Banks With No-Fee Pledges

Earlier this year, my credit union announced they’d start charging a new $35/year fee on a $10,000 deposit. But they offered me a deal: they’d waive the fee if I agreed to deposit an additional $23,000. Boy, was I mad!

Actually, I didn’t even notice at the time, and I’m embellishing the story. The credit union didn’t hit me with a new fee. They lowered their interest rate on savings accounts from 0.5% to 0.15%. If they had kept the interest rate at 0.5% and announced a $3/month fee, I would have joined an angry Facebook campaign (“We are the 0.5%!”), even though it would have amounted to the same thing.

What do we want from our banks, anyway?

He’s no Brad Pitt, but he’s mine

Remember the mid-2000s, when shopping for bank deals was fun? I had an online savings account paying 5.2%, and a CD paying more than that. (And why didn’t I spring for the 5-year CD? If you’re in the happy twilight years of a high-interest CD, I don’t want to hear about it.)

Now, the experience is Blade Runner-esque. We scavenge the junkyard for a tiny fraction of a percentage point. You almost have to feel sorry for the banks. When INGDirect lowered the rate on its Orange Savings account from 1.0% to 0.9%, it earned a headline in the New York Times.

The best rates on deposits are usually on reward checking accounts (often called Kasasa accounts; kudos to whoever came up with this unthreatening, sorta-ethnic name). Offered by credit unions and community banks, Reward Checking accounts pay high interest (well, 2% and up) as long as you use your debit card a lot and sign up for direct deposit, e-statements, and (usually) online bill pay.

The problem with reward checking is that banks use it to bring in new deposits, and once they’ve got you – once you’ve connected your checking account to everything else in your financial life – they can lower the rate and figure you’re too deeply embedded to switch.

That said, plenty of people have excellent luck with reward checking. My friend Karawynn Long of the blog Pocketmint recently wrote about her reward checking account, which pays 4.09% on balances up to $10,000. The rate is guaranteed through June 2012. That’s a great deal. I couldn’t help but notice, however, that she’s changed banks since last year.

Me? I’m too lazy to play this game. At this point, I think it’s fair to say that what most bank customers want is predictability. We’re willing to lower our standards and settle for a bank that lies around on the couch all day watching football as long as it doesn’t actually get drunk and threaten to hit us with a $5 debit fee.

Say you’re ready to close your account at Mega-Conglomerate International Bailout Bank and Trust. You know moving your money is going to be a chore and don’t want to have to do it every year. Are there any banks willing to put themselves on the line and promise to be the shlumpy, reliable guy who doesn’t pay the very best interest rate but won’t surprise us with a stupid new surcharge?

The good guys

Everbank offers a line of Yield Pledge accounts. The most interesting is Yield Pledge checking, an interest-bearing checking account with no minimum balance, no fees, and a promise to stay in the top 5% of rates nationwide. Right now, it’s paying 0.46% on balances under $10,000.

“Can somebody else run a special and have a higher rate? Sure,” says Frank Trotter, president of Everbank Direct. “It’s kind of like Southwest Airlines. They’re not the best rate in the market every day, but you know you’re going to get a fair deal every time. And you feel that the other airlines will try to take advantage of you when they can.”

I spoke with Bankrate.com senior analyst Greg McBride, who is probably the world’s foremost expert on checking and savings accounts (no, really). Is the yield pledge just a gimmick? “Having a pledge is better than you’re going to get on other accounts,” says McBride.

A different kind of promise comes from Bethpage Federal Credit Union, which guarantees no transaction fees, debit fees, or monthly maintenance fees for the life of your checking account. I like the idea, but it’s a little unnerving when you follow the asterisk down to the footnote that says “Offer subject to change.” Baby, I promise to love you until I die. Or change my mind. Whichever comes first.

Actually, almost no credit unions, community banks, or online banks charge these kinds of fees. I ask Greg McBride whether, given how hard it is out there for a bank, this is likely to change.

Probably not, he says. “Credit unions are not-for-profit cooperatives. The other levers they can pull before instituting fees are reducing interest rates, eliminating products or services, or eliminating interest on the checking account altogether.” Indeed, my credit union checking account pays 0.1%. At that rate, my money will double in just 694 years!

As for community and online banks, they’re generally exempt from new debit swipe fee regulations and have built their reputations on customer service—on not being like the big banks.

PerkStreet Bank doesn’t pay interest, but they do offer 2% cash back on signature debit purchases. Most of their competitors dropped their debit reward programs months ago, but PerkStreet is still at it. If and when they have to lower their cash back rate, it’s going to be a PR disaster, but it hasn’t happened yet.

Finally, last year I opened a checking account with Schwab, and I’ve been delighted with it. It is the epitome of boring: the interest rate is low (0.2%), but they don’t charge fees for anything: no minimum balance, no monthly fee, no fee for using anyATM in the world, and no international fees. The only problem I’ve had with Schwab is that they are bulldogs about international fraud prevention: I took my ATM card to a scary foreign country this year and had to call the bank twice to convince them that I was really me, not the kingpin of an international card number-running mafia. The country was Canada.

Other than that, for most of my savings and checking needs, I’m sticking with my credit union, no matter how low their interest rates go. (For longer-term cash savings, I use CDs and savings bonds. I mean, I’m not totally nuts.)

It may not be entirely rational, but are relationships ever rational, really?

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.