Millennials shun big banks and the fees that go with them

Find out where young investors are putting their money now that major institutions have increased what they charge for account maintenance, overdrafts, ATM withdrawals and other services

By Bloomberg News

Nov 10, 2015 @ 11:14 am EST

Millennials are increasingly shunning big banks and going local with their money.

Community banks won with younger customers last year, netting a 5% increase in account holders ages 18 to 34, while credit unions recorded a 3% gain, according to data compiled by Accenture Plc. By comparison, large national and regional banks struggled to retain millennial clients — losing 16% of them over the same period.

One reason: Bigger banks tend to charge more for retail services. There's been an increase in fees for account maintenance, overdrafts, ATM withdrawals and other services at major financial institutions.

For Tommy Oakes, it comes down to price. The 24-year-old, who works on the sales team at Pay Simple, a Denver-based e-commerce company, began bank-shopping after graduating from college and picked USAA Federal Savings Bank. “They have no monthly fees,” he said. “They reimburse your ATM fees, and I can also bundle insurance and investments with them.”'s semi-annual survey, released in August, found big-bank fees averaged $15.15 compared with $11.51 at smaller competitors. Large banks also were the least likely to offer free checking, with 17% having the option compared with 31% of smaller ones. MoneyRates defines a large bank as one with at least $10 billion in deposits.

“Traditionally, big banks have been able to dominate with physical presence, having extensive branch networks, name recognition and being able to spend a lot on advertising,” said Richard Barrington, a senior financial analyst at MoneyRates. But the popularity of banking via the Internet has leveled the playing field. For some banks, “what were once advantages have now become liabilities.”

Millennials are more likely than others to change their primary banks, switching “at a pace nearly double the average of other age groups,” with 18% over a 12-month period ending Jan. 26 finding a new financial provider, according to Accenture's annual consumer banking survey. They're also doing their research, with 81% saying they look online for prices and reviews before making a decision. Respondents in the age group cited high fees and dissatisfaction with rewards programs as motivations for changing banks.

“Millennials in particular crave more high-touch,” said Cam Fine, president and chief executive officer of Independent Community Bankers of America, which represents mostly locally owned banks. “They want to make sure people are paying attention” to their needs.

Of all generations surveyed by the trade group, Mr. Fine said, millennials are most interested in learning more about their finances and most likely to seek out financial advice.

To attract and keep younger customers, community banks are swallowing the costs of offering products like free checking in exchange for the potential long-term gains that come with serving the generation's mortgage, investing and eventually retirement needs, said Karin Bonding, a recently retired finance professor from the McIntire School of Commerce at the University of Virginia.

The bet is on the future, said Judy Hicks, a vice president and consumer loan manager at Baker Boyer National Bank in Walla Walla, Wash. “We have to stay competitive with products and services. We want to bank that younger generation, because they're going to get there someday.”

But David Pommerehn, senior counsel and vice president of the Consumer Banking Association, which represents the retail operations of larger banks, said the generation's willingness to research and switch financial institutions again and again was a positive for his group's companies. Members of the “ease of banking” cohort, he said, “are not particularly invested in one particular institution at this point” and still willing to learn about what the big banks have to offer as they grow older, and wealthier.

At Bank of America Corp., spokeswoman Anne Pace said the strategy is “to move away from gotcha fees” and introduce new packages with transparent pricing, such as the safe-balance account option that covers overdrafts. It costs $4.95 a month.

High turnover in the age group is to be expected, as people leave college, age out of student accounts, move for job opportunities and start families. Millennials, now numbering 83.1 million people, have surpassed baby boomers as the largest portion of the population, according to the U.S. Census Bureau. By 2017, they'll attain more spending power than any other generation.

The banks that win the loyalty of the millennials now could keep it, Hicks said. “If you have good customer service, the customer will stay with you.”

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