It seems like the words "good news" and "banking" haven't gone in the same sentence since the start of the financial crisis in 2008. Although there's no doubt that bank customers got a raw deal in the recession, there were many positive developments in banking during 2010.
Here were the eight best trends in banking for consumers this year:
- Mortgage rates were cheaper than ever. Historically, 30-year mortgage rates have averaged around 8.91 percent. For the first 11 months of 2010, they averaged 4.69 percent. This cuts the interest expense of buying a house almost in half.
Perhaps even better, the drop in mortgage rates sparked a surge in mortgage refinancing, giving a boost to the budgets of many a cash-strapped household. The great thing about these historically low mortgage rates is that while they may not last long, homeowners who were able to lock in 30-year mortgages this year will benefit from this dip in rates for many years to come.
- Financial reform. The Dodd-Frank Wall Street Reform and Consumer Protection Act -- commonly known as financial reform -- was a mixed bag for consumers. Chief among the negatives: higher compliance costs may cause higher fees on checking accounts and/or lower interest rates on CDs, savings accounts and money market accounts in the years to come.
In the big picture, though, the new law's consumer protections and restoration of elements of the old Glass-Steagall legislation should make the banking system more stable and secure. Looking ahead, it remains to be seen how long these reforms survive the efforts of the banking lobby to chip away at them.
- Millions of Americans stopped paying protection. It's not extortion, but it is exorbitant -- overdraft fees had become a huge profit center for banks in recent years. New rules gave customers the latitude to say no to overdraft protection programs and, according to Moebs Services, over 30 million customers did just that.
Unfortunately, a great many more chose to continue overdraft protection. Even these customers got a small break, though. The average overdraft fee dropped by 50 cents in the latter half of 2010, according to Moebs.
- Free checking survived. Some predicted that the compliance costs of Dodd-Frank, the loss of some overdraft fee revenue and previously implemented limitations on credit card practices would drive banks to drop services like free checking. Indeed, a Moebs survey found that the availability of free checking dropped 11 percentage points.
However, that still left nearly three-quarters of banks and credit unions offering free checking. With thousands of FDIC-insured institutions out there, customers still had plenty to choose from. A poll in late 2010 by MoneyRates.com and GetRichSlowly.org found that 95 percent of respondents were able to avoid monthly checking account fees one way or another.
- The hike in FDIC insurance was made permanent. For years, Federal Deposit Insurance Corporation (FDIC) insurance was $100,000 per depositor at any given institution. This was temporarily hiked to $250,000 during the banking crisis, and in 2010 this higher insurance limit was made permanent.
This was a triple win for consumers. First, this emphatic government backing demonstrated that the federal government is prepared to stand behind deposits in the U.S. banking system. Second, the increase in the insurance ceiling reflected the fact that the previous $100,000 limit had been significantly devalued by inflation since it was established in 1980. Third, raising the insurance limit to $250,000 increases the ability of customers to consolidate funds and take advantage of "jumbo" rates on deposits (offered on balances of $100,000 or higher) and other benefits available to large depositors.
- The dollar limit for FDIC insurance was increased. In a less publicized move, FDIC insurance on non-interest-bearing transaction accounts, which includes checking accounts that don't pay interest, was temporarily expanded without limit. These accounts also will not count against the $250,000 limit for other deposits, making it easier for customers to have checking accounts at the same bank as their savings accounts or money market accounts without exceeding the insurance limit.
Two caveats: This unlimited insurance is available only from December 31, 2010, to December 31, 2012, and it only applies to accounts that don't pay interest. Of course, with interest rates as low as they are now, customers would not have to forgo much interest for the benefit of obtaining unlimited insurance on their accounts through 2012.
- Consumers fought back against credit card debt. A streak of 40 straight years in which revolving credit balances, which chiefly includes credit card debt, increased was broken in 2009. Federal Reserve figures through October 2010 showed that revolving credit debt was on track to decrease again in 2010.
This sudden reversal in a decades-long debt binge doesn't mean that revolving credit balances are now low, but at least they are finally headed in the right direction -- back to the neighborhood of 2004 levels. It is also possible that consumers are taking advantage of low interest credit card rates to reduce their total debt spend.
- Americans began to build savings. Paying down debt is just half the battle for American households. After years of lax savings habits and disappointing investment returns, Americans were far behind in their retirement savings. In 2010 there were some steps in the right direction.
According to the Federal Reserve, savings deposit accounts increased during each of the first 10 months of the year. This added a cumulative total of more than $400 billion to savings deposit balances -- despite the fact that these balances were getting little help from low interest rates on savings accounts.
As with the trend in revolving credit balances, this increase in savings so far represents only a short-term reversal of some long-standing bad habits. Still, the road to rebuilding savings accounts has to begin somewhere, and the figures indicate that in 2010 Americans have at least made a start.
Which banking customers didn't benefit in 2010? Most notably, those who were victimized by slapdash foreclosure procedures by some banks and mortgage processing companies, and the customers in deposit accounts who lost billions of dollars to inflation in an environment of unnaturally low CD rates, savings account rates and money market rates. Maybe 2011 will be the year when these customers get a better deal.
The original article can be found at MoneyRates.com: