Developing a Winning Banking Strategy
Business Side
By William J. Lynott
Originally published in Massage & Bodywork magazine, February/March 2004.
Copyright 2003. Associated Bodywork and Massage Professionals. All rights reserved.
New service charges, confusing account options and wildly varying interest rates on savings accounts and certificates of deposit are just a few of the techniques banks are using to improve their bottom lines these days -- at your expense. How bad is it? Former bank executive Edward Mrkvicka estimates that you will likely overpay your bank through service charges, mortgages, credit cards, business loans, and checking and savings fees by thousands of dollars in your lifetime, unless you learn how to beat the banks at their own game.
Below are a few tips on playing -- and winning -- the banking game.
- Never put a dime in a business savings account
With the interest rates commercial banks pay these days, savings accounts are guaranteed to lose money when inflation is factored in.
If you keep any of your business (or personal) money in a passbook savings account, close it out at once and put it into a money market account.
Money market accounts pay a little more interest than savings accounts and allow you to withdraw your money on demand. Some even allow you to write checks against them.
At today's abysmal rates, the improvement in interest may not be dramatic. Still, the kind of money management that will maximize the bottom line for your business calls for taking every advantage available to you. Further, when interest rates rise, you will benefit even more.
- Get a divorce from those ATMs
Do you remember when your friendly bank introduced those new-fangled Automatic Teller Machines (ATM)? You didn't take to those gadgets at first, and your bank was not happy about that. After all, if they could persuade you to use them instead of standing in line to do business with a live teller, they stood to save a lot of payroll.
So, the banks embarked on extensive marketing campaigns designed to persuade you to help them lighten their payroll load. Of course, they didn't put it quite that way. Instead, the ads trumpeted how convenient and time-saving it would be for you to use an ATM instead of bothering to visit a live cashier. What's more, this new service would be entirely free.
You (and millions of your peers) took the bait. In time, ATMs became almost as familiar as stop signs. Once the public became hooked on ATMs, the predictable happened, some anonymous bank executive had a brainstorm. "Let's levy a charge on customers' accounts whenever they use an ATM owned by a bank other than our own," he said. Once that word got around, nearly every bank in town jumped on the bandwagon. At last count, nearly 90 percent of banks are assessing ATM surcharges. Fees now average from $1 to $2 per transaction.
This outrageous situation presents one more opportunity to keep the bank's hands out of your pockets. If you're paying anything at all for the use of ATMs, stop using them. Simply cut up your ATM card and resume that old-fashioned practice of stepping inside the bank to transact your business.
Is this an unthinkable step backwards? Would it be a frightful inconvenience for you to do without ATMs? If you think so, you should disabuse yourself of that silly notion at once.
Dumping your ATM card can be a marvelously liberating experience, requiring nothing more than a slight change in your timing. Once you accept the fact that you must arrange your schedule to visit your bank only during banking hours, you have won the battle. With the extended banking hours offered by most banks these days, the whole process is a non-event. In fact, you may well find that the line waiting to use the ATM machine is longer than the line inside the bank.
However, if you're so hopelessly addicted to ATMs that you turn numb at the thought of going cold turkey, there is still hope for you. Check out www.atmsurcharges.com on the Internet. This site provides lots of information on how ATMs work. It also has a list of ATMs all over the country that do not impose a charge, even for people who are not customers of the bank involved.
However you do it, don't allow your bank to charge you for withdrawing your own money.
- When paying or receiving interest, never be satisfied with the first offer
Shop around before you sign. Bank deregulation has produced a competitive environment with wildly differing interest rates and bank charges. If you can find a better deal for your business accounts than your present bank is offering, take it. There is no reason for you to stick with a bank that isn't competitive.
- Consider CDs as a place to stash your extra business cash
In today's unstable economy, one of the best investment accounts available through commercial banks are CDs. Typically, you may invest in a CD for varying periods of 90 days to five years. Each of these maturities will yield a different interest rate, depending on the current market and local competition. As a rule, the longer you are willing to leave your money in a CD, the higher rate of interest it will return.
One popular way to gain maximum advantage investing in CDs is to break up your total kitty into several equal parts and invest them in CDs with staggered maturity dates. This technique will allow you to take advantage of the highest available interest rates while ensuring a maturing CD and its penalty-free cash are never very far away.
- Don't assume your bank will give you the best available rate when you allow a CD to roll over automatically
It almost surely won't. That's why you should always call or visit the bank and ask to review all current interest rates for CDs, including any promotional rates that might be available. Banks often run special promotions offering interest rates higher than their regular rates. You can be dead certain that an automatic renewal won't get that rate unless you ask.
It is likely your bank will do a dependable job of sending you a reminder when each CD approaches its maturity date. The notice will dutifully explain that you don't have to do anything at maturity if you don't want to. If the bank doesn't hear from you, they'll just roll it over. That is, they'll renew it for the same period as the original and pay you their current interest rate.
Sounds fair enough, doesn't it? That's why millions of today's busy entrepreneurs take that easy road. The banks love people like that, but those millions of people are making a mistake that you should avoid. Never allow a CD to roll over automatically.
- Keep a lid on bank charges
Banks make an astonishing $5 billion or so annually from assessing bad check charges. In a largely invisible ploy, some banks make you pay big penalties for small errors.
Let's say you accidentally overdraw your business checking account. You have $300 in the account and you write three checks in one day. The first is for $10, the second for $20 and the third for $320. Some banks process such checks not in the order they receive them but in order of size. In that case, the bank will process the $320 check first. That would mean all three checks, not just one, would bounce. Then you'd be hit with three separate bad check charges.
Besides an overdrawn account, you'd be out as much as $105 in painful overdraft charges (some banks are now charging $35 for each overdrawn check).
- Keep the least amount of money possible in your checking account
Most banks pay little or no interest on business checking accounts, so your job is to keep that balance to a minimum while making certain you never overdraw it or incur minimum balance fees.
- Ask your bank to link your new money market to your checking account so that you may transfer money between them by telephone or online
From that point on, never make a direct deposit into your checking account. Make all deposits into the money market account where they will immediately begin drawing interest. Transfer money to your checking account only as needed to cover the checks you write. This is one of the smartest ways to maximize your operating funds. But don't expect to hear about it from your bank.
- Consider firing your bank
Chances are that you've been a victim of merger mania at least once. That's when you wake up one day to find out that the bank you've been doing business with is no longer around. It has merged with a strange new bank that promptly laid claim to your accounts.
Will this new bank -- that is larger than the gross national product of some countries -- treat you better? Will it exercise economies of scale in order to bring you improved services?
Forget it. Experience has clearly shown that the huge megabanks resulting from merger mania are raising inefficiency and customer alienation to undreamed of heights.
No, this isn't the work of arch criminals intent on robbing us blind. It's simply the classic symptom of unwieldy bureaucracies, grown to a size that defies the best of management intentions. Now, with new laws blurring the line between banks and other types of financial institutions, such as insurance companies and stock brokerages, the financial behemoths will only grow even larger.
Fortunately, solving this frustrating problem is relatively painless. Just search out the smallest FDIC member bank in your neighborhood and give it your business.
They'll be happy to have you as a customer. They need you, and they will appreciate you. You'll receive a lot more personal attention from a small neighborhood bank than you ever will at a financial behemoth.
Even at a small bank, you'll need to follow the principles outlined here, but you'll be doing it in a friendlier atmosphere. Fewer banking frustrations will leave you better prepared to enjoy your stroll down the path to greater riches.
William J. Lynott is a former management consultant and corporate executive who writes on business and financial topics for a number of consumer and trade publications. His latest book, Money: How to Make the Most of What You've Got, is available through bookstores. You can reach Lynott at lynott@verizon.net or through his website www.blynott.com.
Copyright 2003. Associated Bodywork and Massage Professionals. All rights reserved.
New service charges, confusing account options and wildly varying interest rates on savings accounts and certificates of deposit are just a few of the techniques banks are using to improve their bottom lines these days -- at your expense. How bad is it? Former bank executive Edward Mrkvicka estimates that you will likely overpay your bank through service charges, mortgages, credit cards, business loans, and checking and savings fees by thousands of dollars in your lifetime, unless you learn how to beat the banks at their own game.
Below are a few tips on playing -- and winning -- the banking game.
- Never put a dime in a business savings account
With the interest rates commercial banks pay these days, savings accounts are guaranteed to lose money when inflation is factored in.
If you keep any of your business (or personal) money in a passbook savings account, close it out at once and put it into a money market account.
Money market accounts pay a little more interest than savings accounts and allow you to withdraw your money on demand. Some even allow you to write checks against them.
At today's abysmal rates, the improvement in interest may not be dramatic. Still, the kind of money management that will maximize the bottom line for your business calls for taking every advantage available to you. Further, when interest rates rise, you will benefit even more.
- Get a divorce from those ATMs
Do you remember when your friendly bank introduced those new-fangled Automatic Teller Machines (ATM)? You didn't take to those gadgets at first, and your bank was not happy about that. After all, if they could persuade you to use them instead of standing in line to do business with a live teller, they stood to save a lot of payroll.
So, the banks embarked on extensive marketing campaigns designed to persuade you to help them lighten their payroll load. Of course, they didn't put it quite that way. Instead, the ads trumpeted how convenient and time-saving it would be for you to use an ATM instead of bothering to visit a live cashier. What's more, this new service would be entirely free.
You (and millions of your peers) took the bait. In time, ATMs became almost as familiar as stop signs. Once the public became hooked on ATMs, the predictable happened, some anonymous bank executive had a brainstorm. "Let's levy a charge on customers' accounts whenever they use an ATM owned by a bank other than our own," he said. Once that word got around, nearly every bank in town jumped on the bandwagon. At last count, nearly 90 percent of banks are assessing ATM surcharges. Fees now average from $1 to $2 per transaction.
This outrageous situation presents one more opportunity to keep the bank's hands out of your pockets. If you're paying anything at all for the use of ATMs, stop using them. Simply cut up your ATM card and resume that old-fashioned practice of stepping inside the bank to transact your business.
Is this an unthinkable step backwards? Would it be a frightful inconvenience for you to do without ATMs? If you think so, you should disabuse yourself of that silly notion at once.
Dumping your ATM card can be a marvelously liberating experience, requiring nothing more than a slight change in your timing. Once you accept the fact that you must arrange your schedule to visit your bank only during banking hours, you have won the battle. With the extended banking hours offered by most banks these days, the whole process is a non-event. In fact, you may well find that the line waiting to use the ATM machine is longer than the line inside the bank.
However, if you're so hopelessly addicted to ATMs that you turn numb at the thought of going cold turkey, there is still hope for you. Check out www.atmsurcharges.com on the Internet. This site provides lots of information on how ATMs work. It also has a list of ATMs all over the country that do not impose a charge, even for people who are not customers of the bank involved.
However you do it, don't allow your bank to charge you for withdrawing your own money.
- When paying or receiving interest, never be satisfied with the first offer
Shop around before you sign. Bank deregulation has produced a competitive environment with wildly differing interest rates and bank charges. If you can find a better deal for your business accounts than your present bank is offering, take it. There is no reason for you to stick with a bank that isn't competitive.
- Consider CDs as a place to stash your extra business cash
In today's unstable economy, one of the best investment accounts available through commercial banks are CDs. Typically, you may invest in a CD for varying periods of 90 days to five years. Each of these maturities will yield a different interest rate, depending on the current market and local competition. As a rule, the longer you are willing to leave your money in a CD, the higher rate of interest it will return.
One popular way to gain maximum advantage investing in CDs is to break up your total kitty into several equal parts and invest them in CDs with staggered maturity dates. This technique will allow you to take advantage of the highest available interest rates while ensuring a maturing CD and its penalty-free cash are never very far away.
- Don't assume your bank will give you the best available rate when you allow a CD to roll over automatically
It almost surely won't. That's why you should always call or visit the bank and ask to review all current interest rates for CDs, including any promotional rates that might be available. Banks often run special promotions offering interest rates higher than their regular rates. You can be dead certain that an automatic renewal won't get that rate unless you ask.
It is likely your bank will do a dependable job of sending you a reminder when each CD approaches its maturity date. The notice will dutifully explain that you don't have to do anything at maturity if you don't want to. If the bank doesn't hear from you, they'll just roll it over. That is, they'll renew it for the same period as the original and pay you their current interest rate.
Sounds fair enough, doesn't it? That's why millions of today's busy entrepreneurs take that easy road. The banks love people like that, but those millions of people are making a mistake that you should avoid. Never allow a CD to roll over automatically.
- Keep a lid on bank charges
Banks make an astonishing $5 billion or so annually from assessing bad check charges. In a largely invisible ploy, some banks make you pay big penalties for small errors.
Let's say you accidentally overdraw your business checking account. You have $300 in the account and you write three checks in one day. The first is for $10, the second for $20 and the third for $320. Some banks process such checks not in the order they receive them but in order of size. In that case, the bank will process the $320 check first. That would mean all three checks, not just one, would bounce. Then you'd be hit with three separate bad check charges.
Besides an overdrawn account, you'd be out as much as $105 in painful overdraft charges (some banks are now charging $35 for each overdrawn check).
- Keep the least amount of money possible in your checking account
Most banks pay little or no interest on business checking accounts, so your job is to keep that balance to a minimum while making certain you never overdraw it or incur minimum balance fees.
- Ask your bank to link your new money market to your checking account so that you may transfer money between them by telephone or online
From that point on, never make a direct deposit into your checking account. Make all deposits into the money market account where they will immediately begin drawing interest. Transfer money to your checking account only as needed to cover the checks you write. This is one of the smartest ways to maximize your operating funds. But don't expect to hear about it from your bank.
- Consider firing your bank
Chances are that you've been a victim of merger mania at least once. That's when you wake up one day to find out that the bank you've been doing business with is no longer around. It has merged with a strange new bank that promptly laid claim to your accounts.
Will this new bank -- that is larger than the gross national product of some countries -- treat you better? Will it exercise economies of scale in order to bring you improved services?
Forget it. Experience has clearly shown that the huge megabanks resulting from merger mania are raising inefficiency and customer alienation to undreamed of heights.
No, this isn't the work of arch criminals intent on robbing us blind. It's simply the classic symptom of unwieldy bureaucracies, grown to a size that defies the best of management intentions. Now, with new laws blurring the line between banks and other types of financial institutions, such as insurance companies and stock brokerages, the financial behemoths will only grow even larger.
Fortunately, solving this frustrating problem is relatively painless. Just search out the smallest FDIC member bank in your neighborhood and give it your business.
They'll be happy to have you as a customer. They need you, and they will appreciate you. You'll receive a lot more personal attention from a small neighborhood bank than you ever will at a financial behemoth.
Even at a small bank, you'll need to follow the principles outlined here, but you'll be doing it in a friendlier atmosphere. Fewer banking frustrations will leave you better prepared to enjoy your stroll down the path to greater riches.
William J. Lynott is a former management consultant and corporate executive who writes on business and financial topics for a number of consumer and trade publications. His latest book, Money: How to Make the Most of What You've Got, is available through bookstores. You can reach Lynott at lynott@verizon.net or through his website www.blynott.com.
