Tuesday, January 17, 2017

Thrift Week 2017: Everything old is new again

Happy Thrift Week, everyone! For the past few months, I've been trying to think of an interesting and original new theme for Thrift Week 2017, but I just couldn't come up with anything. So instead, I've decided to revisit the themes of the original, official Thrift Week—Have a Bank Account Day, Invest Safely Day, and so on—but put an ecofrugal spin on them. For example, the first day of Thrift Week, Have a Bank Account Day, won't just discuss the benefits of having a bank account and how to open one; instead, it will talk about the most ecofrugal way to bank—the way that maximizes both the financial and the social/environmental benefits.

Now, while it may not be easy to identify the most ecofrugal type of bank account, it's pretty obvious what kind is the least ecofrugal. That would be an account with one of the huge "mega-banks"—Citibank, Chase, Wells Fargo, GMAC, and the most heinous of all, Bank of America—whose transgressions against people and the planet were so well documented during the big financial flap of 2008. Green America, in its "Break Up With Your Mega-Bank" campaign, outlines the biggest problems with the biggest banks, including:

  • Predatory lending. The big banks have systematically and deliberately targeted poor and ill-educated borrowers for loans they clearly can't afford in order to load them up with outrageous interest and fees. (The attorneys general of 49 states, plus the District of Columbia, sued the banks over these practices and reached a settlement in 2012, but the Mass Alliance Against Predatory Lending found in 2013 that they were still at it.)
  • Illegitimate foreclosures. The big banks have illegally foreclosed on thousands of homes—including, in a few cases, homes that had already been paid off. Probably the most egregious examples date from 2010, when Bank of America seized not one but two houses in Florida that had never had mortgages at all.
  • Ludicrous CEO salaries. Even as the banks accepted federal bailout money for the subprime mortage mess they had created, they awarded massive bonuses to the very CEOs who had led them into the morass. In 2010, the Financial Times reported, bank CEO salaries in the US and Europe jumped by 36%.
  • Dirty energy. BankTrack reports that Chase, Citi, and Bank of America are the three biggest funders of the coal industry worldwide.
  • Whopping fees. The big banks aren't just bad for the world as a whole; they're bad for their customers specifically. MyBankTracker lists the banks that are the harshest in several categories—monthly service fees, minimum balance requirements, overdraft fees, out-of-network fees, and fees for mobile banking—and nearly every list features two or more of the five biggest banks. Bank of America alone makes three lists out of five.
  • Lousy service. If you've ever banked with one of these megabanks, I'm sure this one needs no explanation.

So we know the megabanks are terrible. The question is, what's the ecofrugal alternative? That depends on your specific situation, but there are at least three choices worth looking into:

1. A credit union

The big banks' primary job is not to serve their customers, but to generate profit for their owners. If it comes down to a choice between the customers and the stockholders, the stockholders' interests take precedence.

With a credit union, by contrast, the customers are the stockholders. As this Money Crashers article (not one of mine) explains, everyone who has an account at a credit union is a member, and therefore shares in the profits. Thus, whatever is good for the customers is good for the owners, too.

Thus, it's hardly surprising that credit unions typically offer better interest rates, lower fees, and better customer service than banks. On the downside, they're less convenient to use. They don't have as wide a choice of products, and they have far fewer branches, making it more difficult to get to a branch or ATM that you can use. Also, many of them don't have state-of-the-art online banking systems.

These drawbacks are the main reasons Brian and I have never seriously considered joining a credit union. There isn't one with a branch here in town, so moving our money to one would mean having to get in the car every time we needed to make a withdrawal or deposit a check, rather than taking a stroll down to the local branch. And we'd lose our online banking, which I currently rely on to pay nearly all our bills.

However, just because credit unions don't work for us don't mean they can't for you. If you're lucky enough to have a good credit union right in town, with a good online banking system, there's no good reason not to have your account there. You'll enjoy good rates and never have to deal with big-bank bureaucracy again.

2. A community bank

Google defines a community bank as one that "derives funds from and lends to the community where it operates, and is not affiliated with a multibank holding company." Community banks get their funds from local account holders; they lend them out to local businesses; and they employ local workers. So when you put your money in one of these locally owned and operated banks, you're actually investing it in your community.

The Huffington Post outlines several other advantages to community banks. First, they're banks that operate solely as banks—not subsidiaries of some big financial corporation that has its finger in several pies. That means their banking account holders are not just their first priority, but their only priority. Also, these banks tend to focus on "relationship banking"—having a small, loyal core group of customers—rather than "transactional banking," which relies on volume. And finally, community banks make most of their money the old-fashioned way, from the interest they collect on loans. Bigger banks tend to rely more on fees—which is why they charge more of them.

It may be a bit of a stretch to call the bank we belong to, Provident, a community bank. It's a chain with over 80 branches in New Jersey and eastern Pennsylvania, so you can't exactly say that it's tied to one specific community. But it definitely is a New Jersey-centered bank, one that supports the New Jersey economy, and it definitely offers more personal service than we've ever had from any of the megabanks. It combines the small-town charm of a local branch with friendly tellers who remember your name with the convenience of a decent statewide ATM network and online banking. So for us, it's the best of both worlds—not too big, not too small, but just right.

3. An online bank

If you have neither a good credit union nor a good local bank in your area, your best option might be a bank that has no branches at all. Because online banks have no buildings to maintain and staff, they keep their costs low, and those savings translate into better rates and fees for customers. NerdWallet recommends several online banks with interest rates as high as 0.76% APY (it's kind of pathetic that this is considered a good interest rate, but such is the 21st-century economy), low fees, and excellent customer service.

Nor do you have to worry that not having a branch limits what you can actually do with your account. Online banks don't own ATMs, but they partner with other banks to give their customers access to an ATM network and often reimburse them for ATM fees from out-of-network banks. They can provide savings accounts, checking accounts, and loans, just like a brick-and-mortar bank. You can do just about anything with an online bank account that you can with a regular bank account.

Brian and I actually have an online bank account at Capital One 360 (formerly ING) in addition to our Provident Account. When the balance in our regular savings account gets too high, we transfer money out to the online account, where it can earn more interest. And this account is also conveniently tied to an online investment account (more about that tomorrow), so we can automatically move money from there into our investments and earn an even better long-term return.

So there you have it: three options, each with its own pros and cons, but all significantly better than the evil megabanks. Moving your money to any of these alternatives will get you a better return, better service, and possibly a better world as well.
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