During the banking scandals of the 2000s, there was an expression used to describe the culprits: “banksters.”
The sad reality is that almost none of the banksters who broke the law ever went to prison. The good news is that, as best as I can tell, today’s banks are mostly being above board. They’re not committing crimes left and right, and that’s a welcome change.
However, the fallout from those scandals created a huge, dramatic shift in the banking landscape: enormous consolidation.
The Monster Mega Banks Rule the Roost
Banks are becoming larger and more impersonal. We now have four giant monster mega banks that together control more than half of all banking in the United States.
Then you have the next group, known as regionals or super regionals, which are racing as fast as they can to merge and bulk up. They are stuck in an unenviable middle ground:
- They aren’t personal enough to truly know their customers.
- They don’t offer better deals than smaller institutions.
- They aren’t big enough to compete nationally with the mega banks.
If this trend continues, I predict that over the next 10 years, almost all banking will be done by somewhere around 10 or fewer banks in the United States. That’s the direction we’re heading.
The Barbell Effect: A Hollowing Middle and a Local Need
But there will be an equal and opposite reaction. I see the future of banking as looking like a barbell.
While the big banks get bigger, there will be a real need in the marketplace for local banks — particularly for small businesses. These are the institutions getting back to serving what’s known as Main Street, offering personal service to the businesses you interact with every day.
The middle — those regional banks — will hollow out and vanish.
What is clear about the remaining giant monster mega banks and the ambitious super regionals is this: They are not your wallet’s friend.
They are hulking, giant, impersonal bureaucracies that wake up every day with one mission: to figure out what fee they can charge you and how little they can pay you on the money you give them in savings accounts or Certificates of Deposit (CDs).
Your Escape Plan: The Power of ‘Soft Switching’
I know how it feels. You get handcuffed to these institutions. You feel like it’s too hard to exit because you have your checking account and savings account with them, and maybe your car loan.
So, do what more and more smart people are doing. It’s an approach that the banks themselves talk about behind our backs when they see a good, profitable customer slowly disappearing. They call it soft switching.
Soft switching is your secret weapon. You don’t have to break up with your big bank all at once. Take baby steps and move incrementally:
- Test the waters: Open a savings account with an online bank or a credit union where you know you’re getting a better deal and no fees.
- Move more money: Compare CD rates and consider opening a CD with them next.
- Find better rates: Get your next vehicle loan from the credit union or online bank, not your giant mega bank. They may even save you a quarter-point on the interest rate if you open a checking account!
This is a war of attrition where you gradually get out of bank abuse and start treating yourself — and your wallet — better. You don’t have to let that big bank eat up your wallet. It’s your money, and you want it to grow.
If You’re an Investor, Look Beyond the Banks
By the way, if you have a lot of money to manage, you should look at doing your banking-type services with a major investment firm like Schwab or Fidelity. Vanguard has also developed quasi-financial accounts for people’s assets.
Any of these three will treat you better than any of the four giant monster mega banks, and certainly better than any of the wannabe super regionals hoping to join their club.
Final Thoughts
My advice is simple: Don’t look at moving your money as too hard. Take baby steps. Incrementally, step-by-step, you can switch away from institutions that are trying to profit off you and towards those that offer you a better deal.
