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Tricks and Treats at the Bank

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BANK OF AMERICA ATM
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Even if you are too old to go trick-or-treating, you may well find yourself holding a mixed bag this Halloween at your local bank. Banks play their share of tricks on customers, but you might be surprised to learn they also hand out some treats.

Here are four prominent tricks -- along with four treats -- that banks play on customers.

Tricks

When your industry is roughly as popular as collection agencies and used car dealers, you know you have an image problem. According to the national Better Business Bureau, banks ranked fourth by type of business in overall complaints for 2010, just ahead of collection agencies and used car dealers. They trailed only satellite/cable TV providers, cell phone companies, and new car dealers.

Here are four of the tricks that make consumers feel like they're on the receiving end of a hurled egg:

Gift card strings. It's the gift you buy when you are in a hurry, so you aren't likely to look too closely at the terms. When you receive one, you have no opportunity to pick and choose. So gift cards are a perfect opportunity for banks to get away with excessive layers of fees. How abusive can these fees get? Look at it this way: gift cards can have transactions fees, and they can also have inactivity fees. In other words, you pay if you use the card, and you pay if you don't. That's a pretty neat trick.

Added fees. Debit card fees are the latest bank charge to spark consumer outrage, but free checking accounts have already been under siege, and the fees are growing in both size and number. Will banks become like the airline industry, tacking on a variety of fees for things you used to get for free? The good news is that there are many more banks than airlines, so you have a wider range of alternatives. The bad news is that there can be several steps involved in changing banks, so consumers don't always bother to switch when a fee gets raised. That's how banks get away with this trick.

Extreme interest rate spreads. Bank rates are now generally low, but keep in mind that banks make money on the difference between what they earn on credit card, mortgage, and other loan rates, and what they pay out in things such as savings account rates. The interest rate environment has masked the fact that mortgage rates are actually high compared to what banks are paying in short-term deposit rates. To be more in line with the normal spread of bank rates, 30-year mortgage rates would have to be below three percent. The trick here is that banks have made mortgage rates seem low, while they still represent a fat spread over savings rates. And with average credit card rates above 13 percent, those spreads are even juicier.

Poor mortgage practices. Mortgage-related complaints have surpassed credit card complaints in volume, and it's no surprise. Between robo-signing debacles and foot-dragging on refinancing requests, banks have helped create an environment in which many troubled home owners have not been able to benefit from record low mortgage rates -- and that may be the dirtiest trick of all.

Treats

In these days of the "Occupy Wall Street" movement, it may not be very popular to point out that banks do provide some valuable services. But the fact is that they do. These treats may not all seem as sweet as candy, but the money you save from them could buy you a nice chunk of chocolate:

Insured deposits. Yes, the FDIC actually insures your deposits, but banks pay to fund that insurance. Being able to rely on your deposits being there, even in times of trouble, may be the nicest treat you get from the U.S. banking system.

Fraud protections. Banks monitor your debit and credit card transactions to spot suspicious activity. A timely call can not only prevent an unauthorized transaction from going through, but it can alert you to the fact that your account information has been compromised so you can take appropriate action. That's a pretty good way of turning a potential trick into a treat.

ATM service. At their worst, ATM fees can be more of a trick than a treat, but if you find a bank that doesn't charge its customers for ATM use, particularly one that has a wide network of machines, you can benefit by being able to access your money quickly and easily. In the space of about a generation, Americans have come to take ATMs for granted, but if you've ever been to a place where they aren't available, you'll realize what a treat they are.

Online resources. From online statements to mobile payment tools, banks have used the Internet to give you unprecedented access to your financial information and resources. To be sure, there are security risks associated with online banking, but carrying cash around is also a security risk. With some common-sense precautions, you can benefit from the latest technological treats your bank has to offer.

As a consumer, you will win if you can find a bank that provides more treats than tricks. The key to doing this is information. A good first step is to find a bank with competitive savings interest rates and that still offers free checking. Also look for an extensive ATM network convenient to where you travel, and confirm the bank's FDIC insurance status. Research any reviews, complaints, or negative publicity about the bank. Finally, look for a bank that has the digital tools that suit your needs and appetite for technology.

Internet resources can help you with this research. Online bank data can be like a map showing trick-or-treaters which houses give out the best candy. With a little diligence, you really can get more treats than tricks out of your bank.

This article originally ran here.