How your bank grabs a piece of your pie

Increase interest income, reduce fees and make routine banking less frustrating with these simple rules.

Like your practice, your bank is in business to make money, and it takes a slice of your pie as big as the law – and you – will allow. New fees and service charges, confusing account options, and wildly varying interest rates on savings accounts and CDs are just a few of the techniques banks use to improve their bottom lines at your expense.

One former bank executive 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.

Never use passbook savings accounts

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 money, business or personal, in a bank savings account, close it out at once and put it in an account that will pay you a higher rate of interest.

You won’t have to look far. The account you need – a money market account – is available right at your own bank. It will pay you significantly more interest than your savings account and still allow you to withdraw your money on demand. Most money market accounts even allow you to write checks against them.

The improvement in interest is not as dramatic as you might get from some other investment vehicles. However, when interest rates move up again – and they will – so will the interest income appearing on your practice’s bottom line.

Remember, the kind of money management that maximizes your income calls for taking every advantage available to you.

Seek competitive rates and charges

Whether you are paying interest 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 than your present bank offers, take it. There is no reason for you to stick with a bank that is not competitive.

Buy CDs

In today’s uncertain economy, the best investment accounts available through most commercial banks are certificates of deposit (CDs). Consider CDs as a place to stash your extra business or personal cash.

Typically, CDs can be opened for varying periods of 90 days to 5 years. Each of these maturities yields a different interest rate, depending on the current market and local competition. As a general 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 that a maturing CD and its penalty-free cash are never far away as interest rates head back up again.

Don’t allow yourself to think that your bank will give you the best available rate when you allow a CD to roll over automatically. It almost surely will not. 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 will not get that rate unless you ask.

It is likely that your bank will send you a reminder when each CD approaches its maturity date. The notice will explain that you don’t have to do anything at maturity if you don’t want to. If the bank does not hear from you, it will just roll the CD over. That is, your CD is renewed for the same period as the original and at the most current interest rate.

Sounds fair enough, so millions of busy professionals like you are taking the easy road. The banks love people like that, but it is a mistake that you should avoid.

Keep a lid on bank charges

According to the Federal Deposit Insurance Corporation, banks collected an astonishing $32.6 billion last year in service fees such as bad check or overdraft charges.

Some banks make you pay big penalties for small errors. Let’s say you accidentally overdraw your business checking account. You have $500 in the account and you write three checks in one day. The first is for $10, the second for $20 and the third for $520. Some banks process such checks not in the order they receive them but in order of size. In such a case, the $520 check would be processed first. That would mean all three checks, not just one, would bounce. Then you would be hit with three separate bad check charges. Besides an overdrawn account, you would be out as much as $105 in painful overdraft charges, with some banks charging up to $35 for each overdrawn check.

Keep checking account balance low

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 that you never overdraw it or incur minimum balance fees.

Here’s a little technique that will allow you to safely and conveniently come out the winner: 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 you will immediately begin earning interest. Transfer money to the 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.

Avoid ATMs

Remember when your bank introduced those newfangled automatic teller machines? You didn’t take to those gadgets at first, and your bank was not happy about that. After all, if you could be persuaded to use them instead of standing in line to do business with a live teller, the bank stood to save a lot of payroll.

Extensive marketing campaigns were designed to persuade you to help the banks 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 visiting a live cashier. And better yet, this new service would be entirely free.

Once the public became hooked on ATMs, the predictable happened. Some anonymous bank executive had a brainstorm. The bank would charge customers a fee whenever they used an ATM owned by another bank. Once that word got around, nearly every bank in town jumped on the bandwagon. At last count, nearly 90% of banks assess ATM surcharges. Fees now average from $1 to $2 per transaction.

This presents one more opportunity to keep the bank’s hands out of your pockets. If you are 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.

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 during business hours, the battle has been won. With the extended hours offered by most banks these days, the whole process is a nonevent. In fact, you are likely to find that the line waiting to use the ATM machine is often longer than the line inside the bank.

However, if you are so hopelessly addicted to ATMs that you turn numb at the thought of going cold turkey, there’s still hope for you. Check out www.atmsurcharges.com on the Internet. This site provides lists of ATMs all over the country that are no-charge even for people who are not customers of the bank involved.

However you do it, do not allow yourself to be charged for withdrawing your own money from your bank.

Consider firing your bank

Chances are that you and your practice have been a victim of merger mania at least once. That’s when you wake up one day to find that the bank you have been doing business with is no longer around. It has merged with a strange new bank that promptly laid claim to your accounts.

Experience clearly shows that some of the huge megabanks resulting from merger mania are raising inefficiency and customer alienation to undreamed of heights. It is the symptom of bureaucracies grown to a size that defies the best management intentions. With new laws blurring the line between banks and other types of financial institutions such as insurance companies and stock brokerages, the financial behemoths can 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 will receive more personal attention from a small neighborhood bank than you’ll ever get from a financial behemoth, all with exactly the same insurance protection you receive from the largest banks.

Even at a small bank you should follow the principles outlined here, but you will be doing it in a friendlier atmosphere. Fewer banking frustrations will leave you better prepared to enjoy your stroll down the path to financial security.

For Your Information:

• William J. Lynott can be reached at 1044 Highland Ave., Abington, PA 19001; 215-886-3646; fax 215-886-6601; e-mail: lynott@verizon.net.