Is It Time to Move Your Money?

Happy move your money day!

That's what thousands of people are calling this Saturday, Nov. 5, when they plan to transfer deposits from large national banks to local credit unions.

The "move your money" movement has been around for years, but lately it's really picked up steam as Wall Street has been put under the spotlight once again thanks to proposals for new fees, the ongoing foreclosure scandal, and the Occupy movement.

According to the Credit Union Association of America, 650,000 people have opened accounts at credit unions since Sept. 29, when Bank of America (NYS: BAC) announced a new $5 monthly debit card fee. (In response to widespread public outrage, B of A, JPMorgan Chase (NYS: JPM) , Wells Fargo (NYS: WFC) , Regions Financial (NYS: RF) , and SunTrust (NYS: STI) have all backed down from charging their customers debit fees.) Over that time period, credit unions have received $4.5 billion in new deposits.

Credit unions are member-owned, not-for-profit financial institutions. They often provide more personal service, better rates on deposits, and cheaper loans.

What will happen this weekend? Who knows. But we could be looking at more than 100,000 additional people moving their money. Banxodus has already collected 52,000 "pledges" from bank customers to move their money (nearly half of which are customers of B of A). The website uses crowd-sourced research to help users locate "good-guy" banks and credit unions in their area. Another site, findacreditunion.com, offers to help users find a nearby credit union that "puts people first."

Of course, credit unions are excited about all these new members. But banks aren't exactly sweating the movement just yet. As my Foolish colleague Morgan Housel noted yesterday, deposits are at an all-time high -- $10 trillion.

The largest four banks are absolutely inundated with deposits:

Bank

Deposits

Cash on Hand

JPMorgan

$1,093 billion

$305 billion

Bank of America

$1,041 billion

$333 billion

Wells Fargo

$895 billion

$108 billion

Citigroup (NYS: C)

$851 billion

$29 billion

Source: S&P Capital IQ.

$1 trillion is really more than anyone can spend. Especially today, when banks don't see attractive lending opportunities, excess deposits just cost higher overhead and FDIC insurance fees. Bank of New York Mellon (NYS: BK) actually started charging institutions a fee to accept their money, while US Bancorp (NYS: USB) and JPMorgan charge small businesses a portion of their FDIC insurance premiums.

For this to really hurt the banks, you'd have to see customers leaving on an even larger scale, or big institutions joining in. A number of municipalities, many burned by banks in the past, others under pressure from their constituents, are considering divesting.

But "move your money" isn't just about getting back at the banks. I visited Occupy DC to talk to people who have moved their money or plan on doing so tomorrow. Many people just don't want to be associated with the national banks, feeling that Wall Street broke the law, blew up the economy, got bailed out, and then ripped off their customers. And they're voting with their feet.

Here's some of what they told me:

The huge banks are taking their customers' money with hidden charges. Why should I put my money with the kind of bank that will just lend it all to people who they know can't afford to pay it back? I don't want to be a part of that cycle of ripping us off little by little.

I don't want to give banks my money just so they can go speculating with it.

I used to work for Wells Fargo before being laid off during the same quarter it posted a 21% increase in quarterly profits to $3.4 billion. Banks make decisions on their behalf instead of ours. I want to invest in credit unions that are a part of our communities.

Since the repeal of Glass-Steagall, banks have the capacity to use federally insured deposits to engage in investment banking, market-making, and proprietary trading (once they poke 100 holes in the Volcker Rule).

Most of the commercial banks got bailed out. It's like buying a Chevy or a GM (NYS: GM) car - I don't want to support a company that was reckless.

I don't want them to be too big to fail anymore.

What do you think? Please use the comments section below to let us know.

At the time this article was published

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James Stein

Young, less-educated and low-income Americans are the worst affected by the side effects of the Fed’s rule to limit debit card interchange fees to about $0.24 per transaction, down from an average of $0.44 , we learn from a new Federal Reserve study. Joanna Stavins, an economist at the Boston Fed, tells us that:

"Because banks stand to lose revenues when the interchange fee rule becomes effective, they may raise fees – either on consumer bank accounts more broadly, or specifically on debit cards – to recover their losses."

How are they going to do that? Stavins:

"Any price changes may take the form of reduced rewards on debit cards or increased fees, either in a form of fixed term fees or as variable per-transaction fees. Fixed one-time fees are more likely to affect the adoption of a payment method, while per-transaction fees are more likely to affect the use of payment methods."

We know from other studies that young, low-income and less educated consumers are the ones relying most heavily on debit cards, partly because they have no access to credit. So at the end the issuers will manage to at worse recoup their losses, the merchants will be net winners as well and those consumers who can least afford it will be net losers from the interchange reform. http://blog.unibulmerchantservices.com/young-less-educated-and-low-income-consumers-most-affected-by-higher-debit-cost

November 13 2011 at 2:11 PM Report abuse rate up rate down Reply