Hate your bank? Hankering for a better place to park your money that offers higher interest, charges lower fees, provides more-sophisticated money-management tools and offers friendlier customer service? Take heart. Alternatives to big, bad banks exist. And even more are on the way.
When Bank of America announced in September it would start charging a new $5 fee for debit cards, angry customers defected. Many opted to move their money not to another bank but to one of America's 7,000 credit unions.
The world's largest credit union, Navy Federal, says it gained thousands of new depositors last week, giving it three times as many new checking accounts as it had last year. The National Association of Credit Unions attributes this and other such spikes to the distrust, frustration and apprehension that average customers feel when doing business with big, traditional banks.
BankSimple, one of the newest big-bank alternatives--still in development but hoping to be fully open for business next year--is the direct result of such frustration. The online financial services provider is the brainchild of a former Australian who, from the first moment he set foot in the U.S. seven years ago, found US banks more difficult to deal with than had been the banks back home.
Joshua Reich, CEO of BankSimple, says that when he opened his account he was hit immediately with overdraft fees, late payment fees, and $20 for a wire transfer that took three days to compete. Soon enough, he says, "I was fed up." He reached out to a business school friend who worked at McKinsey and who knew a lot about banking. Why, Reich asked him, is it so hard to deal with American banks?
"We concluded that banks make money by keeping customers confused," says Reich. "That's terrible for the customer, but is a model that works nicely for the banks. Ever read the terms and conditions of your checking account? They're amazingly complicated."
What's more, he says, the tools that U.S. banks offer customers for managing their accounts and for understanding what's really going on with their money are outdated and sub-par.
Example: Let's say you've request automatic payment by your bank for your $500 monthly rent. What the bank shows you as your balance isn't meaningful, says Reich, since the amount on deposit doesn't reflect your automatic deduction. "It says you have $1,000, but you don't," he says. "You're got $500."
BankSimple's balances will take into account automatic payments. And its credit card statements will provide far more information that what customers now are used to getting from VISA or MasterCard. When you make a credit card purchase, says Reich, a bounty of data is transmitted by the credit card company to your bank: Not just the amount charged and the name of the business provider, but time of day, geographic location and other details. But conventional banks throw this information out. Why?