How You Slowly Lose Money with Bank Accounts

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Banks used to be good not just as holding pens for your money, but as places your money could grow slowly but surely. But considering the evil combo of rising fees and pathetic interest rates, the net result is a slow but sure loss of value even when there’s not much inflation. The main reasons for putting money in standard checking and savings accounts are convenience and security—basically because it’s safer than stuffing money in the mattress—but the tradeoff for an account with no risk is that you can be assured of a steady chipping away of your money’s value.

This past summer, the average return rate on interest bearing accounts—savings accounts, CDs, and so forth—dipped below 1% for the first time in more than half a century. Even the best savings accounts might earn a paltry 1.5%, which means at best you’re keeping pace with inflation. That’s better than losing money, of course, which a lot of bank customers accept. The NY Times’ Ron Lieber gives seven reasons why interest rates aren’t higher, and while many of the forces are beyond the consumer’s control, one reason cited is purely up to the customer:

Many big banks continue to pay well below 1 percent. Why? Because you let them. Sure, it’s a bit inconvenient to open a separate, higher-yielding account and link it to your bank account when you’re not getting all that much more for the privilege. But because many people don’t bother doing that, many megabanks continue on their merry way, paying absolutely pathetic savings account rates.

In other words, banks pay sub-1% rates, or even 0%, because lazy customers don’t take their money and run. As Lieber writes:

I’m reasonably sure that they refer to people who have money in their low-interest accounts as suckers. And if nobody kept money there anymore, they’d have to improve their offerings.

So at the very least, you should be getting 1% or 1.5% interest. If that’s not the case, then you’re not even breaking even. You’re really losing money.

The other half of the bank account conundrum involves a dramatic, widespread increase in fees for checking accounts, ATM usage, and more, summed up recently in the WSJ. A BankRate study showed that only 65% of checking accounts don’t have monthly fees or minimum balance requirements, down from 76% in 2009. The stipulations to avoid fees often go beyond straightforward minimum balance requirements, and the more confusing and fine print-y they are, the more likely a customer will be to come up short and be hit with fees. Here’s a fairly typical example of new requirements that may cause customers to stumble, from the WSJ:

In February, for example, J.P. Morgan Chase will no longer waive its monthly Chase Checking fee if depositors make five or more debit-card purchases. Those who use direct deposit will be able to avoid the maintenance fee—but only if each deposit is at least $500.

Again, it’s up to customers to take charge of their banking habits. Merely accepting what’s handed down from on high will surely yield results that aren’t at all in your interests—namely with net results of little interest or even a negative return on your money. Just as it’s fairly simple to avoid ATM fees, there’s often a simple solution to avoiding checking account fees or other requirements. The simple solution requires two things of the customer, however: 1) You have to be aware; and 2) You can’t be lazy.

The most lucrative bank customer is one who keeps his head in the sand and who can’t be bothered to shop and around and, if need be, switch banks. So which bank should you, um, bank with? Credit unions and community banks often have better interest rates, along with fewer fees and fewer requirements for avoiding fees, than huge banks like Chase. The key is finding a bank whose terms you not only understand, but trust. And no, it’s not too much to ask that you actually trust your bank.

One of the most sensible rules I’ve heard of is this one: Don’t do business with companies you don’t trust.

Here’s another one: When you’ve gone through the trouble of saving some money, don’t let anyone else take it away. That goes for individuals or institutions that’d drain your money away little by little or all at once.