5 reasons banks don't get it (and a few banks that do)

Tired of being taken for granted by the people who hold your dough? Here's what a bank you could love might look like -- plus a few that are starting to get the right idea.

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By Ismat Sarah Mangla, Money Magazine

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(Money Magazine) -- You might think your bank would be rolling out the red carpet for you right now. Barely a year ago the biggest players nearly obliterated themselves and the economy with freewheeling lending practices and needed your tax dollars to bail them out. And with investment banking and commercial lending shaky for now, banks need your retail business more than ever.

Yet financial institutions seem to be alienating customers in droves. Just 35% of people feel highly committed to their bank, down six percentage points from 2007, according to a recent J.D. Power & Associates study.

The most common reasons people now switch? High fees and poor service, reports Javelin Strategy & Research. But given the importance of retail business to the industry, "banks have to make their customers' lives easier. The ones that recognize that will have an enormous competitive advantage," says Greg McBride of Bankrate.com.

Besides, the things that would make your life easier are far from outrageous requests. They're innovations that some banks and credit unions have already shown it's possible to deliver, like lower fees, smarter technology, and help from a live human being. Take note, banks: You want happy customers who will gladly hand you their cash? Grant them the five things on this wish list.

Wish no. 1: Help you manage your money

These days you're more likely to take advantage of tools that can help you keep an eye on your finances. That's why Mint.com, which lets you see all your financial accounts at a glance, tripled its membership in the past year to 1.7 million. By falling short on offering similar services, banks are missing out on a big opportunity: Consumers are twice as likely to trust their banks with sensitive data as independent web-based services, according to a Javelin survey.

Banks that get it: Bank of America's website lets you see all your financial accounts in one place -- including those from other institutions -- and helps you create budgets, track spending, and monitor everything from investments to reward points. PNC Bank's Money Bar tool allows users to whisk cash between Spend (checking), Reserve (interest checking), and Growth (savings) accounts in real time. And several hundred smaller institutions are offering financial management tools in partnership with software makers such as Intuit and Jwala.

Wish no. 2: Make it easier to save

The credit crisis has certainly reinforced the idea that your parents' way of saving for a big item before buying it is solid financial practice. So what would help you put that plan into action? A forthcoming study by University of Toronto marketing professor Dilip Soman shows that when people set specific savings goals, they are far more likely to achieve them. So you want to be able to earmark accounts for certain savings purposes.

Banks that get it: ING Direct lets you create unlimited sub-accounts, or buckets, for your dough. That beats opening different accounts for say, "emergency savings," "college tuition," and "trip to Europe," which is a major hassle and an easy way to rack up fees.

At SmartyPig, an online service affiliated with West Bank, users can designate only a single purpose for each account, but outsiders are allowed to see what they're saving for. So if you wanted to give your daughter's new-car kitty a boost, you could deposit cash directly into the SmartyPig account tagged for that goal.

A big yield is always a good motivation to save, of course. SmartyPig and Bank of Internet offer a 2.01% and 1.75% annual yield on their savings accounts, respectively, far above the national average of 0.31%.

Wish no. 3: Deliver real service

Banks say they are focused on retail, which means they've spent a lot on sprucing up their lobbies. But you'd probably prefer to get helpful services instead of cushier seats.

Banks that get it: Many are credit unions. In the most recent American Customer Satisfaction Index, they scored nine points more than banks on the index's 100-point scale. Credit unions also boast higher average rates than banks on checking, savings, and money-market accounts, and many of them offer free financial counseling or seminars in money management.

One of the best credit unions out there, the San Francisco Fire Credit Union, lets members get their FICO score free four times a year and deposit checks on an honor system: When a check is entered online or over the phone, it will be posted immediately to a customer's account (it just has to be mailed within seven days).

Some banks are at least making it easier to connect to a real person. FNBO Direct's toll-free service line is staffed with agents 24/7. And several credit unions, such as Freedom near Philadelphia, offer live web chat.

But great customer service means providing tools that smooth everyday banking processes too. A case in point: Many banks, including Chase and Wells Fargo, now offer envelopeless ATMs that print a scan of the checks deposited; no more searching for an account number to fill out a deposit slip or waiting in line for the cashier. HSBC Direct will alert you via e-mail if the interest rate changes on its bank accounts. Most TD Bank lobbies are furnished with free Penny Arcade machines: Anyone can walk in, dump in spare change, and get cash for no fee. (Rival Coinstar charges 8.9¢ for every dollar counted.)

Wish no. 4: Let you bank on the go

You can get driving directions, download music, take photos, and play BrickBreaker on your cell. So why can't you do your banking too?

Banks that get it: Most big banks are developing decent mobile offerings that let users do the same things they can using their PCs. But a few also have services unique to the mobile device. Wells Fargo's mobile service lets you send short text messages to find out your balances and recent account activity.

Bank of America customers who have a souped-up smartphone such as an iPhone or a BlackBerry can use its GPS to instantly locate the nearest Bank of America ATM. One of the most useful mobile innovations comes from USAA: iPhone users can snap a photo of a check, push a button on the USAA app, and funds are deposited right away. (BlackBerry users will be able to do this in 2010.)

Wish no. 5: Get real about fees

You know "free checking" is a come-on, and an old one at that. Of course, no one expects to get great service and novel tech apps for free. But when banks make you pay for them through gotcha practices like sky-high overdraft charges and soaring ATM fees, they're just stoking your fury.

One in three customers who switched banks in the past year did so because of higher fees, says Michael Beird of J.D. Power. True, the threat of banking reform has reined in some of the worst practices. In the first quarter of 2010 Chase will stop automatically approving overdrafts and doesn't charge them at all for those under $5; Bank of America now lets customers overdraw up to $10 a day penalty-free.

Banks that get it: ING and EverBank have a sensible policy about overdrafts: Your checking account can be linked to a line of credit that carries an interest rate of 9% or less.

Charles Schwab has a similar approach. Checking overdrafts are "borrowed" from the customer's brokerage account (you must have a Schwab brokerage account to use its checking services). Schwab also refunds ATM fees, like many online banks. But unlike other banks, it doesn't impose a maximum on the number of withdrawals it will reimburse you for each month. It's not perfection, but it's a big step in the right direction.

Ready to switch?

Only 11% of customers change banks each year, according to Javelin Strategy. It's no wonder: Besides the hassle factor, one wrong move could trigger a missed payment and late fees. If you're thinking about dumping the one you're with, follow this checklist.

1. Open your new account and fund it, leaving enough cash in the old account to cover any outstanding automatic bill payments. Then stop using your current account so that all checks and debit card transactions can clear. Some banks offer a "switch kit" that outlines the steps for you.

2. Transfer direct deposits to your new institution. To redirect your paycheck, contact your HR department. Make sure you reroute other deposits, such as investment income, pension, and Social Security payments (ssa.gov/deposit or call 800-772-1213 to change Social Security deposits by phone).

3. Move automatic payments such as loans and recurring bills to the new account at least two weeks before the next payment is due. If you can't make the change online, send a note to your biller indicating when the change should occur. At that point, you can close your old account. Bye-bye.  To top of page

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