The Bank of the Future Increasingly, banks are selling products you don't need. Here's how to beat them at their game and get what you really want.
By WALTER L. UPDEGRAVE

(MONEY Magazine) – Remember when a bank was a bank? A bastion of financial conservatism where no one would dream of encouraging you to borrow frivolously or of coaxing you into an investment simply to earn a commission or Rmeet a sales quota? Well, burn that image into your memory. In a few years, that may be about the only place you'll be able to find such an institution. To shore up shrinking or nonexistent profits -- 206 of the roughly 13,000 FDIC-insured banks, in fact, went broke last year, the most since the Depression -- many formerly stable, even stolid, neighborhood institutions are undergoing a radical personality change. The low-key bank of the past is evolving into a new-age, razzle-dazzle retail sales emporium that uses a variety of ploys to separate you from your money. The four most important: selling you more products and services than you asked for; pushing specific products to earn the highest possible commissions; paying stingy rates of interest on deposits while charging bloated rates for loans; and looking for ways to boost fees on basic banking services. For today's consumers -- 88.7% of whom, according to MONEY's American dream poll (see page 20), say having enough savings is extremely or very important and 71.3% of whom feel strongly about ridding themselves of debt -- the imperative is clear: you need to learn how to spot hype so you can choose the products that serve you rather than those that generate big profits only for the bank. While the disturbing vision of the future is just beginning to take shape at many institutions, a few are at the cutting edge of the bank-as-sales-machine trend. Prominent among them is Dollar Dry Dock, the nation's ninth largest savings bank, with assets of $4.8 billion. Walk into any one of the 23 Dollar Dry Dock Financial Centers in New York City and its surrounding area, and you'll find an extravaganza of neon lights, television monitors blaring sales pitches and financial consultants hawking everything from CDs to universal life insurance. The bank even offers a so-called product of the month. For September it was life insurance. In July it was international investments. Last May the improbable special was travel. The bank-owned travel agency, Dollar Dry Dock Travel Services, with a display in each bank lobby, was pushing nine- to 20- day trips to Europe ($1,965 a person), the Caribbean ($1,195) and the Soviet Union ($1,299). If the trips alone didn't grab you, a teller or a loan officer might have. Why? All bank employees who steered business to the agency were automatically entered in a raffle. The prize was a 10-day, five-island Caribbean cruise on the S.S. Bermuda Queen for two. Retail value: $2,390. Far from being embarrassed about its aggressive stance, Dollar Dry Dock takes pride in it. ''This is a sales job,'' says Mary Tuohy, who as manager of the bank's flagship New York City branch is in charge of hiring. ''We make it very clear we favor retail experience.'' For instance, prior to coming to Dollar Dry Dock as head of retail and corporate marketing in 1987, Linda Lockhart had spent only a year and a half in banking. But she had five years' sales experience as a buyer and merchandising manager in handbags and women's sleepwear at Bloomingdale's. Marketing is king in banking today. Consider the practice of Seattle's Seafirst Bank. Instead of sending aspiring managers off to a school like Stanford for M.B.A.s, Jack David, the $12 billion bank's director of marketing, enrolls them at Seafirst College, a training ground modeled on McDonald's Hamburger University. Says David: ''We want to teach bankers how to manage a branch like a franchise operator rather than just as a branch manager. The emphasis on marketing has some industry observers worried. Imagine a scenario, says Mark Gibson, manager of financial services consulting at the accounting firm Coopers & Lybrand, ''where the person's sales quota hasn't been met, the end of the month is near and he says, 'Damn, I'm going to sell a CD to everyone who walks in the door.' That's now a reality.'' Bankers counter that they engage only in consultative selling -- that is, filling a need or resolving a problem -- and that they are also informing the customer. ''Ours is a massive education effort,'' says Robert Steele, chairman of Dollar Dry Dock. ''We aren't out to push any product. We just want the customer to be able to get a piece of the financial candyland that's out there.'' Candyland it may be. But for unwary customers, a trip to the bank can be like getting lost on a surreal game board where you are the target of a sales pitch every time you make a move. Here's a closer look at the industry's four new strategies: Loading you up with more products and services than you want. The first way banks do this is to redesign their layouts, using the same architectural firms that design stores like Bloomingdale's and The Gap, to make you an easier sales mark. Indeed, many bankers now call their branches ''stores,'' finding the term branch too banklike. The old setup -- tellers on one side of the lobby, branch manager and customer service representatives on the other -- is out. Rapidly replacing it is the so-called convenience-store model, whose layout mimics that of 7-Eleven stores. ''The idea in a convenience store is that you put the milk in the back,'' says Chicago bank consultant Jack Whittle, ''so you can sell people Twinkies and pretzels on their way out.'' In the bank of the future, the tellers are the milk. To get to them, you've got to walk through what design consultants call ''merchandising zones'' or along the ''power path.'' That's essentially an obstacle course of salespeople and flashy displays that are peddling banking's Twinkies -- car and consumer loans, stocks, bonds, mutual funds and other financial products. The second way banks push Twinkies is by training employees in the art of cross-selling -- jargon that means when you come in to open, say, a checking account, the customer service representative, who may be a licensed broker or insurance agent, will try to talk you into signing up for another product or service. Today, customers have an average of 1.8 bank products, such as a checking or savings account. Most bankers would like to see that number jump to three within the next two years. One product that banks are touting is the single-premium, fixed-rate deferred annuity. Like CDs, such annuities pay interest rates (lately 8.5% or so) that are fixed for one to five years, so they are an easy pitch to bank customers. More important, annuities spin off sweet commissions, usually 4% to 6% of the amount invested, that are, in effect, split between the salesperson and the bank. On a typical $25,000 annuity investment, the bank earns $500 while the salesperson pockets $1,000. Of course, an annuity might be a good investment -- as long as the banker spells out all the fine print. But the small type usually includes plenty of discouraging words, such as surrender charges that can run as high as 10% in the initial years and the Internal Revenue Service's 10% penalty on money withdrawn before age 59 1/2. In addition, annuities are not covered by the FDIC insurance that protects most bank accounts and CDs. Other classic cross-sell specials can be really lousy deals. Take credit insurance, a marvelous bank-fee generator that pays off your loan should you die or become disabled. Typical premium to cover a 60-month auto loan of $20,000: $690. Of that amount, as much as 40% can go to the selling bank. The trouble with credit insurance is that anyone with adequate life and disability insurance already has cheaper protection. No matter. At a 90-minute seminar on the product at the American Bankers Association Retail Banking Conference last April in Dallas, not a single word was devoted to explaining how credit coverage works. Rather, the two speakers, both salesmen with Ryan Financial Services, the biggest issuer of credit insurance policies to banks, instructed their listeners in such sales techniques as quoting the premium in cents per day instead of dollars per month to make it more palatable. Encouraging bank employees to push specific products by paying them sales commissions, referral fees and bonuses. To make cross-selling even more lucrative, banks are increasingly using commissions and incentive bonuses to assure that employees sell the products that generate the most profit. This year, for example, Dollar Dry Dock's 42nd Street branch in New York City is expected to generate $150,000 in brokerage commissions and roughly $180,000 in insurance commissions. To meet those goals, Dry Dock financial consultants will have to talk customers into buying about $5 million worth of mutual funds, stocks, bonds and other investments as well as $4.5 million of universal life and other insurance products. Each employee's salary depends on whether he or she meets or exceeds those goals. For example, if the branch reaches its brokerage quota, branch manager Tuohy gets a bonus equal to 4% of the $150,000 in gross commissions generated, or $6,000. And if the bank beats its quota by 25%, drumming up $187,500 in commissions, she gets a 5% bonus, or $9,375. The manager can earn similar incentive bonuses based on insurance sales, travel bookings and deposit growth. Paying stingy interest rates on deposit accounts and charging bloated rates for borrowing. Bankers know that the bulk of their customers are not sensitive to the prices charged and rates paid on bank products. Credit-card interest rates are a prime example. As long as the bank's rate stays below 20%, customers keep on signing up and charging. Says consultant Whittle: ''People on credit dope don't care about the interest rate they have to pay.'' In fact, nine of the 10 banks with the largest number of credit-card customers charge annual rates of 19.8%. The exception: the Bank of New York at 16.98%.

Depositors seem equally apathetic. Last year, for example, FMB Lumberman's Bank in Muskegon, Mich. cut the rate on its basic passbook savings account from an already low 5% to a Scroogelike 4.75%. So few customers fled that the bank is considering dropping the rate to 4.5% in the future. Says Jose Infante, Lumberman's senior vice president of retail banking: ''People in passbook savings accounts don't really care about the rate.'' Safety and convenience are what's important. The biggest gold mine for banks is the very account that ordinary Joes perceive as one of the best deals going these days: money-market deposit accounts (MMDAs). Such bank accounts supposedly offer a market rate of interest, but in fact they typically pay anywhere from one to three percentage points less than the rate paid by money-market mutual funds. Recently the funds beat the banks' rate by 1 1/2 percentage points (7.48% for money funds vs. 5.86% for MMDAs). This difference costs bank customers $150 a year on a $10,000 account. True, the bank account is federally insured up to $100,000, and the money fund is not. But the difference in safety between a bank MMDA and a high-grade money fund is virtually nil. In fact, says Whittle, rates are generally so bad that ''you have to be an idiot to stay in a bank money-market account.'' The banks are hardly idiots, though, to offer the accounts; they earn a healthy profit by investing the money or using it to make loans at higher rates. According to 1989 Federal Reserve figures, the latest available, large banks netted $270 a year on average for each of their money-market deposit accounts -- twice what they earned on regular checking accounts. Finding creative (read sneaky) ways to boost fees on basic banking services. The last thing banks want to do is compete on price, since that would lower the industry's overall profit margins. So instead of making its checking accounts or loans cheaper than those of competitors, a bank will do everything possible to make its own products seem special. Banks have a retailing role model for this practice: toilet paper, specifically premium-priced Charmin ($1.59 for a four-roll package, compared with $1.09 for A&P's house brand). ''If Charmin can differentiate toilet paper,'' says William Wilsted, a University of Colorado business professor who helps banks set pricing strategies, ''banks can differentiate financial products.'' One of the ways banks pull off this diversionary ploy is by converting a basic service -- say, a checking account -- into a so-called enhanced checking package that includes perks such as extended buyer's warranty protection, no- cost credit-card registration and free personalized key rings. The extra benefit to the customer is marginal; many of these services go unused. But such bells and whistles confuse consumers and make it harder for them to comparison shop at competing institutions. ''You can get people to pay a fee for checking who wouldn't normally do so,'' says Tom Black, a marketing executive for FISI Madison Financial, a Brentwood, Tenn. company that packages enhanced checking accounts and sells them to banks. According to Black, given a choice between basic checking and an enhanced account, 20% of a bank's existing customers choose the package and 60% of new customers opt for it. The extra cost to consumers: usually $5 to $7 a month for an account that costs banks only an extra $1 a month. Besides luring customers with new, souped-up checking accounts, banks are also nicking customers with niggling fees. Credit cards are one fertile source of such income. First USA Bank of Wilmington has a $20 annual fee on its credit cards and also charges $15 each time you stray over your credit limit, , $15 if one of your checks bounces and $15 if your monthly payment is more than 25 days late. Union Bank in San Diego squeezes its cardholders a different way. Like most banks, Union levies a cash-advance fee of 2%, but unlike many others that have a cap of $10 or $20 on that charge, Union sets no dollar limit. As a result, you would pay a whopping $100 for a $5,000 advance -- on top of 19.8% interest. Says Robert McKinley, president of RAM Research, a company that monitors credit cards: ''Banks are increasing these fees and charging them more often.'' Similarly, banks today are more likely to sock you with fees of as much as $25 for overdrawing your checking account. Wells Fargo has added another novel twist to its fee schedule: an ATM-only account for which you pay $3.50 a month if you stick to the automated teller machines. Wander over to a teller's window, however, to make a deposit or cash a check, and the bank slaps you with an extra $5 charge for the month. Clearly, the new age of retail banking demands a fresh outlook from consumers. The next time a service rep suggests a new investment or wants to tell you about the latest product of the month, ask yourself whether you really need what the bank is pushing. If you do, check to see whether you can get the same service -- or a better one -- somewhere else at lower cost. This especially makes sense with big-ticket items like mortgages, car loans, CDs and investments such as annuities and mutual funds. For example, buy the Premier GNMA fund, a mutual fund that invests in mortage-backed securities and is managed by the Dreyfus Group, from one of the 300 or so banks that sell it and you will pay a 4.5% commission. That siphons $225 right off the top of a $5,000 investment. But you can get virtually the same fund, Dreyfus GNMA, directly from Dreyfus without having to pay a sales commission. Both Dreyfus GNMA and Premier GNMA are run by the same portfolio manager, Barbara Kenworthy. Ultimately, the best advice in dealing with your bank is to think back to the last time you ordered a hamburger at McDonald's and the preternaturally cheerful McSalesperson chirped up, ''Apple pie and fries to go with that Big Mac, sir?'' If you wouldn't let a McDonald's clerk dictate what you should eat, then it makes even less sense to allow a bank's marketing strategist determine where you'll invest your money.