Using a Big Bank: Ripped Off by Fees

One of the realities of banking is that there are fees involved. And, interestingly, the bigger the bank, the bigger the fees. It is rather frustrating to read about bailouts of big banks, only to find that very large percentages of their profits come from fees. So, not only are your taxes going to help prop up these big banks, but you also prop them up through the fees you pay. The Service Employees International Union estimates (since banks don’t reveal it) that J.P. Morgan Chase, Citigroup and Bank of America all make more than 70% of their profits from fees. That’s billions of dollars every year.

Indeed, fees are big business for banks, since they provide a way for them to make money and fund various ventures and enterprises with very little risk. Nomi Prins writes about bank fees in The Daily Beast:

In general, not only do big banks charge higher service fees for the luxury of taking your checking deposits and using them as capital for other ventures, but the interest they provide on these, and savings accounts, are comparatively abysmal relative to smaller banks. …

Overdraft charges are administered not only to people who don’t have enough money in their accounts to pay their bills, but also to customers who may keep enough money in their savings account, but get slapped for not transferring it at the appropriate moment to their meager-interest-rate checking account.

It is no surprise, then, that there is a movement toward using smaller, more local banks and credit unions. Many of the smaller banks offer more attractive rates, and charge lower fees. They do this in order to be competitive and draw your business. And, of course, many of the smaller banks and credit unions aren’t in the habit of making risky decisions. So subprime mortgages and other risky investments don’t need to be covered to as great an extent.

If you are looking at your finances and seeing that some of your money is being leeched away by bank fees, you might consider banking elsewhere. Just like any other product or service, you should shop around for the best deal.

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