Switching Your Bank? Not So Fast!

Bank of America sparked widespread outrage earlier this year when it announced that it would charge customers $5 a month if they use their debit cards to make purchases. And, though they attracted less attention, other major banks tried to do the same thing.

Angry customers and bad PR forced the big banks to cancel their debit card fee plans. As most of us already know, however, banks charge lots of other fees for everything from visiting a human teller to failing to keep a minimum account balance.

No matter how hard you try, sooner or later you're guaranteed to get dinged by a fee, penalty, or surcharge for something. 

If you're a customer at one of these banks, you may be justifiably ticked off. "They're charging me to use my own money?!" You may be angry enough to have sworn you'll switch to another financial institution.

If you've looked into it, though, you've likely discovered that changing banks isn't like changing breakfast cereals. It's a complex process fraught with gray areas and red tape.

Fleeing Fees

For some reason, debit card fees really push people's hot button. In a study by Javelin Strategy and Research, 60 percent of respondents said any sort of debit card usage fee would spur them to pay another way.

Speaking to the website Digital Transactions, Patricia Hewitt, director of the Debit Advisory Service at Mercator Advisory Group in Maynard, Mass., said transaction fees are the most disliked by customers, and the fees could cause many to bail on their banks. "Consumers are going to look at their financial institution relationships."

But breaking up is hard to do. A 2008 study of "switching costs" by the Federal Reserve found that it's very difficult for people to shop around and assess the real cost of doing business with other banks. This is partly because all of the costs and fees are not disclosed by banks on their websites -- you don't learn about them until you're a customer. And it's partly because most banks employ what industry observers call a "bargains-then-rip-off" game plan. They lure you in with a carrot, and then they stick it to you.

Another problem: Most people nowadays have all sorts of lines in and out of their checking accounts, from direct deposits to automatic payments. It's a hassle to take all of them and plug them into a new account. To make it easier, a lot of smaller banks and credit unions have "switch kits" that help new customers through the process.

But there are drawbacks to smaller banks and credit unions. Yes, they're friendlier and they may offer better interest rates on loans, deposits, and credit cards, but they usually don't have so many ATMs, and if you withdraw cash often from other banks' machines you'll end up paying a lot in out-of-network fees.

Easing Withdrawal Pains

All that said, you may very well find a better deal at a new bank -- if you do your homework. And there are a lot of resources that can help. Here are a few:

• Consumers Union: Consumers Union has a checklist of steps you can take to move to a new bank safely and ensure that all of your bills are paid on time.
• Five Steps to Switch Your Bank: Arianna Huffington launched an initiative urging consumers to abandon big banks two years ago. And The Huffington Post continues to beat the drum. Recently it published this five-step plan for changing banks.
• MoneyRates.com: This site provides information on the banks with the best rates nationwide -- for checking accounts, savings accounts, credit cards, and more.
• Move Your Money: This is a national nonprofit campaign to encourage people to move their banking relationship from Wall Street to Main Street. The website includes a tool to help you find a small bank or credit union in your zip code.

Follow Tim and Tom on Twitter at @timntom.