceptional terms for your business, then it could be worth setting up an appointment to apply. However, don’t stop there – as long as you apply for business loans within a 30-day window, your credit won’t be impacted as much. Credit bureaus expect that you’ll shop around to find the best loan for your business, so take advantage.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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Personal Loans, Reviews

Wells Fargo Personal Loan Review

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Wells Fargo is one of the largest banks in the United States, and it has been a household name for years. However, that doesn’t mean its financial products are the best out there.

We’ve reviewed a few personal loans from traditional banks before, and they usually fall short when compared with online-only lenders. Lower interest rates and an easier application process are making online options more-and-more attractive.

That said, sometimes banking comes down to trust. If you’d rather go with a company you know well, read on for a look at what Wells Fargo’s personal loan offers, and how it compares to the best options currently available.

Loan Details

Wells Fargo’s personal loan has fixed interest rates, terms, and monthly payments. It doesn’t offer a variable interest rate.

There are also two options available – an unsecured personal loan (most common with online lenders), or a secured personal loan.

You can use a savings account as collateral for the secured loan. For example, if you’re looking to borrow $10,000, you’d need at least $11,000 in a savings account to use it as collateral.

Secured loans typically offer lower APRs. However, “the amount in your collateral account equal to the full amount of the loan will not be available for use” until you pay off the secured loan.

If you don’t have a big buffer in your savings account (in the event you need the cash), the lower APR might not make the secured loan worth it. On the other hand, if you’re unable to make a payment, you have the collateral to fall back on.

With the unsecured loan option, you can borrow $3,000 up to $100,000, which is a wide range suitable for just about everything.

Qualified customers may be eligible to borrow up to $250,000 with the secured loan, depending on where they live and what type of collateral they use.

Loan terms range from 1 to 5 years depending on the amount you need (for example, a $3,000 loan is only available on a 1 to 3 year term).

Interest rates also vary depending on your credit, the amount you request, and your location. Wells Fargo has an estimated rate and payment calculator you can use to get an idea of what terms you might be approved for.

For reference, we called and used North Carolina as our location. On a $10,000 secured loan, the APR range was 7.153% – 8.409% on a term of 1 to 5 years. The rates for the unsecured loan were roughly the same.

Here’s an example payment from its website: if you borrow $10,000 on a 2-year term at an APR of 7.259%, your monthly payment will be $448.90.

If you have an account with Wells Fargo already, you may be eligible for additional interest rate discounts: 0.50% for those with a PMA Package, and 0.25% for those with a savings account.

The Pros and Cons

Similar to PNC’s personal loan, Wells Fargo doesn’t offer borrowers a variable interest rate. While fixed interest rates tend to be better (as they’re easier to plan for), if you think you’ll have the means to pay your loan off quickly in the future, the lower variable rate can help lessen the overall cost of the loan.

Wells Fargo also requires potential borrowers to apply in person at a branch if they don’t have any existing accounts. This can be a huge inconvenience for some people, especially if a branch isn’t located nearby.

Many personal loan lenders offer repayment assistance to borrowers who experience financial hardship. Wells Fargo may be able to help, but aid is at the discretion of customer service when you call to explain your situation. It’s not guaranteed.

Application Process and Documents Needed

While Wells Fargo does offer an option to apply online, this is only available for existing customers. When trying to go through the application process without a Wells Fargo account, this message is displayed:

“At this time, Wells Fargo only accepts online applications for a Personal Loan or Line of Credit from customers with an existing Wells Fargo Checking or Savings account that has been opened for one year or more.”

If you’d like to go with Wells Fargo and you’re not an existing customer (or you’re a new customer), you’ll have to apply in person at a branch.

Existing customers can proceed to fill out the application, which asks for basic information such as address, employment, and salary. Keep in mind Wells Fargo uses a hard credit inquiry during the application process.

Documents that may be requested to verify information include:

  • Most recent pay stubs, W2s, or tax returns
  • Photo ID or Social Security Card
  • Utility bills

Wells Fargo also offers a checklist of all the information you’ll be required to submit during the application.

After applying, you can get a credit decision in as little as 15 minutes, and it’s possible to get funds the same day you apply.

Who Qualifies for a Personal Loan With Wells Fargo?

Wells Fargo considers your credit history and banking relationship when you apply for a personal loan. It doesn’t base rates strictly off of credit score, and there’s no specified credit range for approval.

Other factors such as debt-to-income ratio and salary matter as well.

Who Benefits the Most from a Personal Loan With Wells Fargo?

Those looking to borrow a large amount stand to benefit, simply because most personal loans cap out at $25,000 – $35,000. If you’re already an existing customer with Wells Fargo, and you have an excellent and well-established credit history, you may be able to get good terms if you go with a secured loan. However, many online lenders are offering lower rates.

The Fine Print

There’s no origination fee, annual fee, or prepayment penalty with an unsecured personal loan from Wells Fargo.

There’s a $75 origination fee with the secured loan that can be paid for with cash, or can be tacked onto the loan.

The late payment fee and returned payment fee are both $39, which is much higher than what other lenders charge.

Transparency

Calling Wells Fargo to clarify details was a breeze. It offers a direct line on its website so you don’t need to go through any menu options. You’re connected with a representative that can help you immediately.

The representative we spoke with was very nice and helpful, and did her best to answer the questions we had. Representatives are also available around the clock, 24 hours a day.

Wells Fargo

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Alternative Personal Loan Solutions

It’s pretty clear that a Wells Fargo personal loan isn’t the best solution for most people. Unless you’re already a customer with excellent credit and can secure the lowest rates it has to offer, you’re better off applying with another lender.

SoFi offers one of the only personal loans with a maximum amount of $100,000 (the minimum is $5,000). Unlike Wells Fargo, it:

  • Offers variable APRs ranging from 5.19% – 11.34% with autopay. There is a cap of 14.95%
  • Has better fixed APRs, ranging from 5.49% – 14.24% with autopay
  • Has flexible terms, with 3, 5, and 7 year options available
  • Offers unemployment assistance – if you lose your job through no fault of your own, you may be eligible for deferment
  • Uses a soft credit inquiry when you first apply, so your credit isn’t harmed by checking your rates (a hard credit inquiry is used once you decide to move forward with the loan)
  • Doesn’t have any hidden fees – there’s a late fee of $5 or 4% of the unpaid amount, whichever is less
  • Takes into account other factors besides your credit score, though a score of 700 is recommended

Because SoFi allows you to access rates and terms with an initial soft credit inquiry, you have nothing to lose by checking with it first.

SoFi

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Another lender that offers loans ranging from $5,000 to $100,000 is LightStream, an online lending division of SunTrust Bank.

LightStream offers an exclusive interest rate for MagnifyMoney customers of 5.99%. It doesn’t offer a variable APR, but it does offer terms from 2 to 7 years, and there are absolutely no fees associated with the loan (not even late fees). A minimum credit score of 720 is needed to apply, and it uses a hard credit inquiry.

Similar to Wells Fargo, if you can get all of your documents submitted in a timely manner, you may be able to receive funding the same day you apply. LightStream is also backed by a $100 guarantee that you’ll be satisfied with the loan process.

Shop Around for the Best Rates

Take advantage of the lenders who are willing to give you preliminary rates and terms with soft credit inquiries. While a hard credit inquiry will eventually be used (if you choose to move forward with a loan), it will give you an idea of the types of terms you’re looking at. You’re never under any obligation to accept a loan once you’re given terms, even if you apply with a lender that uses a hard inquiry. Shop around and get the best rates as APRs make a huge difference with the overall cost of the loan. Your credit score won’t drop that much as long as you shop around within 30 days.

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Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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Fine Print Alert

Fine Print Alert: Watch Those Small Bank Changes

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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In our weekly Fine Print Alert we call out news from the financial community and shine a spotlight on any sneaky changes in the fine print. We also share our favorite reads from the week.

FINE PRINT ALERT 

Small changes from Wells Fargo, Aerospace Federal, Simple and People’s United Bank…

  • Wells Fargo Visa Signature Card, Home Rebate Card and Rewards card all had purchase and balance transfer APR of 9.15% to 25.99%. Now, it’s 12.15% to 25.99%.
  • Aerospace Federal’s Platinum VISA cash back credit card’s new APR range is 4.90% to 13.9%
  • Simple – the mobile bank – has a monthly fee of $5 for anyone receiving a paper statement.
  • People’s United Bank increased their ATM withdrawal fees for Plus Checking users. Domestic ATM fees are now $3, up five cents from $2.95.

Good News for T.J. Maxx, Marshalls, Sierra Trading Post and HomeGoods Employees…

TJX Cos. plans to increase the minimum wage of all employees to at least $9 an hour by the beginning of June. TJX Cos. owns T.J. Maxx, Marshalls, HomeGoods and Sierra Trading Post. In 2016, the company stated it plans to increase wages to $10 an hour for workers with at least six months of employment.

Federal minimum wage is $7.25 per hour, but more than 50% of States set higher minimum wage rates higher than the Federal minimum.

Find more details at Bloomberg.com.

MAGNIFYMONEY IN THE NEWS

FAVORITE READS

  • Stern Advice: Don’t Wait for Washington to Protect Retirement InvestorsAfter years of lobbying by the brokerage industry, the Labor Department is leaning toward a rule that would allow conflicts, such as commissions and fund company payments to brokerages, as long as they were disclosed. So investors take note: you are eventually going to have to read all the small print, so you might as well start now. Linda Stern overviews how to be an empowered investor in Reuters.
  • How Rich People Go Broke – Toni Braxton. Pamela Anderson. M.C. Hammer. Mike Tyson. Evander Holyfield. What do these stars have in common?They all went broke. That’s what. Even one of my favorite actresses – Lena Headey – reportedly had less than $5 in her bank account after she endured a divorce in 2013. Holly of ClubThrifty shares steps to avoiding going broke at any income level.
  • How One Woman Beat Cancer and a $41,000 Debt at the Same Time – Actually, as a result of spending cuts, the couple were on track in early 2012 to wipe out their debts in nine months. That all changed, though, when Soto was diagnosed in April 2012 with advanced-stage Hodgkin lymphoma, a cancer of the lymph nodes. She had to stop working and start treatment immediately. The debt repayment plan was put on hold – but not abandoned. Cameron Huddelston shares Christina Soto’s story on Kiplinger.

Share Fine Print Alerts or Favorite Reads with us on Twitter @Magnify_Money and Facebook

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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News

The Big Banks Announce Earnings

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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The US banking scene is dominated by four mega-banks: Bank of America, Citibank, Chase and Wells Fargo. On January 14th and 15th, these banks reported their earnings. At MagnifyMoney, we look closely at the results of the credit card and retail banking divisions to see what they can tell us about the state of the American consumer, the cost of credit and the trends in savings account rates.

The headlines talked about disappointing earnings, and compressing net interest margins due to a low rate environment. But the mega-banks include consumer banking, as well as corporate and investment banking. If you peel the onion and look at the consumer business, you will see that banks are maintaining (or even expanding) their spreads in the consumer business to counter-act declining margins elsewhere. Although there have been massive settlements and penalties, banks are using low interest rates on savings accounts and high interest rates on credit cards to cover the costs of those settlements. So, while middle class America may feel good about seeing the headline settlement costs, they are in fact funding those settlements through their banking relationships.

Here is a quick summary of what we found

  • Banks continue to make outsized returns in their consumer banking and lending franchises: The Return on Equity of the consumer businesses remains high. Chase generated a 31% ROE. Bank of America generated a return of 26% (with a 36% return from the consumer lending business). Most banks have a target return of 10% – 12%, and their investment banks tend to be below the target return.

In the credit card industry:

  • Consumer spending is increasing: People made more purchases on credit in the last 3 months of 2014 than they did during the same time in 2013. Depending upon the bank, spend increased from 3% to 10%.
  • And people are paying their bills: The percent of people who are 30 days (or more) late on their credit card bills continue to decrease across all of the major issuers. Delinquency ratios were down 10% – 18%.
  • Credit card businesses continue to generate impressive yields: Borrowing on credit cards is expensive, and (despite all-time-low interest rates) banks continue to defend margins. The largest lender, Chase, saw its yield increase from 9.1% to 9.2%. Note: That number looks a lot lower than the interest rate paid by credit card borrowers, because people who pay their balance in full pay no interest. In addition, banks have promotional offers (for example, 0% interest rates), which bring down the blended yield. Our review of credit card interest rates show that, for borrowers, they can expect to pay 15% or higher if they do not have a promotional rate.

Savings Q4

Credit card companies make money in the following ways:

  • Interchange on spending: Every time you make a purchase on a credit card, the bank typically receives about 2%. Spending is increasing, so interchange revenue should be increasing.
  • Interest charged on borrowing: As people spend more, you can expect that they will revolve more. And, given that interest rates are being held firm despite low rates, this is an area of strength for banks.
  • The main costs for a credit card business are:
    • Operating expenses: the cost of people, equipment, marketing, and other similar expenses.
    • Credit costs: when people do not pay back, the balance is written off at 180 days past due.
    • Funding costs: banks just borrow the money from someone else in order to lend to consumers.
    • Credit and funding costs are still at cyclical lows.

All of the key drivers of credit card profitability remain strong. Don’t let the building and release of reserves confuses the situation. Because credit card businesses are growing, they will have to build reserves. But that does not mean that the business is doing worse – it is just a tax for growth. The underlying businesses have been strong, and delinquency remains low. However, future growth will come from expanding into higher risk segments. Expect to see more credit available in the next 12 months – especially to people who are higher risk. You can also expect to see delinquency start to deteriorate over an 18-24 months time frame, as these newer booking vintages begin to season.

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Interest on deposits remains shockingly low

If you are looking to save money, the biggest banks are the worst place to keep your money. There is a war being waged online for deposits, with the best rates now reaching 1.25% for large balances. However, the interest rates paid on deposits at large banks remains shockingly low.

  • If you wanted to open a savings account today, Citi, Chase, Wells Fargo and Bank of America all pay 01% on a traditional savings account.
  • Wells Fargo bragged that the average cost of deposits declined to 0.09%, which is 2 bps lower than a year ago. And total deposits were up 8% Year-over-Year.
  • Bank of America bragged that the “rate paid on deposits declined to 0.05% in Q4 2014.”

What does this all mean?

  • Banks continue to get away with overcharging and underpaying retail banking consumers (a.k.a the middle class). The returns in the consumer business remain incredibly high.
  • If you are looking to borrow, don’t expect the near-0% interest rates to be reflected in your credit card interest rate. Banks continue to defend their top line interest rates, and credit cards for the mega-banks remain incredibly expensive ways to borrow.
  • If you are looking to save, the mega-banks have ignored the price war that is happening online. Yet, for some reason, we continue to give them money. Interest rates continue to decline, and banks continue to brag about it.

There is one upside to all of this: banks want more credit card debt. So, you can expect more aggressive 0% offers to lure customers. For savvy debt surfers, this means you will have more option to cut the cost of your interest and reduce the time that it takes to pay back your debt. We have just seen that in early January with Citizens Bank launching a 0% balance transfer offer for 15 months, with no fee.

Otherwise, the financial results just reaffirm our belief: your basic banking and borrowing should not be with the giant mega-banks.

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Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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