Past the Piggy Bank: Now What?

Earlier this week, I was chatting with my roommate when I discovered that his money related plans were not quiiiite up to snuff.  By not up to snuff, I mean it was mostly just closing his eyes really tight and hoping it would all Go Away.  It won't, of course.  Everybody knows that, we just don't know what to do with it.  He confessed that even though he likes amateur adults, when I wrote about personal finance he tends to zone out because its too much.  That is obviously the opposite of what I'm trying to do here.  So in Past the Piggy Bank, we're starting from the very beginning, get in on the ground floor!  I promise not to use the I word yet.  

The first thing I discovered is that Mike is paying obscene amounts of money in bank fees.  Break fee friends!  Mike's first step, and yours if you need to do it, is to stop putting up with your bank taking all your money.  Pretend your bank is a super rich guy (this should be easy) who is asking you if he can please have $35 because he just wants it thankyouverymuch.  We may have to tolerate that from Comcast, but not at the bank!

Here's the scoop: The general way banks make money is by loaning out the money in savings accounts to folks applying for mortgages and car loans and stuff.  That's why they have minimum balances and why they're paying you interest.  They hold your money safely and pay you a bit to do it, and then they loan it out at much higher interest rates.  They make all the profit, but they also take on all the risk.  Seems legit.  However, banks are increasingly looking to bring money in both ways and that's how you end up with exorbitant fees.   It drives me crazy when banks advertise about waiving the monthly maintenance fee if you meet certain criteria as if they're doing you a huge favor.  If you are paying a monthly or annual maintenance fee it is time to get a new bank. 

Whats the deal with banks and young people?: You may have noticed that banks are falling all over themselves to get students and young people signed on.  That's because most people will never switch banks.  They know that, and they know that if they sign you up at 18 you are likely to be a lifelong customer.

But it isn't that hard to switch banks, and I'm about to tell you how to do it.

First: Pick a place to do your banking.  Feel free to ignore interest rates.  You probably don't have enough money sitting in the bank for interest rates to add up anywhere near the rate that fees do, so fees are your main concern.  All banks have handy lists of their fees called "Fee Schedules" and they are easily googled.

I don't use banks.  I exclusively use credit unions.  The main difference is that credit unions are not for profit.  Often you have to meet some criteria to join (like working at a certain place) but often that criteria is just living within a city or state. I used SEFCU in Albany and now that I'm in Boston I use Metro Credit Union and have what they call a SMART account.  They are great! They refund ATM charges, they gave me free life insurance, when I call customer service my problem gets resolved.  I pay (because I chose to get this service) a $20 annual overdraft protection fee and never have to worry about it. I deposit all my checks on my phone, pay all my bills online, and send money to and fro with my parents at their bank all for free.   All you need to get started  is about $30 and proof that you live in Massachusetts.

Into credit unions?  Google "Credit Unions [place you live]"

Another option many people like is banks based in and around their communities, like East Boston Savings Bank or Cambridge Savings Bank.  These guys are the local businesses of the banking world.

Into local banking?  Google "Community Banks [place you live]"

I know, Big Bank America World has ATMs everywhere and it's super convenient, but how often do you physically go to the bank?  Add up how much you're paying in fees and ask if it's actually worth it.  Every bank is convenient people, we live on the internet. 

Okay, you've picked out a friendlier and more affordable financial institution (bonus, they probably bear minimal responsibility for breaking the economy!) What do you do?  Call them up and ask what you need to get an account started.  Gather those things.  Go to Evil Old Bank and say "I'd like to close out my account please."  They may be like whatever here's  the $200 you have to your name or they might try to get you to stay with lots of facts about how great they are or ~enticing offers~  but stay strong!  If you're super non confrontational you can pretend you're moving.  Take all your money, and those documents you gathered up, and bring the lot over to Friendly Local Financial Institution.  Tell them you'd like to open their most basic account with the lowest fees and they'll take it from there.