Bank Smart, Or Find Yourself Broke
When I choose a bank, I look small institution–a community bank or a credit union. They typically charge less for loans than large institutions do, pay more interest on savings, and set lower minimum deposits on checking accounts. You get to know the people who work there, which helps a lot when you have a problem, need a loan, or think a particular tee should be waived. If a small bank isn’t available, look for a small branch of a larger bank.
Opening an Account
Don’t wander into a bank like a tourist. Pick up brochures in advance, read them, and then make an appointment to see a banker. At the meeting, explain how much money will flow through your accounts, what services you’ll want, and the kinds of loans you’ll be looking for (bankers love to hear about loans because that’s where they really make their money). Ask what interest rates the bank currently charges for various loans. Get a printed schedule of the tees it charges for services, and check the ones you’ll probably have to pay. Compare with fees and interest rates offered by two or three other institutions.
Customers s gravitate toward interested-paying accounts, which currently yield around 1.35 percent. But you’ll have to keep an average of $1,000 to $5,000 on deposit, depending on the bank. If you slip below the minimum, you’ll pay a fee of $7 or more each month it happens. A couple of slips could cancel out all the interest you earned. Low-balance customers will save money by choosing a low-cost, no-interest checking account.
Don’t let a banker’s hand be quicker than your eye! A checking account might offer no fees and an attractive rate–but the bank could recoup by charging you extra for processing checks or using the automatic teller machines. You want an account that pays the highest interest rate possible on the average balance you can afford to keep without breaking your back with extra fees.
If you write only a few checks each month, ask about a no-frills account. It has low or no fees, requires a low minimum balance, and may charge nothing for the first ten or 15 checks you write each month.
Find out when the interest is credited to your checking or savings account. A bank may advertise that it compounds interest daily, but it usually doesn’t pay you until the end of the month or the end of the quarter. If you close your account ahead of time you lose money
Where to keep savings depends on how much money you have and when you’ll want it back.
If you’ve accumulated only $200 to $500, you’ve got problems. Hardly any bank wants such a small account. Consider adding this money to your checking account and not spending it! The extra $500 might give you enough to qualify for interest-paying checking.
With just a bit more money, you quality for a regular savings account. At this writing, banks are paying an average of 2.5 percent interest. But the rate paid on a small amount of savings shouldn’t be the deciding factor in choosing a bank. Convenience, services, and fees will matter more.
With $1,000 or more, you qualify for a money-market deposit account. It pays a variable interest rate-usually a little more than you’d get on regular savings. Personal withdrawals are allowed anytime. You’re permitted to write three checks to third parties every month, plus arrange for three automatic withdrawals (for things like mortgage, auto loan, and insurance payments). You pay a fee if your deposit falls below the minimum.
For savings you won’t touch for awhile. look at certificates of deposit (CDs) They mature in anywhere from three months to ten years; the longer the term, the more interest you earn. You usually pay a penalty of one to six months’ interest for withdrawing funds before the term is up. But don’t let that scare you away. The odds are that you’ll he able to leave the money in place. thus earning that higher rate.
At this writing, a handful of federally insured banks are paying more than 6 percent on one-year CDs, compared with 4 to 5 percent at the average bank. They usually have top safety ratings too. To locate them, subscribe to the publication 100 Highest Yields ($70 for a 26-week subscription: from Box 088888, North Palm Beach, FL 33408). This same information is free on the Internet at http://www.bankrate.com.
You may also get high yields from “virtual” banks on the Internet. They have low overhead, so their costs are low and their interest rates high. An early entrant: Ally Bank at http://www.ally.com–also paying 6 percent at this writing.