Banking Games

Banking Games!

                Unfortunately for you they are not the fun “reindeer games” from our childhood stories! I was a BCM or banking center manager for five years at one point in my financial career and I can tell you that the banking systems internal workings are designed to make money on you and everything you do within their institution. That’s ok, I mean this is America after all and that is what capitalism is all about. However, in their greed and arrogance they have almost brought this country to its demise and the sad thing is that this is not the first time. It appears that the congress and the senate, while doing an adequate job of keeping liquidity in the system, is not passing any serious legislation to try to reign in American banks and their quest for ever increasing profits. While there are many things to say and educate you about the U.S. banking system, I will have to do it in a series of articles because the stuff that goes on will take weeks if not months to talk about.

                Today’s lesson boys and girls will be on the plain old vanilla checking account, the backbone of the banking system. A major profit piece of the income pie and something you have to have if you are going to live and operate in our society. This account is the building block all banks use to get to their ultimate goal. Remember this phrase because I guarantee you it is tattooed on your bankers right butt cheek. “Larger share of wallet” What the heck does that mean, you ask? It means that each and every banker in the United States has one goal, getting you to open as many accounts (cross selling) as possible to increase their “share of your wallet” (fee income).

                Here is how it works. The checking account is the base driver because a bank lends out money based on its deposits. Normally the checking account deposits are the crème de la crème because most checking accounts do not earn interest. The goal of the bank is to make a minimum 3% spread on anything they do with you. If a checking account is not earning any interest and a bank can make a new car loan on those deposits at 8%, well, you do the math. It gets better…

                “Mr. Client, to go with your new checking account today, you are going to need a debit card so that you can access your money from the ATM or use it to make purchases from the store.” Now the bank will make a % from the electronic use of that card, usually in conjunction with brand provider on the card. (Master card or Visa)

                “In addition to the debit card, you’ll also need to protect yourself with our overdraft protection in case you ever have a mistake in your checkbook and are in danger of bouncing a check.” The banks’ primary choice will be to try to move you to their credit card linked to your checking account for the overdraft protection. I don’t need to tell you how they make money on credit cards right? (Interest, late payments, and cash advances) If you don’t bite on the credit card the bank will still happily open you a savings account to protect that checking account. “You only need to keep this minimum balance to avoid the monthly fee.”

                Viola! Already the crafty banker has you on his daily sales total sheets for 3, possibly 4 accounts. A checking, debit card, credit card or savings account. What a great start to get that share of wallet up there. (Don’t think I’m kidding, every banker has a daily (or weekly) sales total sheet in this country)

                Now getting back to just the checking account, there are all kinds of choices. There is the proverbial, “free” account. Read the fine print on this one folks. Some of them require a direct deposit to be free. Perhaps the one you are looking at requires a minimum balance to remain free of monthly fee charges. Wait! Maybe the one you will choose is free as long as you only have 20 transactions in the month or maybe it’s the checking, savings combo with a minimum balance and a limit on transactions. You get where I’m going. Momma didn’t raise any fools. Nothing in this life is free except air and I think they are working on a way to tax that. You might also want to keep in mind that 90% of these so called “free” checking accounts charge when you order your checks. Evidently they are not part of the “free” checking account package.

                Another favorite is the money market checking account. With this account there will be a plethora of rules also but before we start reviewing those rules, check out the interest rate this account pays. Even when rates are higher than they are now, a money market checking hardly keeps up with a traditional money market account at your brokerage house. True, you get the comfort of the FDIC coverage but you are going to give up the yield to get it. Now the rules vary, however most of these accounts require a minimum balance and usually tier their interest rates paid based on the dollar amount you keep in the account. This dollar threshold is usually averaged over the 30 day period so watch it! If you keep a large amount in there for 29 days and then move it to open that great CD rate that they have, you only earn the lower rate for the month. Another rule is you are usually limited on the number of withdrawals or checks written for the month. Go over and you will pay a hefty monthly fee for the account.  Also watch out for the early closing fee. When they offer these accounts with a great starting rate, there is usually in the fine print a charge if you close out the account in the first three or six months.

                We can go on. Senior accounts, children’s accounts, Christmas clubs, and so on and so on. A checking account in modern day society is a must. You cannot operate anymore on cash. In another 20 years or so, cash will no longer be used, but that’s another article. The bottom line my fellow peoples is understand the fine print. Know what you are signing up for. Happy hunting and keep others share of your wallet at a minimum!