Have your students compare the details on these two accounts (from Money’s Best Banks in America):
- Maintenance fee: $25
- Minimum balance to waive fee: $2,500
- ATM fee: $0, plus reimburses unlimited surcharges with $2,500 balance
- Interest on $2,500: 0.05%
- Maintenance fee: $0
- ATM fee: $0, plus reimburses unlimited surcharges
- Interest on $2,500: 0.10%
First a big caveat, I am only providing limited information, so hopefully students might ask to see a more detailed set of fees to see if there are other gotchas. Tell them they need to make a decision based on this limited information (and can compile a list of questions later that they would like more information on).
I suppose that most students would choose #2 since it has no maintenance fee and no ATM fee while the other bank requires a $2,500 balance to waive maintenance and ATM fees. In terms of interest rates, #2 has higher interest rate, at 0.10% vs. 0.05%. Ask students to calculate what interest you would collect if you had $2,500 in each account ($2.50 vs. $1.25 per YEAR), so fees are what matter!
Now ask students if their answer would change knowing that #2 is an online bank (Ally Bank). Just as many consumer categories are moving online (retail, restaurants, transportation), so too is banking. In 2013, online banks had about a 4.2% share of overall deposits in the banking industry but were growing in double digits on an annual basis.
Why are they growing? Here is what Money’s Best Banks report noted:
For this category, MONEY looked at the 12 biggest online banks that offer both checking and savings accounts. On average, these online banks offered better deals than brick-and-mortar ones of all sizes.
In short, they offer the best deals. As for why they aren’t growing faster, ask your students what they think? Bet you hear about family (my family banks at bricks and mortar banks), convenience (I want to be able to talk to a banker) and brand (I know this bank).
You might even ask them to make a list of questions they would want answers to before making a decision. This list might include:
- Are banks FDIC insured?
- Where is bank located?
- What other fees do they charge?
- Minimum balance to open account?