Bank on It

William J. Lynott

New service charges, confusing account options and wildly varying interest rates are just two of the techniques banks are using to pump up their slumping profits in these troubled times — at your expense.

How bad is it? One former bank executive estimates that a typical restaurant will likely overpay its bank through service charges, mortgages, credit cards, business loans and checking and savings fees by tens of thousands of dollars during the lifetime of the business…unless the operator learns how to beat the banks at their own game. Here's how:

Never Put a Dime in a Savings Account

With the miserable 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 begin drawing substantially more interest.

Never Make a Deposit Directly Into Your Checking Account

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 little trick that will allow you to come out the winner: Ask your bank to link that money market account you just opened to your checking account. Then, ask them to set it up for telephone or online transfers between the two accounts. Make all your deposits into the money market account where they will immediately start drawing interest. Then, transfer cash into the checking account only as you need it to cover checks written.

If you or your office manager have never done online or telephone transfers, be assured that the process is simple and quick. Your bank will be happy to explain.

Invest Cash You Won't Soon Need in Short-Term CDs

In our current economy, certificates of deposit, or CDs, are a good alternative to risky market investments. One 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 “laddering” technique 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 is practically guaranteed to get you something less than the bank's best available interest rate.

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 present 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

In a largely invisible ploy, some banks make customers 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 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. You'd 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

You didn't take to those new gadgets at first, and your bank was not happy about that. If they could persuade you to use those little machines instead of standing in line to do business with a live teller, they stood to save a lot of payroll money.

So, the banks embarked on extensive marketing campaigns 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.

Millions of us took the bait. In time, ATMs became almost as familiar as stop signs. Once the public was hooked, 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.

When that word got around, nearly every bank in town cut itself in for a piece of the pie. At last count, over 90 percent of banks are assessing ATM surcharges. 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 fingers 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.

Is this an unthinkable step backward? 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 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.

If you're so hopelessly addicted to ATMs that you turn numb at the thought of going cold turkey, log on to www.bankrate.com and click on “Checking & Savings” to see how ATM surcharges keep climbing to record highs. Knowing the facts will at least help you to keep your bank's fingers out of your pocket.

However you do it, don't allow your bank to charge you for withdrawing your own money.

Think Small

Does your bank treat you well? Does it exercise economies of scale to bring you superior services?

Forget it. Experience has clearly shown that many of the huge megabanks resulting from merger mania are raising inefficiency and customer alienation to undreamed-of 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 community 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 path to a healthier bottom line.

William J. Lynott is a former management consultant and corporate executive who writes on business and financial topics. You can reach him at [email protected]