Banking - Checking Account

High schools with bank branches, ATMs and tellers to help students withdraw money? Can we trust teenagers with these just down the hall from chem lab? I gave it some thought last week when I went to pick up my cousin Cate, who I blogged about recently regarding her pondering the merits of public versus private colleges. She needed a ride home from her high school, but I needed to stop on the way and withdraw some cash from an ATM. "No problem," Cate told me. "You can do it here."

What? "Yeah, my school has a bank branch here," Cate said.

She led me down a hallway of classrooms to the newest branch of the Golden 1 Credit Union, opened last fall. It's a tiny room but it's stocked with computer screens, brochures on the credit union's checking and savings accounts, and student bank tellers working behind the counter.

Starting this August, if you try to use your debit card to make a purchase without having the funds in your linked checking account, that purchase will be declined. Right in the store. Or the restaurant. No longer will your bank be able to approve the transaction and then hit you with a $35 overdraft fee -- unless you decide that you want to be able to charge without having the funds, and opt in – signing on some dotted line to signal that you want this protection.

Now you have to understand that for the banks, these $35 fees add up to $20 billion in annual revenue. That's why The New York Times reported last week, that your bank is going to try to convince you to join this new party. It will try to raise your level of fear, using words like "protection," and "emergency," and sending letters like the one from Chase quoted in the Times story, which read:

"Your debit card may not work the same way anymore, even if you just made a deposit. Unless we hear from you. If you don't contact us, your everyday debit card transactions that overdraw your account will not be authorized after August 15, 2010 -- even in an emergency."

I, for one, will not be opting in. And I don't believe you should either. Fees like this (which, despite improvements in credit card legislation can still top the amount of your purchase) are outrageous. With the widespread (and typically free) availability of online banking, you ought to be able to keep close enough tabs on the money in your account that you don't overdraw. In most scenarios.

As we've told you previously, new rules about bank overdraft "protection" programs kick in this coming July. The new rules basically say you have to voluntarily sign up to let your bank keep processing debit card transactions even after your account falls into the red and also charge you around $35 each time.

It seems like a no-brainer, right? Why would you sign up for a service like this? Well, because banks have started alarming their customers with direct mail that makes not signing up sound very, very scary. The New York Times has a story that details some of the scare tactics banks are pulling out.

Maybe you've already gotten one of these letters (or more than one!). If not, and if you don't want to click on the Times link, here's the short version: They'll warn you that your debit card might not work. (Of course, it only won't work if you don't have any money in your account.) They use words like "emergency" to make you think of the worst possible scenario, and they underline words and use red ink a lot.

In other words, this is just a lot of hype. There are plenty of other ways you can protect yourself if your account runs low and you have an emergency, points out Kathleen Day, spokesperson for the Center for Responsible Lending.

Though it seems bankers are doing everything but adding a black cape and a twirling mustache to their wardrobes these days, and bank fees continue to be as insane as usual, not everything about your local bank is necessarily bad. Rewards checking accounts are still one of the few bright spots around.

Rewards checking accounts are accounts offered by banks and some credit unions on which you can earn money if you use your debit card in conjunction with the account. The standard is usually 3% to 4% of the monthly average of whatever's in your bank account. It's that simple.

Well, it's not that simple. Most of these programs have a few requirements you have to meet before you can earn any money. For one thing, you have to use your debit card at least a dozen times a month; you also have to have direct deposit and agree to get rid of your paper billing statements (and just have the statements emailed to you). If you follow the rules, you get money back and are often reimbursed for your ATM fees, too.

What is simple is understanding why banks would want to encourage you to use your debit card. Every time you run your debit card through one of those machines at the register, the bank gets some of the interchange fee that the store pays to Visa or MasterCard. And obviously, if your statement is emailed to rather than mailed, the bank is saving money on paper and postage, too.

Ugh. Did we just manage to get one annoying, expensive bank fee out of our hair only to turn around and find another one staring us in the face? Yes, we did, according to MSNBC's Red Tape Chronicles.

Here's the short version. The Federal Reserve is cracking down on banks that are slapping their customers with overdraft charges of up to $35 if they overdraw their account by even a few dollars. Beginning this summer (July for new account holders, a month later for existing customers), Americans will have to choose to be part of this racket. (Think about it; If you spend $10 you don't happen to have on lunch with friends and get charged $35, the bank is essentially loaning you that $10 at a 350% interest rate.)

Let's get the obvious out of the way first: We don't want you to overdraw your checking account. Spending more money than you actually have is not ideal, to say the least, and always winds up costing you more -- sometimes much more -- in the long run.

But banks made more than $38 billion in overdraft fees alone in 2009, so it's apparent that a lot of Americans are spending more money than they have in their checking accounts.

New rules about overdraft fees kick in this coming July. As we've pointed out in other posts, though, this doesn't mean you're off the hook if you try to buy something when you account balance is at zero. Rather, you'll just get slapped with an "insufficient funds" fee, which can cost as much as that overdraft "protection" fee you thought you were avoiding.

There's a lot of good stuff going on as far as the government cracking down on the way banks and credit-card companies have been treating their customers lately. The CARD Act kicks into gear next month, and Federal Reserve rules that come into play this summer will stop the frustrating practice of being automatically enrolled in overdraft "protection" programs that zing you for $35 if you go into the red. But there's a drawback to these reforms: Banks are still going to be looking for ways to make money.

Banks were expected to make $38.5 billion from overdraft charges alone in 2009, so they're going to want to make up that shortfall -- along with the money their credit-card units earn that will be curbed thanks to the CARD Act -- somehow. One way they'll probably do it is by reducing or eliminating free checking.

This Bankrate.com article points out that offers of free checking have been dwindling, and many "free" checking programs now come with conditions or catches, such as minimum balance requirements or direct deposit. The article also suggests that customers who want to keep free checking might be limited to online- and ATM-based transactions only. Translation: If you want to speak to a real human being, you'll have to pony up.

A bank just upped the ante to get your business. Last year, as we wrote about on WalletPop, banks were routinely giving out $100 in cold, hard cash to any customer willing to sign up for a bank account. Now SmartMoney.com is reporting that Capital One just began advertising that it will give $200 to anyone who opens a Rewards Checking account between now and February 28, 2010 -- that is, anyone living in New York, New Jersey, Texas and Louisiana, where the Rewards Checking account is available.

Other banks are making cash offers as well, with JP Morgan Chase offering $125 to anyone opening a checking account by January 15, 2010, and Bank of America willing to pay $100 to new checking account customers through February 28.

So this begs the question: Should you take advantage of these offers? For the most part, no. Absolutely not. Look at the offer, nod and walk on by.

When a $25,000 check turned up in the mail at a Charleston, S.C., Salvation Army office last month, the staff did what seemed rational: deposited it and spent the money on toys and food for about 100 families.

Friend or foe? Banks hope you'll think of them more kindly this year by offering a slew of new products aimed at making life easier for customers. But that convenience, along with pretty much everything else your bank offers, will likely come at a price. In fact, consumers should expect to spend a lot more on fees this year as banks look to replace the money they expect to lose once new credit card rules go into effect next month.

Come February, the Credit Card Act of 2009 will be put in place. The act is generally considered among personal finance experts to be a good thing for consumers -- for instance, credit cards are going to have to be more upfront about their fees and interest rates, and won't be able to raise interest rates on current balances unless a customer is at least 60 days behind on a payment. But the move is bad news for the banks, which claim that they stand to lose $50 billion a year due to these changes, according to The Wall Street Journal.

An online media maven is urging Americans to switch banks, and she wants her crusade to go viral. On the Huffington Post website, founder Arianna Huffington introduces what she calls the "move your money" campaign. The idea is to get Americans -- all Americans -- to close their accounts at big banks and transplant their personal finances to smaller banks. The budding cause has its own web site, moveyourmoney.info, including a link where you can plug in your zip code and find a list of smaller banks.

Huffington singles out the Big Four banks (that would be Bank of America, Citi, JP Morgan Chase and Wells Fargo) for particular ire, pointing out that they've curbed business lending even since receiving TARP money. She urges Americans to park their money at community banks instead of these TARP-receiving behemoths.

Remember when Uncle Billy in It's a Wonderful Life loses the bank deposit, and George's troubles ensue (and a holiday classic is born)? Or when Loretta Castorini in Moonstruck forgets a bank deposit as part of a series of comedic misunderstandings? Bank deposit bloopers happen in real-life as well, but the dollar amounts are considerably higher and the bank deposit bloopers are often caused by the bank, not the customer. And, the end-results of these bank deposit bloopers are, unfortunately, not always as heartwarming as in the movies.

Take Randy and Melissa Marie Pratt, whose perceived windfall turned into jail time, when they took an erroneous bank deposit and ran. Melissa made a bank deposit to FNB Bank in the summer of 2008 of $1,772.50, but the bank read the check as $177,250. When the central Pennsylvania couple saw the difference in their bank balance, they wrote checks to another account, quit their jobs, bought a new vehicle and moved to Orlando, Fla. They were in the process of buying a house before the bank deposit mistake was traced.

More than a million Americans lost access to banks last year, bringing the total up to 30 million people in this country who can't even open a savings account or write a check. The issue of the "unbanked," as they're being called, is a serious one, and the recession is only making the problem worse.

According to the FDIC, which compiled the stats, poor, immigrant and minority members of society are most likely to have trouble finding a bank. In total, a whopping 25.6 percent of all citizens are unbanked or "underbanked," a situation which makes their day-to-day financing more expensive and makes it extremely difficult for them to attain upward mobility.

Imagine a world where you don't have to write or mail a check, handle paper money or swipe your credit card -- all you have to do is enter some information into a Web site to make a financial transaction. That's the world of electronic payments, and if you haven't discovered the convenience of electronic payments, it's time to get with the e-program.

Whether you're shopping online, paying a bill or using online bill pay through your bank, making an electronic payment is as quick and efficient as a couple of clicks. If you automate your electronic payments, you can also eliminate the "D'oh! I forgot to make my payment" moments in your busy schedule. And as long as you make your electronic payments from a secure server, with a firewall, your privacy should be protected. Plus, you save trees and stamps.

The down side of saving a big chunk of change on Black Friday is that you usually have to spend a lot of money to realize those savings. That's why we at Walletpop were happy to see a Black Friday deal that is literally just about the savings.

On Black Friday, online bank ING Direct will announce special interest rates for opening a CD or the brand's signature Electric Orange checking account (they're keeping mum on the details of those rates until Friday but have added a teaser page to their Web site).

This blog has details of two other promotions, though: a $683 discount off an ING mortgage (the amount is the average dollar cost Americans spend on holiday gifts annually, according to the National Retail Federation) as well as a Cyber Monday 20% discount on trades through ShareBuilder, its trading subsidiary.