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Banks shall tell the truth, but truth may set you back

Come Monday, you can become a sharper shopper of interest-bearing accounts at banks and thrifts.

That's when the new federal truth-in-savings law takes effect.

If a bank advertises a "free" account, there can't be hidden costs any more, like a monthly maintenance charge, minimum-balance requirement or even a fee for writing a check or using an ATM.

Also, for the first time all banks must talk the same language when it comes to advertising yields. Yields on Monday must be expressed as "Annual Percentage Yield" instead of "Annual Effective Yield."

The law also requires banks to pay interest on the entire amount deposited. In recent years, major banks in Florida like Barnett Banks, NationsBank and SunBank had paid interest on only 90 percent of a deposit in certain accounts, a practice called investable-balance accounting.

Consumer advocates hail truth in savings as a major accomplishment that will eliminate many deceptive practices and make it possible for depositors to truly compare bank rates.

"It has been very difficult for consumers to shop in the deposit account market because they have been shopping in the dark," said Chris Lewis, director of banking policy at the Consumer Federation of America, a nonprofit consumer group in Washington. "Truth in savings has turned on the lights."

The banking industry fended off the regulation for more than a decade. And now that it has come to pass, banks for months have scrambled to comply with the law, while complaining that its cost and complexity far outweigh any benefit to consumers.

Before the act, financial institutions were free to calculate interest paid any way they wanted to, Lewis said. One bank might pay interest based on a 365-day year, while another used a 362-day year.

Now, everyone must base the rate on a 365-day year and use the "annual percentage yield" or APY as the new common measurement.

Not all the news about truth in savings is good.

Banking experts say the cost of implementing the new law may end up being passed on to consumers. "Some institutions are compensating by increasing fees and dropping rates," says Gail Liberman, editor of Bank Rate Monitor.

But Ed Mierzwinski, a consumer advocate for the U.S. Public Interest Research Group in Washington, D.C., points out that banks are complaining about the cost of compliance at a time when they are earning record profits.

"It's absurd," he says. "Banks are making money hand over fist."

Because of the new law, many banks have had to revamp their advertising campaigns. For example, the advertising spokesman for Great Western Bank, actor Dennis Weaver, will stop talking about "free" checking. The new ads this summer will omit any reference to "free."

Truth in savings mandates a host of other changes as well. Key factors used in figuring the yield must be explained. For example, you'll be told whether the interest is compounded and credited on a monthly, quarterly or annual basis.

The law also requires advertising, product brochures and account statements to clearly disclose rate, fee and minimum balance information. And it requires banks to give advance notice of certain account changes that will adversely affect consumers.

"I believe this will help consumers by eliminating confusion," says Martin Bradshaw, president of the Bradshaw Financial Network in San Rafael, Calif., which surveys bank yields nationwide.