Although a bank may advertise "free checking," be sure to read the fine print to ensure you do not need to maintain a certain amount to avoid fees. For example, many banks require a minimum balance of $1,500 to qualify for free checking and customers who fall below this balance are assessed a charge. However, those banks which do not require a minimum may try to recoup the lost fees in other ways. For example, overdraft fees are a real source of recurring income for banks and as such, some banks look for ways to create these situations by processing checks in a manner to maximize the likelihood of overdrafts. That said, be sure to understand the requirements of all potential accounts (i.e., checking, savings, money market) and ask about fees related to minimum balances, deposits, withdrawals, check-writing and direct deposit.
Economies of scale do not seem to apply when it comes to the size of a bank and the amount of its fees. In fact, according to the Federal Reserve's 2003 Annual Report to the Congress on Retail Fees and Depository Institutions, banks who do business in multiple states often have higher fees than local banks. According to the Independent Community Bankers of America, consumers could save between 18 and 42 percent in checking and savings account fees by banking with small banks instead of large institutions. At medium-sized banks, their savings ranges from 1 to 20 percent.
Services Versus Service
Large, national banks offer additional services, but not always the personalized customer service. Typically, regional banks get much better scores for customer service, whereas big national banks typically have a better product suite to offer. Providing a nice array of products, hours and strong service tends to be the recipe for the best banks. In addition, another important aspect is the number of ATMs offered. According to bankrate.com, if you use another bank's ATM, you can expect to pay an average surcharge of $1.40, up 57 percent from the average of $0.89 five years ago.
When to Bundle, When to Shop
For the sake of convenience, it often makes sense for customers to find a bank that has the ability to provide one-stop-shopping, such as checking accounts, savings accounts, annuities, etc. However, in some cases, it is better to separate your banking services to get the most for your dollar. For example, since the largest cost for many consumers is their mortgage, it is important to find the lowest rate, fees and terms, regardless of where that mortgage is being originated or serviced. Keep in mind, do not rely solely on your regional bank for the lowest available mortgage rate — there may be better deals outside of your region.