New service charges, confusing account options and wildly varying interest rates on savings accounts and CDs are just a few of the techniques banks are using to improve their bottom lines these days-at your expense.
How bad is it? One former bank executive estimates that you’ll likely overpay your bank through service charges, mortgages, credit cards, business loans, and checking and savings fees by thousands of dollars in the lifetime of your business, unless you learn how to beat the banks at their own game.
Here are eight ways to help your business save money on bank accounts, services and transactions.
1. Never Put a Dime Into 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 operating funds for your business in a bank savings account, close it out at once and transfer the money to an account that will pay you a higher rate of interest.
The account you need is available right at your own bank; it’s called a money market account. It will pay you significantly more interest than your savings account and still allow you to withdraw your money on demand. These days, most money market accounts even allow you to write checks against them.
The improvement in interest won’t be as dramatic as you might get from some other investment vehicles, particularly during this period of painfully low interest rates.
However, as interest rates move up again to more normal levels, as they have already begun to do, so will the interest income appearing on your bottom line.
Remember, the kind of money management that will maximize the bottom line for your business calls for taking every advantage available to you.
2. Don’t Settle for the First Interest 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’s no reason for you to stick with a bank that isn’t competitive.
3. Stash Your Extra Business Cash in a Certificate of Deposit (CD)
In today’s uncertain economy, the best investment accounts available through most commercial banks are CDs, at least for the time being.
Most banks offer CDs for varying periods, from 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’re willing to leave your money in a CD, the higher the rate of interest it will return. While current interest rates on CDs are as anemic as most alternatives, this is a temporary situation. Developing a smart money management strategy now will serve you well over the long term.
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 ensures that a maturing CD and its penalty-free cash are never very far away. That, in turn, positions you to take advantage of higher interest rates as they begin to rise.
4. Don’t Allow a CD to Roll Over Automatically
You should never assume that your bank will give you the best available rate for a CD that you allow to roll over. Chances are it almost surely won’t, which is 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 that often aren’t advertised, and you can be certain that an automatic renewal won’t get that rate unless you ask.
It’s likely that 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, it will just roll it over, that is, it will renew the CD for the same period as the original and pay you its current interest rate. That sounds fair enough, so millions of today’s busy business owners and others take that easy road, and could be losing money. The banks love people like that, but those people are making a mistake that you should avoid.
5. Keep a Lid on Bank Charges
Banks made in excess of $7 billion in 2010 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 the 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 the bank will hit you with three separate bad check charges. Besides an overdrawn account, you’d be out as much as $105 in painful overdraft charges because some banks are now charging $35 for each overdrawn check.
6. Keep a Small Balance 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 that you never overdraw it or incur minimum balance fees.
Ask your bank to link your new money market account 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. Instead, make all deposits into the money market account where they’ll immediately begin drawing 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.
7. Don’t use ATMs
Do you remember when your bank introduced those new-fangled Automatic Teller Machines years ago?
You didn’t take to those gadgets at first, and your bank wasn’t 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. That’s when 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 others) took the bait.
Once the public became hooked on ATMs, the predictable happened; some bank executive had a brainstorm to levy a charge on customers’ accounts 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 percent of banks are assessing ATM surcharges. Fees now average from $1-2 per transaction; in some cases, the banks charge even more. 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 backward? 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 will be relatively easy.
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. And, of course, using an ATM, especially at night, greatly increases the chances of you being assaulted or robbed.
However, if you’re so hopelessly addicted to ATMs that you turn numb at the thought of going cold turkey, there’s still hope for you. Check out the website www.atmsurcharges.com, which provides lists of ATMs all over the country that are no-charge, even for people who aren’t customers of the bank involved.
However you do it, don’t allow your bank to charge you for withdrawing your own money.
8. Consider Changing 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 because it has merged with a strange new bank that promptly laid claim to your accounts. Will your new bank that’s larger than the gross national product of some countries treat you better? Will it exercise economies of scale in order to bring you better and more economical services? Forget it.
Experience has shown that the huge megabanks resulting from merger mania often raise 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 can 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.
Your small neighborhood bank will be happy to have you as a customer. It needs you and 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 should 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 profitable path to more-efficient money management.
William J. Lynott is a freelance journalist and business writer. More than 900 of his essays and articles on business and financial topics have appeared in major magazines, newspapers and trade journals. Learn more at www.blynott.com.