Moving IRA to another bank may cost you

Some banks are giving customers who consider moving their retirement savings to another bank a reason to think twice: a transfer fee that will drain away part of the meager interest they've earned over the past few years.

The newest Wisconsin banking customers facing such a fee are Bank One depositors who, because of last year's merger with JPMorgan Chase & Co., now have their Individual Retirement Accounts with Chase bank.

The New York-based bank has notified customers that starting in November it automatically will charge $50 each time a person transfers money directly from a traditional IRA account at Chase to a different bank.

Before the merger, Bank One did not have a transfer fee on IRA deposit accounts. IRAs let people set aside a portion of their annual income on a tax-deferred basis for retirement.

Mary Kay Bean, a Chase spokeswoman, said the fee is not meant to discourage transfers but rather to cover the cost of paperwork the bank must send to the government when money goes to another financial institution.

"It just doesn't seem fair that everybody who is keeping their money at the bank in IRAs would have to bear the costs of the work that we would have to do for those who are leaving," Bean said.

Still, not all banks charge such a fee for people moving their money elsewhere, and a sampling of Milwaukee-area banks suggests that among those that do, Chase's fee might be the highest.

U.S. Bank charges $30 to transfer IRA funds to another financial institution, as does Wells Fargo. Bank Mutual charges a fee of $25. At St. Francis Bank, the fee is $15.

"It's not exactly the most friendly thing, particularly when you look at what they've been receiving for the last two or three years" in interest, said Robert C. Ollech, managing director of Fortress Partners Capital Management Inc., a Hartland firm that invests in banks.

Although one-year CD rates of more than 3% can be found today, in the summers of 2003 and 2004, CDs with one-year maturities were paying interest of between 1% and 2%.

The two largest banks based in Wisconsin, Milwaukee's M&I Bank and Green Bay's Associated Bank, don't deduct a fee to transfer IRA account money to another bank. Racine-based Johnson Bank also said it doesn't charge a transfer fee on IRA deposit accounts.

"We do not charge a fee for that," said Terry Littel, vice president-corporate marketing for M&I. "We recognize customers have the option available to them, and they'll do whatever is best for them."

Banks make most of their profits on the difference between what they pay depositors and what they make on loans and investments - their net interest margin. But increasingly, income from fees is playing a bigger role for many banks, said David L. Donihue, a banking consultant with RSM McGladrey Inc. in Milwaukee.

Last year, service charges on deposit accounts for banks in the U.S. tallied almost $33 billion, up 48% from five years earlier, according to the Federal Deposit Insurance Corp.

When it comes to IRA transfer fees, Donihue said, "Some banks say, 'Well, they're leaving me, I might as well charge them.' "

There is a cost involved in such a transaction because of the report a bank must make for tax purposes to the government, Donihue said.

"Every time you get somebody to do something, there is a cost, and the banks are saying, 'I've got to pass that cost onto the individual,' " Donihue said.

Bean, the Chase spokeswoman, said the fee applies only to trustee-to-trustee transfers - those in which the money goes directly from the bank to another bank or to a money manager. Trustee-to-trustee transfers are simpler for the customer because the bank handles government reporting that goes along with the move, and the customer never handles the money.

The bank will not charge $50 if the customer personally withdraws IRA funds, because the paperwork burden then falls on the customer, Bean said.

Bean said the Chase transfer fee will apply both to IRA accounts that include strictly CDs or other interest-paying deposits, as well as those with securities investments.

Ollech said an enterprising banker might see IRA transfer fees as an opportunity to attract new customers who would bring in big deposits. A bank could offer to reimburse a consumer who wanted to move money but was reluctant to do it because of an exit fee.

"I would think it would be a decent marketing angle," Ollech said.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.