December 2, 2006 – I’m sure that everyone who reads this, at some point and time, has been fed up with bank fees and paltry interest rates on savings accounts. The number one complaint I’ve always heard about banks is that the “fee you to death”. There’s a fee for going into a branch and talking to a human being for services that could have been rendered through an ATM machine, there are fees for using the “wrong” ATM machines, there are fees for not keeping minimum balances, there are fees for checks, fees for credit cards, fees for doing absolutely nothing (maintenance fees), fees for doing lots of things (writing checks, requesting traveler’s checks, etc). But I’ll stop here, because the list of things that banks charge you for could easily fill up an entire page. Remember the days when interest rates on savings accounts were 6% and your accounts actually grew over time? Even banks that seem to be “free” because they don’t charge you any monthly maintenance fees really are not “free”.
Banks that don’t charge monthly maintenance fees have been able to do so because they dropped that interest rate on your savings account over the past couple of decades from 6% to almost nothing today. So in essence, banks are able to offer “free” savings accounts by not paying you the hundreds of dollars in interest on your accounts that they used to in the past.
Even in Britain, the end of “free” banking accounts is in sight as Nationwide, the country’s largest mortgage lender, stated that it was considering implementing maintenance fees on its banking accounts. The internet re-defined the market for brokerage services, attracting millions of clients that would much rather pay U.S. $7.99 per trade instead of forking over anywhere from $30 to $500 per trade to the institutional Wall Street brokerage houses. In fact, this year in the U.S., Bank of America introduced “no-fee” trading on-line for its customers. And this is precisely my point. The internet business model greatly reduces overhead costs for any business and should allow a business to be cheaper than their non-internet based peers while still remaining competitive.
Most people are sick of getting “fee’d to death” by banks, and often unjustly. I’ve heard stories from close friends in the U.S. that written checks for $300 and had $3,000 removed from their account by the bank. And then had to fight the bank for an entire month to get back their money! That’s ridiculous. I’ve heard perhaps hundreds of stories (and that is not an exaggeration) of banks making errors overcharging and mischarging clients but never once have I heard a story where someone wrote a check for $3,000 and the bank somehow erroneously only charged him or her only $300. Why do all the errors seemingly happen in the bank’s favor and not the client’s? In Britain, the Office of Fair Trading charged British banks with overcharging credit card customers £300m last year in various fees. There have been similar findings in the U.S. as well. Surprise, surprise. I’ve banked in several different countries in the world, and some banks have even raised maintenance fees without even notifying me in any shape or form.
So for everyone that is tired of getting fee’d to death, I think the time for a 100% i-bank to come along that offers considerably lower fees in every aspect has come. I don’t know, maybe they’re already out there and somebody can let me know. So this is one blog post I’ll let readers respond if they know about great i-banks that exist today. If there aren’t any that fulfill the criteria I think that i-banks should have reached by now, then I’ll wait until a pioneer like Richard Branson figures out how to do it and it becomes reality. After all, the man was able to parlay a mail-order record business into Virgin Records and then parlay Virgin Records into Virgin Airlines. And then in the U.S., his start-up Virgin mobile business achieved great success because it was the first mobile phone service in the U.S. that did not charge users for incoming calls. If you are American, how long had you heard your friends grumble about having to pay for incoming phone calls before Virgin Mobile came along?
This is the present situation in the banking industry now I believe. People are tired of what they see as excessive fees and the grumblings have grown stronger and louder over the years. Presumably, an i-bank run by an intelligent management team should be able to dispose of some of those excessive fees imposed on us by banks today. I mean, why should anyone out there have to pay $5-$10 just to withdraw your own money if traveling outside your home country? A pure i-bank should be able to get rid of fees like these.
However, I do know that some 100% pure i-banks still have monthly maintenance fees, so perhaps the customer has not demanded enough from i-banks. Banks prefer that you perform as many tasks at possible through ATM machines and not by coming into the bank and speaking to a teller because that saves them money on labor. So for pure i-banks, there should be considerable savings in this regard that they can pass on to you, the consumer. The best savings account that I’ve been able to find out there is the one offered by ING. If you don’t know about it, there are no fees, no minimum balances and it comes with an annual percentage yield of 4.50%, a yield that dwarfs most banks’ saving account APYs of 0.50% to 0.95%. With this type of APY, you’ll probably think you’re living in the 80’s again.
