How to boost your bottom line at your bank’s expense.
By William J. Lynott
The upheaval in our current economy is forcing banks to find new ways to strengthen their bottom lines—and much of their success in that effort is coming at the expense of their small business customers. New service charges, confusing account options and wildly varying interest rates are just a few of the techniques banks are using to pump up their slumping profits during these troubled economic times—at your expense. And you can expect their efforts to intensify.
How will this affect you and your business? One former banking executive estimates that you will likely overpay your bank (through service charges, mortgages, credit cards, loans, and checking and savings fees) by thousands of dollars in your lifetime, unless you learn how to play by the new rules of the game.
The new rules of banking
Never deposit operating funds in a savings account.
With the rates commercial banks pay on passbook savings accounts these days, they are guaranteed to lose money when inflation is factored in. If you keep any of your operating cash in a bank savings account, close it out and transfer it into a money market account where it will draw substantially more interest.
Most banks pay little or no interest on business checking accounts. That’s why your job is to keep the least amount of money possible in your checking account while making certain that you never overdraw it. Here’s a trick that will allow you to come out the winner:
Never deposit funds directly into your checking account.
Instead, ask your bank to link that new money market account to your checking account. Then, ask them to arrange for telephone or online transfers between the two accounts. Make all of your deposits into the money market account, and transfer cash into the checking account only when you need it.
Consider Certificates of Deposit (CDs) as a place to stash your extra business (or personal) cash.
In our current economy, CDs are a good alternative to risky market investments. Break up your total kitty into several parts and invest them in CDs with staggered maturity dates. This allows you to take advantage of (relatively) high interest rates while ensuring that a maturing CD and its penalty-free cash are never very far away.
Never allow a maturing CD to roll over automatically.
Always call or visit the bank and ask to review all current interest rates, including any promotional rates that may be available. An automatic renewal will often get you something less than the bank’s best available interest rate.
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 service charges. If you can find a better deal than your current bank is offering, take it. There is no reason for you to stick with a bank that isn’t competitive.
Never overdraw your checking account.
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 checks not in the order they receive them but in order of size. In such a 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, and could be out as much as $105 in painful overdraft charges (many banks are now charging as much as $35 for each overdrawn check).
Ditch that ATM card.
Once the public was hooked on ATM machines, the predictable results occurred. 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.
A 2007 survey by Bankrate.com found that the most common ATM surcharge was $2, up from $1.50, and 99 percent of banks surveyed charge a fee for using an ATM card at other banks.
This 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 the old-fashioned practice of stepping inside the bank to transact your business.
Is this an unthinkable step backwards? If you think so, you should disabuse yourself of that notion. Dumping your ATM card can be a marvelously liberating experience, requiring nothing more than a slight change in your timing. Once you arrange your schedule so that you visit your bank only during banking hours, you have won the battle. With the extended banking hours offered by most banks these days, that step is an easy one to take. In fact, you’re likely to find that the line waiting to use the ATM machine is often longer than the line inside the bank.
However you do it, don’t allow your bank to charge you for withdrawing your own money.
Is your giant bank larger than the Gross National Product of some countries?
Does your bank treat you and your business as valuable assets? Does it exercise economies of scale in order to bring you superior services?
Not likely. Experience has clearly shown that many of the huge megabanks resulting from merger mania are raising inefficiency and customer alienation to remarkable new heights.
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. Your business will receive more personal attention from a small neighborhood bank than it ever will at a financial behemoth.
Even at a small bank, you should follow the principles outlined above, but you’ll be doing it in a friendlier atmosphere. Fewer banking frustrations will leave you better prepared to concentrate your financial energies on expanding your profitability.