Keep Your Balance: A Shopper's Guide to Better Banking

Bank Guide

Bank Guide


Shopping for a new bank or credit union? Of course you'll check out their rates, fees, location, and hours. But equally important, make sure their lending and banking practices work for YOU. Use this guide to identify bank practices that make it easier for you to hang on to your money. It will help you choose the best financial institution for your needs.

Just remember, the customer representative you interview may not be accustomed to discussing these specific problem practices. If you are hesitant to ask questions that may seem to challenge them, keep in mind that it shows you are a responsible, informed consumer.

Don't forget to rate the bank or credit union at the end of the guide and to sign up for regular email updates from CRL to stay up-to-date on the latest financial abuses.

If you are looking to move your money and live in North Carolina or California, you may want to check out our parent company Self-Help Credit Union for more information.

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Checking Account Practices


What to ask about checking account practices

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What To Look Out For
1. When I make a deposit, will you credit my account as soon as possible so I won’t get unnecessary overdraft charges? Red Flag: Anything other than an assurance that deposits are credited as soon as possible should raise a red flag.
2. Will the account balance disclosure I see online or at an ATM only include what funds are actually available for withdrawal? Red Flag: Dig deeper if they don't assure you that you will always know how much money is in your account. Compare this institution's answer with that of others – does this one seem to show a good faith effort to keep you informed and help you avoid an overdrawn account?
3. I understand you are required to get my permission before automatically approving debit card transactions that would overdraw my account and charging a fee. Do you have cheaper alternatives to covering overdrafts and what are they? Red Flag: If the bank or credit union does not tell you that you can link your checking account to a savings account or line of credit, consider this a major red flag. These are potentially much cheaper ways of covering overdrafts. Also ask what they charge for moving money from these accounts to your checking account, and how often they charge a fee for this transfer, whether it is per day, per incident or per dollar increment.
4. For those who do opt in to overdraft coverage for debit card transactions, what is your fee for transactions that are not covered by funds in the account? Red Flag: It is never appropriate for banks or credit unions to charge overdraft fees for debit card transactions, when to simply decline the transaction costs the account holder nothing. Fees are typically around $34, and since debit card transactions are often small, you are typically paying a fee that is twice the amount you came up short. You still must pay insufficient funds (NSF) fees for a bounced check, but debit card overdrafts are a different matter, and you should seriously consider opting out of this system.
5. For those who do opt in to overdraft coverage for debit card transactions, is there a limit to how many times per day, month or year you charge a fee? Red Flag: Again, it is not appropriate for banks or credit unions to charge overdraft fees for debit card transactions, when to simply decline the transaction costs the account holder nothing. Some banks charge multiple fees per day averaging $34 each for every debit card transaction made while you are in the red. This can quickly put you hundreds of dollars in the hole even for a handful of small transactions. If you use a bank or credit union that operates this way, we recommend you tell them you do not want your debit card transactions automatically approved for a fee. If you do so, they must let you opt out.
6. Do you charge a daily penalty if my balance remains below zero after a certain number of days? Red Flag: Look for a “no.” A sustained fee makes it more difficult to bring your account back to a positive balance.
7. Some financial institutions subtract customers' debits from the highest to the lowest amounts, which can cause more overdraft fees. Do you do this, or do you subtract debits in the order they were made? Red Flag: If the representative says they subtract debits from the highest to lowest, you may want to avoid this institution. Some claim their customers want it this way, but it often causes extra overdraft fees.

Credit Card Terms


What to ask about credit card terms.

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What To Look Out For
1. What happens if I make a late payment? Red Flag: Some credit card issuers charge harsh penalty fees and raise your interest rate as soon as one payment is late, even by a few days. If your interest rate goes up based on a late payment, you may want to avoid this institution. If the institution charges a penalty for a late payment, you should have sufficient time to avoid it.
2. Does your credit card have a minimum finance charge? (Note: This is not the same as a mininum payment amount)
Red Flag: You should not have to pay a finance charge when you have no activity on your credit card.
3. Do you use information about where I shop and what I buy in determining whether to make changes to my account, such as adjusting the line of credit? Red Flag: The use of “behavioral scoring” is a red flag -- any changes in your terms should be based on your credit profile, not your shopping habits.
4. Do you sell “add ons” to your credit card like credit protection, identity theft protection, or credit monitoring? Red Flag: These services often cost much more than they should for very little to no benefit. If you are given these as options, consider declining them all.

Cash Advances


What to ask about direct deposit paycheck advances.

Note: Some banks are making short-term cash advances that are paid back in full, plus interest, when the customer's paycheck is direct deposited into their account. These are expensive and have the same "debt trap" features as payday loans.

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What To Look Out For
1. Would I have 90 days to pay back a loan secured by my direct deposit paycheck? Red Flag: Some banks and credit unions will use your next deposit to pay back your loan or only give you two weeks to repay. Most people cannot pay a cash advance of several hundred dollars back in full by payday without needing to borrow again. Make sure your bank or credit union is giving you a loan with terms that you can meet without getting caught in a costly cycle of debt.
2. What is the APR (annual percentage rate of interest) for this advance? Red Flag: A short-term loan should carry an APR of no more than 36 percent. If the representative you talk to tells you the cost as a fee for every $100 borrowed, ask them the APR, which they must disclose by law. A cash advance with a fee of $10 per $100 borrowed actually carries an APR ranging anywhere from 120% to over 1000%, depending on how long before you pay it back. If you have two weeks to pay it, the APR is 260%. It can be even higher if there are other fees associated with the loan, like charges for credit insurance or an origination fee.
3. How would you determine my ability to pay back a direct deposit advance on time without reborrowing? Red Flag: Banks and credit unions that make cash advances typically approve them if you have your paycheck direct deposited. They know they will get paid back because they can take the money right out of your account. This method of securing the loan does not consider other financial obligations you may have that would make you unable to pay the loan back without borrowing again. You should avoid this kind of loan, especially if it carries an APR over 36%, because you could easily end up paying hundreds of dollars in interest for back-to-back cash advances as other obligations also come due.

How'd the bank or credit union do?

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Checking Account Practices

 

 

 

 

 

 

Credit Card Terms

 

 

 

 

 

 

Cash Advances

 

 

 

 

 

 

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