Hey guys, I developed this guide to banking secrets and such quite a bit ago. I belong to quite a few message boards and forums and I share them around there. I figured from my years in banking maybe some of you could learn a few tips and tricks that banks don't want you to know about. If no one reads a word of this I won't be offended, but I figured I'd throw it out there for my fellow YMI bretheren :) It'll be a few posts since each can only have 4000 characters...
Welcome to Shirazy's guide to banking and savings.
Lately I've noticed that the majority of my friends, if not all, are not aware of how much extra they could be saving, or what to look for when it comes to their own finances. Therefore I've decided to open a thread to reveal a lot of secrets about banking, and tricks that could help you in the future. To start, we'll look at the typical savings account:
For those who might not know, a savings account is a type of account designed to grow money via an interest rate, in return for your balances. Most banks will offer savings to all of their clients. In many states where a 16 year old cannot get a checking account, they may legally be an individual signer on a checking account. Savings come in the form of statements, or passbooks.
interest rate for your balances
Some banks can offer ATM cards for your savings, but rarely a debit card, and sometimes neither.
Limited use, especially with passbooks
Certain banks may not allow direct deposits from these accounts
Can be up to a 10 day waiting period for a passbook if lost, and often a fee.
What you may not know abut savings
A common misconception about savings accounts, is that 1.00% growth, means 1.00% growth. Not necessarily. For one, banks offer both a "rate" on their savings and an "APY." The difference is that, the rate is the actual interest growth on the account. The APY, or, Annual Percentage Yield, is the rate you would get at the end of a full year, when taking into consideration the compounding effect of your money. In simpler terms, although a bank gives you 1.00%, they may only credit the growth to your account once a month.
Hypothetically lets say you open an account with $100,000. Now lets say for example, they credit your account daily with interest, the next day instead of growing 1.00% on $100,000, you will grow it on $100,002.73. Obviously this would be more beneficial to you, than waiting until the end of month to grow interest on a new number. As an example, if $100,000 were compounded annually at 1.00%, your return would be 101,000. If it were compounded daily, you would have 101,005 by the end of the year. If a rate is 1.00%, and the APY 1.01%, this generally means there is a daily compounding. The $5 is not much, but a 2.% rate would yield $20.08 extra, instead of $5. This shows also that there's a nearly exponential difference when rates are higher.
Impressive, instructive, and with real life usage.
Thanks to you for writing.
I hope you will write about where to "park" cash...
Handling cash for a reasonable return is a big challenge these days that the Fed keeps the rates close to zero in nominal terms and with negative return in inflation adjusted terms.
"Years in banking?" Your profile says you are only 23 years old. :)
Good stuff though, much appreciated, learned a few things I would not have thought about. Also, my savings account is giving me the lowest returns I've ever had. Hopefully in the future I will want to actually put my money in one of those again.
lol 23 but 5 years in banking. I've also studied banking in school and was sponsored/reimbursed by my banks for several other courses involving banking outside of the bank itself, especially in regards to bank investing. It's sad how I know far more about banking than the majority of my 40 year old managers.
When rate shopping, common misconception is that when you call a branch for a rate, that is the rate that the bank offers. Not true. Banks offer rates typically based on the performance and deposit amount for the branch. This means when a branch is brand new, they typically will have a 'promotional' or a higher rate on CDs and savings accounts, than branches of the same bank. This does not apply to just new branches, though. Remember that certain branches may have significantly high or wealthy deposit bases, and this often means their rate of return is not as high as a new branch or a profitable branch. As an example, my previous bank's interest rate was .30%. When I opened an account one state over, for the same bank, my interest rate was 3.50%.
Therefore when shopping for rates, feel free to either ask if another branch has a higher rate, or call those other branches. Remember as well that it's difficult for branches to compete with online banks savings rates. This is because online banks have much lower BOE, or Business Overhead Expenses, which are the costs associated with running the business. Therefore, they are able to afford paying out more on their savings accounts as an attractive feature to new customers.
Hint: Although the two above are tricks that many consumers may not know, they are also things that even the bankers themselves may not know. Most banks do not educate their employees on how compounding works, or how bank branches make money. Remember that no matter what, just because one banker/teller says one thing, doesn't mean that the next one won't know something the first one didn't.
It's not uncommon knowledge that many banks now require fees for their checking accounts. Most customers hate them, but remember that banks need money to pay their employees too. Now, what can you expect to see in terms of bank fees? Here's some:
1.) Minimum balance fee, drop below the number and get charged at the end of the month.
2.) Excessive check fee, write too many checks and get charged on each additional one. Not too common on personal checking accounts, but frequent on business accounts.
3.) ATM fees, use another banks ATM and get charged a fee, PLUS a fee by the other bank's ATM. Don't be surprised to spend $5-$7 to withdraw $20 from another ATM. A suggested hint, use the cash back function at stores, although certain banks are catching up to this and charging 50 cents.
4.) Checks, not sure why everyone thinks they are free, but they usually aren't unless you have a special account or a high balance. Most banks use the same check vendor to make checks, called Harland Clarke. Basic check orders range from $21-$28. Fancier checks and accessories add up.
5.) Overdrafts, keep an eye on your account. If you go negative, you get a fee, and it's per instance. At up to $42 per instance, it adds up quick.
Mentioned above are the most common, but you can also expect a fee for money orders, cashiers checks, wire transfers, stop payments, collections items, statements, returned items, overdraft protection fee, sustained overdrafts, safe deposits and safe deposit drilling, lost passbooks, research requests, wire copies, etc.
Well, most of these are items that people generally don't run into...but we have all come into an overdraft fee before, so what's this overdraft protection fee? What is overdraft protection and how does it apply to this? Well, lets take a look:
Here's the big boy that applies to pretty much anybody, the checking account. The checking account is a type of account designed primarily for check writing, but in more recent years it has opened up to online banking, telephone banking, and more.
check writing and bill pay
debit card purchases
the list goes on...
often the highest fees associated
hold times, and real versus next day processing
Wait...What the heck is next day processing?
A common misconception is that when you deposit cash or a check, your transaction is final. Unfortunately not necessarily true. Here's what happens when you make a deposit into a checking account at most banks.
First, you give the teller your ticket and currency/checks, in exchange for a receipt. According to your receipt, your available balance is now $200 after your $100 cash deposit, you're good to do your grocery shopping! This is true most of the time. Unfortunately, most banks use a system which utilizes next day processing, also can be called POD (proof of deposit) systems, and more. What this means is that after your deposit, the system provisionally credits you the amount of money you deposited. At the end of the day, and sometimes mid day, a bag runner comes into the bank to pick up bags full of teller transactions. His job is to deliver these deposit, withdrawals, checks, etc. to headquarters or another location for dual processing. When it gets to the location, people work frantically (usually a pay rate of four cents per transaction) to reprocess these deposits, withdrawals, etc. Lets say hypothetically, the runner gets into an accident or his car breaks down, and he can't deliver these bags until the next day. Another situation, the tellers forget to send their work down. This means that without the second processing factor, your deposit will disappear off the face of the earth until the processors get the tickets. So if you went to spend $120 on groceries, you would have $80 left, but if those tickets never got down to HQ, you would be negative $20, and could incur an additional fee of approximately $35, bringing you down to -$55. Generally banks will recompensate you if they can prove this, unfortunately the only proof of your deposit is in your receipt, and the teller's EJ (electronic Journal). If either of these were gone, proof of your deposit does not exist. Fortunately, most banks with this POD system do not have next day processing with savings accounts. Strange huh? Essentially your deposits are slightly safer into a savings than a checking. So...what's next that you should know? Probably fees, what most people care about: