How not to get screwed over by banks
Income Schemes - 18 September 2007, 12:06
I’ve been thinking a lot lately about banking. In fact, my current bedtime reading is an excellent book called Medici Money, a really fascinating and hilarious look at the history of Italy and the Church during the Renaissance when the Medici were at their peak of banking power. It’s a very entertaining read.
Way back when I first moved here, I could take out money from an ATM at that day’s exchange rate and not pay a single penny to anyone. Within a few months, Wells Fargo, along with every other major bank in the US, discovered how much money they could be shaking out of foreign travelers’ pockets and started charging enormous fees just for getting our own money. The ATM transaction fees range from 1% to an enormous 4% per transaction, which is equivalent to $12 per $300. Wells Fargo sticks me for $5 per ATM withdrawal, whether I take out $20 or the maximum $300. The equivalent of a 1.67% – 25% transaction fee.
In the last three months alone, I’ve spent $80 on ATM fees and considering that I’ve been here for over two years, that means I’ve fluttered away somewhere in the neighborhood of $650 just for the pleasure of physically touching my own money. If I add in the $10/month I pay to keep my business account open, that’s another $240 for those two years.
Luckily a pack of rabid lawyers noticed the collusion between the banks and filed a lawsuit. Wells Fargo, to my discontent, wasn’t named in the lawsuit, but it appears to include anyone who has used Visa branded check cards and that does cover me. They’ve settled and are now taking claims from anyone who was charged foreign access fees from 1996 to 2006. I still need to read the legalese fine print to make sure I’m not signing my soul away, but the thought of getting a partial refund [read: $10] and being able to stick it to the man all at the same time sounds like a fun Saturday afternoon.
Leaving Wells Fargo’s fee machine is a given, and in an effort to get my finances in order when the dollar is at new record lows, I’ve been researching what other options are available for yours truly.
At first I researched all banks that have branches in Austin, but not a single one had a decent rate aside from Wachovia, who charges a relatively low 2% for ATM withdrawals and 1% for check card purchases. Bank of America was the absolute worst choice, crushing Wells Fargo’s fee table in ways that would make a 1st century money changer wince.
On second thought, do I really need a traditional bank account at all? Here’s an alternative idea: A money market account.
The best choice around for someone like me living in a foreign country appears to be Capital One. They have a money market account that currently pays 4.66% (beating inflation) and charges absolutely no fees. They provide an $500/day ATM card and even eat the 1% Visa/MC currency conversion fee. There is no minimum balance required and I get monthly miles based on my balance that I can eventually use towards tickets when I go back to the US. Hell, even a free upgrade from cattle car class to business class would be stellar.
Typically MMAs allow only a set number of withdrawals a month, which would have killed this idea from the get-go, but Capital One claims that you can make unlimited monthly withdrawals using the included ATM card. So not only do I save a fortune on fees and get miles for doing nothing, I get paid to use the account and it offers me every service I currently use, and pay a fortune for, at my current bank — an ATM card.
I read through the fine print to find the catch and the only downside I’ve found so far is that for the first 30 days, all deposits are held 10 days before being accessible. After 30 days, deposits will still be held 5 days before being released. I have a feeling that will come back to bite me later on, but we shall see. Since there is no minimum balance required, I’ll start out with a few bucks and give it a test run.
The only unanswered question is if I’ll have trouble withdrawing money from my PayPal account to the MMA. The only way to know for sure is by trying it out.
Does anyone know of any tax consequences of having an MMA or anything that I may have overlooked?
Please keep us informed on this. I have been doing the same exact research on this, especially after reading the Wandering Italy blog on this very subject. It sounds like Capital One is the best solution, my only problem is that they don’t offer a Visa (or Mastercard) Check Card. So that means I would have to use two accounts, my Wachovia for CC purchases and the Capitol One for cash. If only Capital One would offer a Check Card, I could fully switch over to one account.
Well that’s mainly because it’s not a checking account, it’s a money market account. It’s like a savings account, but the money is put into bonds and other low risk investments.
What I anticipate doing, assuming that it all works to plan, is to also get a Capital One credit card and use that for all POS purchases. Then at the end of the week/month I can transfer the amount spent from the MMA to the card. That way I’d maintain a $0 balance and wouldn’t have to pay any fees.
This method requires a little more work than typical, but the benefits far outweigh the minor maintenance issues.
Brian, you’ve never met, seen me, but you have heard from me :) It looks like you’ve done your homework but I’ll throw in my two lira in this.. I’ve had MMA for a loooong time and they always give better rates and are generally as flexible as any bank account that i’ve had. I’m not using MMAs now, but thats cause I lost all my money in the stock market (side note to Brian, do you really want this input now). MMA’s are great! There are no tax consequences to it except for the 1099 you’ll get on the interest that you are paid. However money market accounts, as you already probably know, come in many flavours (yes a “u” cant seem to get rid of that habit), there are municipal to federal mmas that allow you to escape the tax man, but the rates are a little lower. useful if perhaps you dont want to tip over into the next higher bracket. one of the places i used to visit to check out rates is bankrate.com and money magazine (available on the web too) has a list of the best rates in the country. Since you are international, i dont know if it really makes a difference where you bank, as long as your mullah (bin or otherwise) gets to you. If i’ve enlightened, id like to take all the credit, if i’ve bored you, id like to point a finger at Mrs. Valerie. :)
Hey Sanjay, thanks for the info! That definitely helps.
Thanks for that info, Brian, please do keep this updated. I moved to Italia a month or so ago and haven’t set up my bank accounts yet so I’m still exploring options. I thought I could use Citibank but you can only do free transfers from Citibank US – Citibank Italia if you keep a Smith Barney investment account with them of over 20,000 Euro.
Soon I will open an Italian account and get my first paycheck in Euros, but will need to transfer some large amounts here for some big purchases and I am trying to figure out the best way!
Cobalt, the way I did it and probably the best method is to transfer the money with a wire transfer to a bank account here. I remember that it only cost around $25 and what caused the biggest loss was the exchange rate.
If it’s a significant amount of money ($5k+), a wire transfer is really your best bet. Otherwise you’re going to have to hit the ATM everyday to get 300 euro ($500 after the exchange rate) until you have enough to buy a car or whatever.
That “sanjay” character seems a bit shady to me…
Me too..
Cobalt,
You can get wire transfer for free, via Credit Unions generally. Digital Credit Union (DCU) in Washington was popular for a while. They may still have good deals.
Great post Brian. Coincidently, I filed for my refund earlier today…. I estimated 752 days outside of the US in that time period, which included my 2 years in Italy. I’m not holding my breathe for a refund anytime soon though. Joe