Banks That Put You First

Looking for higher rates and lower fees? Switch to a small bank or credit union.

When Timothy Stitt of Leeper, Pa., first heard about a new checking account at a small western Pennsylvania bank, he was intrigued. The "preferred account" from S&T Bank would give him free ATM transactions and a debit card with cash-back rewards. That appealed to Stitt because he frequently uses his debit card to purchase equipment for his landscaping business. So he signed up for an account. "It was something I couldn't pass up," says Stitt. "It was a no-brainer."

The icing on the cake was the personal service: The bank's account executives took the time to answer all of his questions. And they helped him refinance his mortgage, to a 15-year fixed-rate loan at 5.5%.

Community banks, credit unions and online banks are luring refugees from the big money-center banks by offering lower fees, better rates on savings and a level of personal service that may remind you of George Bailey's building and loan. And just in case that's not enough, they're offering freebies to sweeten the deal -- the 21st-century version of the free toaster.

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For example, when you set up an account today, you may get a cash-back debit card or a free iPod. KeyBank hands over a Garmin GPS device. BBVA Compass, of Birmingham, Ala., gives you the chance to win a Mini Cooper. If you refer a friend to Chevy Chase Bank, which serves the Washington, D.C., area, you'll be rewarded with a three-day getaway (not including airfare) to St. Thomas, Las Vegas, Orlando or another vacation spot. "This is a great time for consumers," says Jon Paul, president of Value Added Finance Resources, a consulting firm. "Banks are very hungry for your deposits."

Big banks want your money, too, but they're turning customers off with higher fees and tighter lending -- not to mention stress tests and troubled assets. They continue to raise fees, even as the grab for business intensifies and consumers are more cost-conscious.

Bank of America recently raised the monthly maintenance fees on some of its checking accounts; for example, fees for MyAccess Checking went from $5.95 a month to $8.95 a month. Wachovia, now a Wells Fargo company, boosted its transfer fee to cover checking-account overdrafts from $5 to $10 on some accounts. Charges for using credit cards overseas are also on the rise.

Bank customers are ready for a change. A survey by Aite Group found that just 2% of consumers have a high degree of trust in banks. And satisfaction with the major banks -- such as Bank of America, Citigroup and JPMorgan Chase -- has either leveled off or dropped, as measured by the American Customer Satisfaction Index and TowerGroup. "Banks are just not where they need to be," says Kathleen Khirallah, of TowerGroup.

Find a better deal

Community banks appeal to customers like Stitt because they have close ties to local residents and tend to offer more personal assistance than the big money-center banks. "Community banks are in the relationship-building business," says Karen Tyson, senior vice-president of the Independent Community Bankers of America. They tend to have fewer -- and lower -- fees than the major banks. And they generally offer lower rates on loans and higher yields on savings.

Likewise, credit unions are focused on their members (and almost anyone can join one). According to a study by the Credit Union National Association, credit unions charge an average of $25 for overdrafts; banks charge an average of $30. Similarly, banks sock you with a $35 fee if you're late paying your credit-card bill, but credit unions charge $20. Interest payments on a $25,000, 60-month car loan from a credit union would be $184 a year less than they would be if you got the loan from a bank, according to an analysis by Datatrac. Over five years, that would save you nearly $1,000. And average closing costs on a mortgage are lower at a credit union: $2,280, versus $2,309 at banks.

Online banks are another good option, particularly if you want to avoid ATM fees. If you need to use a brick-and-mortar bank's ATM, many online banks will reimburse you for any fees it charges. For example, reimburses its free-checking-account customers up to $4.50 a month for ATM charges from other banks. If you open a checking account at Charles Schwab, you'll get a refund of all ATM fees.

Plenty of perks

Looking for a better shake on a specific product? We found deals on checking accounts, savings accounts and loans.

Checking accounts. Free checking is available at 78% of financial institutions. But it's hard to find interest-paying checking accounts that don't require a minimum balance or charge fees.

Some 600 financial institutions -- many of them community banks -- offer high-yield checking accounts, reports BancVue, which provides the programs to the banks. The accounts pay 3% to 5% if you sign up for direct deposit, use your debit card a certain number of times or log on to online banking each month. The yield drops to the bank's standard payout if you don't meet the monthly qualifications. Another bonus: The accounts charge no ATM fees -- and reimburse surcharges from other banks.

Some accounts, such as eSmart Checking at Liberty Bank in Alton, Ill., and Kasasa Cash at FAB&T, come with no minimum-balance requirement. But be sure to read the fine print before you sign up. For example, you earn a yield of 4.25% at Liberty, along with reimbursement of $20 a month in ATM fees. But you must make at least 15 purchases each month with your debit card. Otherwise, you'll earn only 0.50% on your money -- and forfeit your right to get those ATM fees back.

To find a high-yielding account, go to CheckingFinder and enter your zip code. The site lists accounts guaranteed by the Federal Deposit Insurance Corp. and National Credit Union Administration. Another source is, which lists accounts available nationwide at banks and credit unions.

Online banks tend to pay higher interest on checking accounts, too. For example, EverBank offers new checking-account customers who make a minimum deposit of $1,500 a 1.52% yield for balances of $9,999 or less. Rates increase with your balance, topping out at 1.96% with a $50,000 balance.

Then there's rewards checking. You can get travel bonuses when you make debit-card purchases and, in some cases, for standard banking activities such as online bill paying. Depending on the bank, you may also be able to combine the rewards you're earning on your checking account with those you receive by using your credit card.

Or you may qualify for cash. USAA Federal Savings Bank recently gave new customers $100 for opening an account and signing up for direct deposit. Likewise, ING Direct is offering a bonus of $25 to customers who open an Electric Orange checking account and use the accompanying debit card.

Capital One, the credit-card issuer, has been expanding into banking and is offering incentives to attract customers. Recently, you could sign up to earn double rewards on checking accounts. Ira J. Furman, a 65-year-old lawyer in Freeport, N.Y., was already a customer of Capital One. But after receiving a call from the bank, he signed up for a rewards checking account, and he registered his wife, Carole, who will be eligible for a total of 5,000 points for opening a new account and using the bank for direct deposit. In addition, Capital One customers earn rewards for using their debit card, for paying bills online and for making withdrawals. "The rewards-program incentive is, for me, the cherry on top," Furman says.

Savings accounts. If you're looking for a safe parking place for your cash, certificates of deposit are a better deal than money-market funds or Treasury securities. You can earn 2% on a six-month CD at Corus Bank in Illinois with a $10,000 deposit, or 1.93% at Nexity Bank in Alabama with only a $1,000 deposit. If you commit your funds for a year, you can earn 2.49% at Ally Bank with no minimum deposit. Credit unions offer rates on a $10,000, one-year CD that are 0.7 point higher, on average, than bank rates, according to Datatrac.

Loans. Community banks, such as Liberty Bank, compete with credit unions for auto-loan business, so their rates are similar. "Larger institutions charge higher rates because they are not competing for this business," says Dale Blachford, of Liberty Bank.

At banks, car-loan interest rates average 7.04% for 60 months and 7.31% for 36 months, according to Liberty charges customers with good credit 5.95% for loans of all lengths. Jim MacPhee, chief executive of Kalamazoo County State Bank, in Michigan, says that at a community bank your credit score isn't the only criterion: "We look the customer in the eye. We try to analyze their credit situation so we understand what they can afford."

Some credit unions offer even lower rates on auto loans. Pentagon Federal Credit Union charges 3.99% for loans from 12 to 60 months. Georgia's Own Credit Union offers loans as low as 5.2% for 60 months. It will also lower your rate by 0.5 point if you buy a hybrid car, and promises members $100 if it can't lower their monthly payments when it refinances their car loan.

How to find a better bank

Small banks, credit unions and online banks are hungry for your business, so they're beating big banks on fees and rates.

Community bank. Go to the Web site of the Independent Community Bankers of America and click on "community bank locator."

Credit union. Click on "locate a credit union" at the Credit Union National Association's site. You may be eligible to join one where you work or live, or because a family member belongs. Some credit unions have other entrees to membership. For example, you can become a member of the Pentagon Federal Credit Union if you join the National Military Family Association for a one-time $20 membership fee.

Online bank. Start at, which lists the latest interest rates and offers. Click on the "compare rates" tab to find banks with above-average yields. If you find a deal at an online bank that you're not familiar with, make sure the institution is covered by FDIC insurance. Run the bank's name through the agency's Bank Find database.

Associate Editor, Kiplinger's Personal Finance