Last week I wrote about the benefits of working with smaller banks.
Mostly, I talked about the advantages of face-to-face customer service, the opportunity to negotiate lower fees, and increased odds of getting better deals on bigger loans for things like cars and real estate. Small banks are all over the place. Right now, there are 8,500 community banks, including commercial banks, thrifts, stock and mutual savings institutions, with more than 50,000 locations across the United States. Small banks have a wide range of assets, too, ranging from under $10 million to several billion dollars.
The ongoing research on small banks that I’m seeing is revealing. Almost unanimously, people move from big banks to small ones over key issues like customer service, overdraft fees, and that bad mojo from big banks that I’ve come to call “institutional arrogance.” In study after study, big bank customers believe they’re just another number to financial giants. Small banks, the research is showing, have a good opportunity to bring more customers into the fold, if they can bring good service and good deals to the table.
But the first “Small Ball” column focused on those potential benefits, and not actual advice on how to work with a community bank. And I always say that on MainStreet, just like on BankingMyWay, you’re going to get the whole package – not just the pros and cons of working on a personal financial issue, but how to get the best deals, and how to get the job done, too.
So let’s take some time to today to address a battle plan when you switch from a big bank to a small one. We’ll take it one step at a time.
1. Make the switch – The good news is that switching banks accounts, even to the smallest of community banks, is easy. The whole process shouldn’t take more than 10 minutes, and your new bank does most of the work. Start by reaching out to your bank, either by dropping in for a face-to-face visit, or by calling them on the phone. Most small banks have online customer service options, as well. Your new bank will want the name of your old bank, and your old bank account number. You’ll need to provide two forms of ID, and quite possible your Social Security number (make sure that if you switch accounts online, your new bank has encrypted security so any personal financial data isn’t exposed to identity theft).
2. Watch out for transfer fees – Another tip: make sure that your new bank covers any overdraft fees, or other potential transfer fees when your money switches accounts. Banks call these ‘switcher” fees, and a good bank will cover any costs associated with transfer overcharges, if they arise.
3. Ask for freebies – Don’t ask for that new toaster, but do ask for any financial-freebie your new bank is offering (often it is cash or a deal on a loan). After all, it can’t hurt to ask and you can usually get something for bringing your business to a small bank. That said, what this country really needs are more banks where you deposit a toaster and they give you $300 in return. That’s the Cramerican way.
4. Chuck the savings account and think CD’s – Smaller banks have a reputation as focusing on small-bore savings accounts for their customers. But that’s a fantasy, akin to the Easter Bunny or the ability of leprechauns to locate gold. In reality, smaller banks do a good job of offering good CD deals. Many pay more than 2.5% on three-month CD’s (and much more on longer CD’s), as opposed to 0.2% or 0.3% on savings account rates. To find out how your local banks stack up on CD rates, visit BankingMyWay.
5. Assess your check writing habits – One of the first things you’ll do at your new, smaller bank is ask for checks. That’s all well and good, although I’m becoming a big fan of paying bills online. A lot of small banks offer online services, and a lot of lenders will cut you a break on fees (and even interest rates) if you pay online. It’s easier for them and you don’t have to write a check, mail it, and wait five days for the check to clear. It’s easy to forget you even wrote a check, unless your check-balancing skills are exemplary. Forgotten checks often lead to big overdraft charges. But if you prefer to use checks, make sure to opt for a checking account that doesn’t stick you with fees depending on the number of checks you write. Remember, you have to ask.
6. Negotiate good loan deals – Community banks have one primary goal: to keep your business for life. So they will bend over backwards to cut you a good deal on a car loan or a home loan. They also have the cash – a lot of smaller banks have affiliation with larger banks. So, when asking for a loan, make sure to also ask for the moon. See if your bank will cut you a lower deal on interest rates to get your business. Ask them to waive or cut closing costs. Come well armed to the bargaining table. For ammunition, visit BankingMyWay and check out the comparable loan rates of other local banks and lenders. See if your new bank will match the best rates.
A personal story: I recently switched from a large bank in my town that had been acquired by another financial institution where the management might as well have been aliens. I knew I needed a mortgage. I also knew that I would get the cookie cutter treatment. But there was another bank in town that had helped out on a lot of local fund drives; had helped me with some work in the Police Athletic League; and had supported all the local sports teams. When I told the community bank I wanted a loan to buy a house, and I gave them the address, they knew all about the place. Better yet, they were happy to lend against it, asking me for less money than I would have expected to put up, In the end, they knew me as someone who was part of the community with deep roots and they wanted to get that loan and went out of their way to get my business. Now, I know I have a television job and I am not naïve to the fact that there are people who want to please “Jim Cramer,” but the big bank simply didn’t’ care about getting me the loan or a good rate. They were all about "take it or leave it." My local bank wanted to work me and even cut the rate beyond where I expected. Celebrity? How about service? Another way to look at it, if you want to be cynical about it: If I couldn’t get good service at the big bank, how could you?
7. Double check that your bank is FDIC insured – Making sure that your new community banks is insured is a big priority for a small bank customer. To make sure, visit the FDIC’s web site directly. Go to http://www.fdic.gov and click on "Is My Bank Insured?" Then plug in the name, city and state of the bank, and click the "Find My Institution" button. If your bank is insured, it will pop right up. If not, then check with the FDIC to see if another organization, usually an overseas one, is insuring your bank.
Lastly, when you’re shopping for a community bank, it might be a good idea to see if yours is cashing in on any of these bailout deals being rushed through Congress.
For a list of banks receiving TARP money, visit here.
Small banks are getting increasingly aggressive about getting your business. Hold them accountable by making sure you get the best deals possible. Be polite, be smart, and be relentless.
That’s what I call playing small ball.
—Brian O’Connell contributed to this article