Today’s challenging economy is forcing banks to find new ways to strengthen their bottom lines — and much of their success is coming at the expense of small business customers like you. Hidden fees, higher service charges, confusing account options and wildly varying interest rates are just some of the techniques banks are using to pump up their profits — at your expense.
Most banks are quietly experimenting with different types of fees while watching one another closely to see how consumers respond, and you can expect their efforts to intensify. According to Kiplinger Reports, overdraft and credit card fees jumped 5 percent in 2014, double the 2013 increase. Late fees for credit payments are soaring, and ATM fees jumped another 20 percent in 2014.
How will this affect you and your fast lube business? One former banking executive estimates you will likely overpay your bank through service charges, mortgages, credit cards, loans, and checking and savings fees by thousands of dollars in the lifetime of your business, unless you learn how to play the new e game.
· Whether you’re paying interest or receiving interest, 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 bank 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.
· Consider certificates of deposit (CDs) as a place to stash your extra business or personal cash.
Considering today’s anemic interest rates, one of the best investment choices through your bank are CDs.
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, called laddering, will allow you to take advantage of the highest available interest rates while ensuring that a maturing CD and its penalty-free cash are never very far away when interest rates start their inevitable climb.
· Don’t allow yourself to think your bank will give you the best available rate when you allow a CD to roll over automatically.
It almost surely won’t. Always call or visit the bank to review all current interest rates for CDs, including any promotional rates that might be available. Banks often run promotions offering interest rates higher than their posted rates. An automatic renewal isn’t likely to get the better rate unless you ask.
Your bank will send you a reminder when each CD approaches its maturity date. The notice will dutifully explain that you aren’t required to do anything at maturity. If the bank doesn’t hear from you, they’ll just roll it over. That is, they’ll renew it for the same period as the original and pay you their current interest rate.
Sounds fair, so millions of busy business owners take that easy road. The banks love customers like that, but those people are making a mistake you should avoid.
· Keep a lid on bank charges.
According to the Federal Deposit Insurance Corporation (FDIC), banks collected an astonishing $38 billion in 2014 in service fees from such things as assessing bad check charges. Estimates for 2015 call for more than $40 billion.
Some banks make you pay big penalties for small errors. Let’s say you accidentally overdraw your checking account. You have $500 in the account, and you write three checks in one day. The first is for $10, the second for $20 and the third for $520. Some banks process such checks in order of size. In such a case, the $520 check would be processed first. That would mean all three checks, not just one, would bounce. Then you’d be hit with three separate bad check charges. Besides an overdrawn account, you’d be out as much as $105 in painful overdraft charges (some banks are now charging $35 for each overdrawn check).
• Never allow any of your money to lie idle.
If you don’t already have one, open a money market account at your bank and ask to have it linked to your business checking account for telephone or online transfers.
Deposit all of your business receipts into the money market account where they will immediately start drawing interest. Never deposit receipts directly into your checking account. Keep a minimum balance in the checking account and transfer cash by phone or online only as needed to cover checks to be written.
The banks have made this technique so easy to use that there is no longer any reasonable excuse for not using it. While even money market interest is anemic now, interest rates are bound to start their climb soon and you’ll be set to benefit when they do.
· Divorce those ATMs.
Remember when automatic teller machines (ATMs) came on the scene? 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 free.
Millions of us took the bait. Once the public became hooked on ATMs, 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,” he said. Once that word got around, nearly every bank in town joined the cause. At last count, nearly 90 percent of banks are assessing ATM surcharges. Fees now average from $1 to $2 per transaction.
This outrageous situation presents another 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. 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 backwards? With your busy schedule, would it be a frightful inconvenience for you to do without ATMs? Of course not.
Dumping your ATM card requires nothing more than a slight change in your timing. Once you arrange your schedule to visit your bank during banking hours, you’ve won the battle. With the extended banking hours offered by most banks these days, the whole process is a non-event.
However you do it, don’t allow your bank to charge you for withdrawing your own money.
· Consider firing your bank.
Chances are you have been a victim of merger mania at least once. That’s when you wake up one day to find out the bank you’ve grown comfortable with is no longer around. It has merged with a strange new bank that promptly laid claim to your accounts.
Will this new bank, which is larger than the gross national product of some countries, treat you better? Will it exercise economies of scale to bring you better services?
Not likely. Experience is showing that some of the huge megabanks resulting from merger mania are raising inefficiency and customer alienation to undreamed of heights.
This isn’t the work of charlatans intent on robbing you 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 financial institutions, such as insurance companies and stock brokerages, 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 area and give it a try.
They’ll be delighted to welcome you and your business. They need you, and they will appreciate you. You’ll receive more personal attention from a neighborhood bank than you’ll ever get from a financial goliath, with exactly the same insurance protection you receive from the largest banks.
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 path to increased profits.