No matter how you’ve arranged your finances, chances are you have at least one banking relationship. But are you using your bank well or is your bank using you? It’s an important question because not only can banks dip into your pocket, they can also lead you down the wrong path – and that can be far more expensive.
Over the last 30 years I’ve noticed 3 main areas of concern and opportunity when it comes to banks. Let’s get right to it.
They don’t build banks as a public service. Banks are in business to make money and they make that money from you. They do that by charging you fees. And just so you know, they also provide big incentives to their employees to sell you as much as they can in order to rake in as much as possible.
Banks charge fees for everything from printing your checks to maintaining your account. And while most banks are transparent about those charges, sometimes overzealous bank employees get carried away. Case in point, the City of Los Angeles is suing Wells Fargo for allegedly pushing their employees to open up unauthorized accounts . That ended up ripping off customers and hurting their credit scores in many cases. This was all done just so the bank would earn bogus fees. Yuk.
Here’s a short list on how to minimize your banking costs:
a. Shop around.
You may not need a brick-and-mortar bank anymore. Online banks are generally cheaper, charge fewer fees and are more transparent in my experience.
b. Get your checks printed elsewhere.
You might need a bank for a checking account but you don’t need a bank to be your printer. Many banks will give you your first order of checks for free. If you need more, order them from an online check printer to save a few pesos amigo.
c. Ask questions.
Anytime you open or close an account, ask about costs. Make sure you write down who you speak with and what they tell you. To make sure they are on the up and up, ask to see proof. Often you’ll talk to one bank clerk who wants to sell you something and they’ll invent whatever they have to in order to get you to sign on. But then when you get your statement, you find out they weren’t being completely honest. You can avoid that by asking your bank rep to show you where the fees and charges are spelled out in the bank literature. If you take this one step, you’ll avoid the unpleasant situation of discovering the truth after it’s too late.
Products to Use
You’re not going to profit much by keeping money in the bank once you consider taxes and inflation. But you need liquid money and the bank is a decent place to use for that purpose. Just make sure you don’t keep too much laying around in the bank and then relax.
The bank won’t pay you much but don’t get uptight about it. First, rates are so low that even if another bank pays a little more, it probably won’t amount to much. Second, you normally won’t have too much money in the bank anyway so again, it probably doesn’t matter.
Some folks get worked up and spend lots of time and energy looking for the best interest rate for liquid funds. I get it. But if you do the math and calculate what that extra interest adds up to, you’ll probably learn that this is just not something to worry about.
Products to Avoid
While savings and checking accounts are a necessary evil for most people, beware of CDs. For most people, these are products that pay pitifully low interest and lock your money up for way too long. For most people, there are far better long-term investment choices.
Among the bad bank products, CDs are among the benign. It gets really bad when the bank tries to sell you investments (and I know about this because I started my career selling investments in banks). Bank “investment professionals” work on commissions. That means they make more money when they sell you something – whether you need it or not.
And some products like annuities (double Yuk) earn the sales people much higher commissions that other investments. Either way, I am a big opponent of buying financial products from commission-based people so stay away. Call me crazy but I like my advisor to have their interests aligned with mine and not their employer’s.
Banks are necessary and they are not evil per se. They offer valuable services that you need. But they get to use your money and pay you almost nothing in return. They make huge profits by taking your money and lending it to others. They don’t need to make more money by charging you bogus fees and selling investments.
Are you keeping your bank on a leash? How?