Think your bank is completely straightforward with you? Think again.
According to research by Smart Money magazine, hidden fees, incredibly cheap interest rates on savings and other instruments, and a less-than-forthcoming attitude toward information disclosure make the cost of banking higher than most expect.
The magazine recently reported on the "Ten Things Your Bank Won't Tell You."
• Bad Loan Losses Continue to Mount: Banks are still a safe place to hide your money, with the Federal Deposit Insurance Corporation insuring up to $250,000 per depositor. But after years of lending money to just about anyone with a pulse, the industry is paying a steep price. Losses on bad loans issued during the credit bubble could top $1.4 trillion, according to the International Monetary Fund.
• Fees Continue to Climb: Punitive fees — for overdrawing one's account, or using a competitor’s ATM — are rising. The mean ATM service charge doubled between 1998 and 2007, and overdraft fees brought in $17.5 billion in revenue in 2006, up from $10.3 billion in 2004, according to the Center for Responsible Lending.
• Credit Card Interest Rates Increasing: Nearly all credit cards have a default rate — as high as 30 percent — which banks apply when the customers make two late payments in 12 months. Some banks have cut that to one late payment, says Curtis Arnold, founder of CardRatings.com.
• Banks Courting College Kids as New Customers: Banks are increasingly courting college-age customers, often right on campus. More than 120 universities have cut deals with banks to issue student-ID cards that are also ATM and check and credit cards. Schools can make millions from these contracts.
• Hidden Clauses Used to Thwart Debt Relief: Banks have also been using hidden contract clauses, calling for mandatory arbitration, when they conduct debt collection, says Paul Bland, an attorney with consumer-advocacy group Public Justice. There are even times when consumers, often victims of identity theft, are unaware of the debt.
• That Trip To Europe Will Really Cost You: Take out cash from an ATM in London, and you shall be smacked with a foreign-transaction fee, as well as a fee for using a competitor’s ATM. All told, it can cost up to $7 just to withdraw $200. Credit-card purchases are just as bad. MasterCard and VISA each charge 1 percent of the purchase for converting currency.
• Fine Print Not Worth the Paper It's Printed On: The Government Accountability Office (GAO) recently sent investigators to see how well banks explained their fees and other conditions to potential customers. Though banks are required by law to make this information available, the feds found that one third of the branches it surveyed didn’t provide the required information.
• Interest Rates Lower than Sea Level: Banks offer many ways to earn interest on your funds — among them, savings, CDs, money-market accounts, and IRAs. But they don't yield the best return. By early 2009, the average savings account, for example, was paying about 0.5 percent interest.
• Large Banks Mean Bigger Fees: According to Arthur E. Wilmarth, Jr., a professor at George Washington University Law School, though big banks offer many conveniences, they can come at a price: high fees. Smaller, community banks may be better for your money.
• Online Account Information May Be Inaccurate: Online banks have dramatically changed the way people handle their finances. They can pay bills online, transfer funds, track payments, and get a more detailed view of their accounts. However, online systems may not always show the proper balance. With electronic transactions, ATMs, check cards, and direct deposits, banking has gotten very complicated.
But don't look for Washington D.C. bailouts to solve these problems. Only robust economic growth can help things.
"The president's policies announced thus far will weaken the economy in the near term rather than strengthen it. President Obama will need to change course quickly toward true pro-growth tax and spending policies," writes Dr. J.D. Forster, an economist at the Heritage Foundation, the conservative think tank.
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