Making money off of money can be done at many banks, but they don't have to disclose better deals

Banks don't owe consumers their best
deals. (Adobe Stock photo)

Americans who choose banks with higher savings interest rates can make more money with little work; however, some U.S. banks hope consumers are too confused or hassled to bother making a switch.

"For the last few years, anyone keeping $10,000 in a high-yield savings account has earned close to 4% annual interest, or about $400 a year," reports Ben Blatt of The New York Times. "The nation’s three largest banks — Bank of America, Chase and Wells Fargo — offer 0.01% on their standard savings accounts. That works out to $1 in interest a year for a $10,000 deposit."

Sometimes banks offer additional perks to make up for their abysmal rates, but most believe "their customers won’t hunt for better deals out of inertia," Blatt explains. "Banks know their customers are generally not attentive to account details. A study commissioned by Capital One found that many people check their savings account less than once a month, and about half don’t know what interest they are earning."

While it may sound unethical, banks "have no fiduciary duty in many cases and can profit from customers’ confusion," Blatt reports. "The Consumer Financial Protection Bureau said one bank, Capital One, went too far by intentionally creating confusion so that customers wouldn’t know to switch to a higher-paying account at the same bank."

While sowing confusion may be wrong, part of a bank's purpose is to make money. Scott Pearson, a lawyer who represents banks in regulatory matters, told Blatt, “I don’t know why anyone would think that it’s the bank’s job to tell you that you can get a better deal somewhere else or that they’ll give you a better deal. That is just kind of a shocking and unprecedented theory in my view.”

The growth of smaller banks and credit unions is outpacing the rest of the industry

Small banks often offer more personal service.
(Photo by Stoica Ionela, Unsplash)

As bigger banks consolidate into mega-banks, an opposing trend is emerging -- smaller banks are attracting new customers and deposits. "While the biggest banks are getting bigger, the smallest are growing too. Community banks, which typically have less than $10 billion in assets and a concentrated footprint, grew deposits by about 1% in the third quarter from a year earlier," reports Imani Moise of The Wall Street Journal. "Credit unions grew deposits by a similar amount. Their loan books grew by 10% and 9%, respectively. Both far outpaced the broader banking industry, according to federal data."

Bank customers opting for smaller banks or credit unions find that "making a switch not only gets them more face time with bankers, but they are also earning more and paying less," Moise explains. "People wanting a smaller bank have an ever-smaller number to choose from. Bank mergers are expected to accelerate this year as lenders seek safety in size after a series of regional bank failures in 2023."

The current market has been tough on mid-sized banks, but smaller banks offer local convenience and more personal customer service for consumers and small-business owners. "Even the biggest banks acknowledge that people like to do some banking in person," Moise reports. "PNC plans to add new branches this year after closing more than 200 last year."

Particularly if problems arise, smaller banks have staff available to solve problems in-person. "Laurie Matta, the chief financial officer for the city of Clarksville, Tenn., decided to move the city’s bank accounts from the U.S.’s fifth largest lender, U.S. Bank, after a mix-up during the pandemic," Moise adds. "It took six months and many unsuccessful attempts to get the bank to correct the error, even though it shared an office building with city hall. . . . She moved the accounts in 2022 to Legends Bank, which is down the street."

Help your community 'know their risk and protect their money' by raising public awareness with this media kit

To increase the public's awareness of deposit insurance and how it can protect people's money in the event of a bank's failure, the Federal Deposit Insurance Corporation developed a national consumer campaign, "Know Your Risk. Protect Your Money."

The campaign reaches people who may have lower confidence in the U.S. banking system or do not use a bank, as well as those who use mobile payment systems, alternative banking services and financial products that may appear to be FDIC-insured but are not.

The FDIC is asking financial institutions, community organizations, government agencies, and others who serve the public to help raise awareness of deposit insurance protections.

Tips on how to spread the word:

• Link to FDIC's Deposit Insurance page from your website (also available en español).
• Publish posts on your own social media channels using the materials on our social media toolkit page and including the hashtag, #IsYourMoneyInsured.
• Review the campaign launch press release to learn more.

To make the topic less daunting, FDIC offers several "Saving Pigs" in English and Spanish to get the conversation going.
                 
           

Rural business expansion tripped up by lack of comparable sales that banks need to justify loans on balance sheets

The proposed Maine Grains expansion would include spaces for
local startups. (Photo of artist's rendering by Ryan David Brown, WSJ)

Rural towns often lack valuable real estate, which has a widespread impact on their ability to grow, reports Ruth Simon of The Wall Street Journal. Simon's prime example is Maine entrepreneur Amber Lambke, who launched Maine Grains in Skowhegan, pop. 8,700. Maine Grains' success helped invigorate Skowhegan's economy, but it has hit a financial and uniquely rural economic block, Simon reports: "Lambke wants to construct a new building on the empty lot next door but has run into a problem impeding economic development in rural communities across the U.S.: The new building would cost $7.4 million to erect. When completed, it would be worth $2.4 million, according to an appraiser brought in from Boston by a local bank."

Skowhegan (Wikipedia map)

Ines Polonius, chief executive of Communities Unlimited, a nonprofit lender and development organization in the rural South, told Simon that real-estate collateral "is the number-one barrier to any rural business," because there are few if any comparable sales to determine value, which a lender would put on its balance sheet as an asset to support the debt.

"One problem with the appraisal gap is that it doesn't account for a project's potential impact, said Rob Riley, president of the nonprofit Northern Forest Center, which recently launched an impact investing fund in part to overcome the appraisal gap hindering rural residential-property redevelopment," Simon reports. "Appraisals don't determine whether a business can repay a loan, but they give banks comfort that they will be protected if things don't work out as planned. In valuing the Maine Grains project, the appraiser cited its location 'in a tertiary market' as a reason not to move forward. Other concerns were economic: rising interest rates, inflation and worries about a slowdown."

To fill the gap of comparable sales and potential customers, "Some developers have used state and federal tax credits to revitalize old mill buildings and create housing for people moving from big cities, creating momentum for other economic development, said Dave Eldridge, regional vice president for Kennebec Savings Bank, which is trying to help Maine Grains secure financing," Simon explains. "But Lambke's project is new construction. It is also smaller than many of these types of developments; Skowhegan is nearly an hour from Bangor and even farther from Portland. Commenting on rural financing, Eldridge told Simon, "It's almost impossible to take the 'build it and they will come' sentiment. It really has to be: Get them to come, and then you can build it."

Anne Ball, program director of the Maine Development Foundation, told Simon that such challenges will grow as inflation widens "the gap between the cost of new projects and the value of existing properties," Simon writes.

Small banks have a lot to offer to their customers and communities; there's little risk and lots of service

Thanks the FDIC local banks are just as safe as larger ones.
(iStockphoto,WSJ Photo Illustration)

Remember Banking 101 from "It's a Wonderful Life"? "During the first bank run, George was able to convince people not to pull all of their money out and instead take out only what they needed in the short term so the bank could stay afloat," Bourree Lam retells for The Atlantic. "Instead of George Bailey, Americans have the Federal Deposit Insurance Corp., which was created to insure bank deposits precisely so people wouldn't fear losing everything and pull cash out of the financial system in a panic, triggering bank failures."

"In the past few weeks, many small bank-account holders have gotten jitters: The surprise collapse of Silicon Valley Bank and Signature Bank has sent customers scrambling to larger competitors," reports Martha C. White of The Wall Street Journal. "Thinking of joining the stampede? Experts say now may be the time to consider what small banks offer. Thanks to FDIC insurance, they are just as safe as larger competitors. And right now, they're competing harder than ever for your dollars—many are offering deals for savers that leave their big-bank rivals in the dust."

It may be natural to leave what feels financially risky. "Depositors appear to be fleeing small banks because they fear problems in the banking sector could spread beyond the tiny number of troubled banks that have made headlines so far," White writes. "While many small and regional banks have seen their stock prices take a hit, the problems don't appear contagious." Michael Finke, professor of wealth management at the American College of Financial Services, told White, "A lot of the flight to capital to large banks is driven by emotion and not by true risk."

When offerings and protections are combined, reconsidering your small bank could yield good things. "Small banks tend to shine when it comes to being able to deliver personal, caring customer service and commitment to their local neighborhoods," White adds. "Just how much of your savings will be covered? FDIC insurance protects savings and checking account deposits up to $250,000—an amount much higher than most Americans keep as cash savings. Joint accounts, say between you and your spouse, are covered for up to $500,000. And if you have to protect still more than that, there are other simple strategies you can use to guarantee even larger sums." Finke told White, "The FDIC is going to protect you."