First Republic is one of four banks I do business with. They are a boutique bank known for their quality of service. When you go into one of their branches you don’t stand in line and wait for a teller to serve you behind a bullet proof window. Instead, you actually sit at a bank officer’s desk to deposit a check, open up a CD, or pay your mortgage. It’s quite an intimate experience. The fresh baked all you can eat cookies are a nice touch too.
Back in 2009, First Republic ran a 5-year CD special at 4.15%. With extra cash on hand, I locked in a good chunk of change in order to protect my money from further risk. In retrospect, I should have dumped everything in the stock markets. But I’ve been following my system of allocating 30% of all savings in long duration CDs since 1999 and it’s worked out well through the previous downturns so there was no desire to change.
In addition to opening up a couple CDs I also opened up a savings account given their savings account interest rate was also higher than the competition. Over the next year I ended up drawing down my savings account to the point where there was only $33.25 left. I had multiple accounts open with four banks and wanted to simplify my financial life. Carrying around four ATM cards (I hate ATM fees) and keeping track of more than five money market savings accounts was a big pain so I stopped using First Republic for anything other than a CD depository.
SURPRISE BANKING “SERVICE” FEE
I’ve known about my residual $33.25 savings account for the past couple of years given I get monthly statements. However, I’ve been ignoring most of the paper statements because who cares about $33.25? I check my CD accounts online once every quarter when interest is paid and that’s about it. Boutique banks shine on service but suffer on ubiquity. Hence, I’ve always put off withdrawing the $33.25 because there isn’t a convenient First Republic branch close by.
The beginning of the year is always a good time to make adjustments to our finances so I decided to finally close my First Republic savings account and withdraw my money. When I opened up my January 2013 statement I was shocked to see that there was only $8.25 left! What the duck? Where’d my $33.25 go?
It turns out I was debited a $25 “monthly service fee,” which accounts for 75% of my entire balance. Apparently as of January 2013, First Republic instituted a monthly $25 service fee for savings and money market accounts with balances below $5,000. News to me.
Here’s the kicker. I logged into my Personal Capital account which tracks all my accounts real-time and the balance for this particular account showed $0.00. How could I have zero when at least my paper statement showed $8.25? Perhaps something was wrong with the software at the moment.
I finally drove over to the nearest First Republic Bank branch to ask the teller to explain what was going on. The simple answer was that First Republic debited my account another $25 in February, bringing my latest $8.25 January balance to a negative $16.75 as of March 1! I wasn’t mad, I was laughing inside. If you open up a $1,000 savings account one day, you would end up with a $0 balance in just 3 years and 4 months thanks to the monthly service fee.
I politely asked the bank rep to reverse the fees and he obliged as I knew he would. Clearly First Republic is spring cleaning as well and wants to focus on wealthier clientele.
PAY ATTENTION TO YOUR MONEY
I admit that paying this bank fee was my fault since I threw away most of the statements into the recycling bin. There were heads up notifications in fine print apparently, but I failed to look closely enough. I just assumed no bank would impose such an expensive fee given all the uproar Bank Of America had when it tried to institute a $5 monthly debit card usage fee last year.
Some thoughts and tips to never pay bank fees:
* Banks will sneak in fees where they can. Banks are in business to make money. If you don’t have a lot of money, they can’t make a lot of money off you. As a result, the only way they can make money is through service fees such as a wire transfer fee, debit card fee, ATM fee, account maintenance fee, dormant account fee, overdraft fee, excess transfer fee, and many more. It’s up to you to be aware of the fees and proceed accordingly.
* Ask for a refund as soon as possible. Banks are surprisingly lenient on such fees because they know they are pretty egregious. They don’t want to lose you as a customer, no matter how small your account, nor do they want to have negative publicity. Just like how it’s relatively easy to get a credit card late fee waived, you should also be able to waive a random fee if you ask early enough. Even if you catch the fee months down the road, you should be able to get your account credited.
* Banks are counting on you to not notice. Let’s say a bank has 1 million customers who get a six month warning that a $25 monthly service fee will begin. Chances are high that at least 10% will not even bother to move their money. That’s a nice $2,500,000 in incremental fees right there. Let’s say half of the 10% dispute the fee. There’s still an extra $1,250,000 in incremental revenue a bank gets to pocket. Read your monthly statements and ask for a refund. Retailers also count on you to lose or forget to use your gift cards too, so don’t forget to use them!
* Track your accounts online. Because I have around 30 financial accounts, I only focus on the larger accounts and those accounts which have constant transactions such as checking and money markets. Just looking at the “$0.00” on the consolidated account list of my Personal Capital homepage told me something was wrong. As a result, I got my $33.25 back and a couple chocolate chip cookies to boot.
TRUST ONLY YOURSELF TO DO WHAT’S BEST
The more money you have, the more money a bank will want to suck away from you. We take it for a granted that our money will always be there so long as we have it deposited in a FDIC insured financial institution. We also think financial institutions will always provide the lowest cost solutions for our banking needs. That’s not always the case as I found out after running my 401k through the 401k Fee Analyzer and discovering $1,700+ a year in portfolio fees I had no idea I was paying. There are money leaks everywhere. Time to start plugging the holes and sign up with Personal Capital!
Finally, consider keeping some of your savings in a high-interest savings account like 360 Savings from Capital One 360 with no fees, no minimums, and no need to change banks.They also have free checking with a $50 bonus. Money market accounts are yielding a pitiful 0.1% on average and you want to keep as little money there as possible. At least with an online savings account, you’ll get a 75X+ higher rate while you wait to mobilize your money for better investments.
Photo: Fat duck. FS, 2014.
Updated 2016 and beyond