Leaving Your Megabank Just Might Be a Wise Investment


We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Thursday, October 11th, 2012

It’s no surprise that many consumers are still fed up with the biggest banks in the country for a lot of reasons: the reckless behavior that contributed to the economy’s collapse, the taxpayer bailouts, the outsized executive compensation packages, and repeated efforts to thwart financial reform. 

On a more personal level, consumers are simply tired of these banks hitting them with new and increased fees on their bank accounts.  As Bankrate recently reported, bank fees hit record highs in 2012, and more and more consumers are considering switching banks if their fees go up any higher.

And yet, somehow, the top ten banks in the U.S. still hold almost half of all consumer deposits.  Why?  One answer could be that the big banks, due to their sheer size, have more services, more technological conveniences, and lower fees – and this keeps consumers coming back for more.

As it turns out, however, big banks are actually a worse deal for consumers than smaller banks and credit unions.  According to research commissioned by Consumer Reports for its February 2012 article on checking accounts, smaller banks and credit unions typically offer lower fees and better interest rates: 

  • For banks that charge a monthly fee for non-interest checking accounts, the average fee is $10.27 at the largest ten banks, compared with $7.45 at banks with less than $4 billion in assets and $6 at the ten biggest credit unions.
  • The average monthly fee is higher ($6.91) at credit unions with assets below $4 billion than at the largest credit unions – but credit unions still beat both large and small banks. 
  • Interest rates at community banks were lower than national averages for credit cards, home-equity loans, and lines of credit.

Also, it’s very important to note that plenty of community banks and credit unions still offer completely free checking – a whopping 72% of large credit unions offer a free checking account product, compared with only 39% of banks.  These accounts don’t require minimum balances or direct deposits to stay free of monthly service charges.

In addition to reasonable cost, smaller banks and credit unions are increasingly offering new technologies such as online banking, mobile apps, remote deposit capture for paper checks and more to make banking more convenient. 

And if free and convenient access to branches and ATMs is a top priority for you, take another look at credit unions: credit unions have a “shared branching” system that lets you use other credit unions’ branches for in-person banking services.  Credit union customers can typically use the ATMs of any other credit union for free – just look for the “CO-OP Network” logo on the machine.  Some credit unions (and even community banks) also refund non-network ATM fees.

So if you’re fed up with your big bank, take a look at the smaller banks and credit unions in your area – there may be a better deal out there for your personal financial needs.  To get started, there are several websites that help consumers search for banks and credit unions in their area by, such as FindABetterBank.com and MyCreditUnion.gov.

The real reason why many consumers are staying put at the big banks, despite dissatisfaction, could be that the process of switching banks seems too complicated.  Our May 2012 report on bank switching concluded that it can indeed be a hassle, in part because it takes time and planning to move automated transactions between old and new accounts, not to mention juggling two bank accounts at once for a number of weeks. 

But don’t let the obstacles stop you if you really want to switch – with a little preparation, it can be done!  For our tips on how to switch bank accounts safely and effectively, click here.




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