Banks slamming customers with higher fees, even as bailout money flows

Here's another reason why it doesn't pay to do business with banks - even if your personal finances are in excellent shape:

Banks had already been tightening the screws on people with less-than-perfect credit. Now, even customers who pay on time will be hit.

While average credit card rates have dipped as the Federal Reserve has cut interest rates, banks and retailers are trying to offset rising losses in their credit card operations by raising rates and fees across a broader swath of their existing customers.

While JPMorgan Chase, Citigroup, Bank of America, and other financial giants benefit from the U.S. Treasury's Big Cash Giveaway, taxpayers who are also their customers will be asked to pony up even more in the form of higher fees. Times are tough on Wall Street - something's gotta be done to fatten the bottom line.

The Chicago Sun-Times reports:

J.P. Morgan Chase & Co.'s Chase unit is raising rates on credit card cash advances, overdraft protection and the rate it charges when cardholders exceed their limit or are late paying. The bank will also start charging a new $10 monthly service fee to some cardholders who have been carrying large balances for at least two years, while raising their monthly minimum payments to 5 percent of their outstanding balance, from 2 percent.

Citi and American Express are also among banks hiking interest rates (American Express, if you haven't heard, recently received permission from the federal government to become a commercial bank).

What Chase, Citi, and other giants are doing is unfair, but that's unfortunately how monster banks operate. Wall Street is not forgiving to companies that aren't making money: witness the decline of Citi's stock price.

The financial turmoil that has embroiled Wall Street and world markets throughout the autumn has led more and more Americans to realize that there is no particularly good reason to do business with banks.

A for-profit bank, whether public or private, is a financial institution intentionally set up to make money for shareholders, who may or may not be customers. Credit unions, by contrast, are customer-oriented by design; they're nonprofit and wholly owned by their members.

Credit unions are equal to or superior to banks by practically every measure. Credit unions have historiclly offered lower fees, better rates, and superior service, but haven't always matched the convenience of banks.

That has changed with the formation of the CU Shared Branching Network, an international cooperative that allows credit union members to do business at thousands of other credit union locations. All that's needed is an account number, the name of the credit union where the account is held, and photo ID.

Most credit unions are also now issuing free debit/credit cards with checking accounts, making it possible to easily conduct business without cash or checks. Cards can be used at thousands of surcharge-free ATMs nationwide to withdraw money, check balances, or even make deposits.

The improvement in convenience is part of the reason why business is booming at local credit unions. Here's the Puget Sound Business Journal:

After working to position themselves as safe, stable alternatives to banks, Washington’s 129 credit unions are becoming unwitting beneficiaries of WaMu’s demise and the financial turmoil. In effect, these member-owned, not-for-profit financial institutions have enjoyed a reverse run, as depositors quit institutions like WaMu and try to find security for their money elsewhere.

Across the state, credit union membership soared by 62,782 in the first half of the year, nearly triple the rate in the same period of 2007, according to the National Credit Union Administration, a federal regulatory agency.

Plus:

Credit union executives point out that, unlike many banks, they didn’t engage in risky lending and also aren’t carrying risky investments because they’re restricted by the federal government on the types of investments they can make.

Still keeping your money at a bank? It's time to make the jump to a credit union. Go ahead and leave that bank behind. You'll be glad you did.