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Getting The Most From Your Bank

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Just since January 1, 2004, 37 bank mergers have been announced. The two biggest: FleetBoston joining Bank of America, and J.P. Morgan Chase buying Bank One.

On The Saturday Early Show, personal financial advisor Ray Martin explained what these changes mean for all bank customers.

Historically, bank mergers resulted in big headaches for customers. When two banks in a town or region became one, they eliminated branches and ATMs, computer glitches were common and fees often rose.

However, Martin does not foresee this round of mergers creating problems for customers. For the most part, these banks are not currently competing in the same regions. For example, Fleet is only found in the Northeast while Bank of America operates in the West and Midwest. The two banks are now one, but Bank of America wants to hold on to all of the Fleet branches.

But even if you are not affected by the latest merger mania, you should still take this opportunity to consider joining a new bank. Consider this: Do you know what interest rates your bank pays? Do you know how much you pay in fees each month? Do you know your bank's policy on ATM fees? The typical bank customer will answer no to all of these questions. Most people are fairly complacent about their banking. They choose a bank with a nearby branch, open a checking or savings account and don't give their bank a second thought.

Your goal when choosing a bank should be to obtain the services and conveniences you need, at the lowest cost and highest interest rates.

So, if you're looking for a new bank, where do you start?

First, figure out what you need from your bank. If you travel a lot, you may want access to ATMs all over the country. Perhaps you want to be able to pay your bills online for free, or you want to have a competitively-priced mortgage or car loan from your bank, or maybe you just want friendly tellers who know your name. Once you know what's important to you, you can begin looking for an institution that can offer you these services at the best price.

Begin looking for a new bank and you'll immediately realize there are a lot of different options out there. There's not a right or wrong place to do your banking. It all comes down to what you feel comfortable with and what you like.

Here are the positives and negatives of your four major choices:

Big Banks
Bank with one of the "giants," a.k.a. CitiBank, Chase Bank, Wells Fargo, and you can find bank branches and ATMs practically all over the country. Also, these institutions can meet almost all of your financial needs. Need a credit card, insurance, an IRA or help with retirement planning? No problem, these guys have you covered.

However, you wind up paying for all of these branches, for this convenience. As the Web site Motley Fool puts it, "After all, there's a lot of marble that has to be hewn out of Italy, flown over on the Concorde, and kept clean in those cavernous downtown branches..."

Granted, that's a little sarcastic, but the sentiment is right on target. It does cost Citibank more to maintain its business than it costs Local Bank USA. As a result, you will pay more in banking fees and receive lower interest rates at these big banks than you will at smaller banks, credit unions or Internet banks.

You have to decide: Is the convenience worth the cost?

Small/Local Banks
If you have no need for multiple ATMs or other services only found at large banks, a regional or local bank might be right for you. Martin notes the interest rates offered by many of these smaller banks are often much higher than the rates offered by large national banks. Smaller banks also tend to offer lower mortgage rates. The basic checking and savings accounts these banks offer will be similar to those offered by large banks. Many customers choose to bank in their local institutions because they believe they will receive more personal attention.

The Wall Street Journal explains how this can truly be a benefit. "Because community banks are familiar with the local people and local markets, they can often make on-the-spot decisions about everything from waiving fees for bounced checks, to offering loans, to a small-business start up." (1/20/04)

Credit Unions
Credit unions are like small banks, but they are non-profit organizations. So instead of being a customer, you are actually a member. By depositing as little as $5, you become a stakeholder in the credit union. Not everyone can bank at a credit union. Credit unions were originally designed to serve employees of one company or one profession. They are now loosening their membership requirements, and in some cases, simply living in a certain area allows you to join a local credit union. More people are choosing to join credit unions: membership between 1999 and 2003 has grown from 75 million to 82 million members.

Like small banks, credit unions have lower operating costs than big banks. Additionally, credit unions roll any profits back to members through lower interest rates on loans, higher interest rates on deposits, and generally fewer and lower fees.

Credit union drawbacks are the same as those of small banks: fewer services offered and fewer locations. Here's where to fond a credit union near you: http://www.creditunion.coop/cu_locator/

Internet Banks
If you really want a to receive a banking deal, Internet banks may be for you. Consider the following averages, reported in Bankrate.com's annual checking study.

Monthly Service Fee $5.86 (Internet bank) $10.86 (Traditional Bank)
Yield 1.05% (Internet bank) .27% (Traditional Bank)

Internet-only banks (which, by the way, almost always have a least one physical branch somewhere) have obvious drawbacks; the most obvious is that you can't visit a bank teller. However, customers and owners of Internet banks challenge this type of thinking, claiming that most people actually don't need to visit a physical branch to get business done.

NetBank asks potential customers to consider some of the following questions: Do you participate in direct deposit at work? Has it been three months or more since you visited your neighborhood branch to initiate a transaction with a teller? Do you already engage is online banking activities with your brick-and-mortar bank? Do you regularly get cash out using a debit or ATM card? Do you travel every month or two? Do your business hours mimic those of your bank branch?

NetBank believes that if you answer yes to some of these questions, you could enjoy and benefit from an Internet bank. Of course, detailing how an Internet bank actually works is a subject of its own. Suffice it to say that if you are okay with the thought of not being able to visit a branch, and can be assured that your total banking fees will be lower, an Internet bank might be a viable option for you.