8 tips that banks don't want you to know

8 tips that banks don't want you to know

Jul 01, 2007

New service charges, confusing account options, and wildly varying interest rates are just a few of the techniques banks are using to improve their bottom line these days—at your expense. How bad is it? One former bank executive estimates that during the average consumer's lifetime, he or she will likely overpay tens of thousands of dollars in service charges, mortgage fees, credit card interest, business loans, and checking and savings account fees. But this won't happen to your veterinary practice—no way. It's time to get some of your hard-earned money back by beating banks at their own game. Here's how to do it:

1. Never put a dime into a savings account

With the measly interest rates that commercial banks pay on passbook savings accounts these days, you're guaranteed to lose money after you factor in inflation. If you keep operating cash in a savings account, close it right now and transfer it to a money market account. That's where your money will really pull its weight and start to yield substantially more interest.

The same goes for your checking accounts. You want to keep the least amount of money in checking that you can and still make certain that you never overdraw it. The best way to do that is ...

2. Never make a deposit directly into a checking account

Ask your bank to link your checking account to that brand new money market account you just opened. Then set up your checking account so you can make phone or online transfers between the two accounts. Make all your deposits directly into the money market account and transfer cash into the checking account only when you need it. Keeping the most money possible in the money market account at all times will mean more interest for you.

If you've never tried transferring funds online or by phone, don't worry—it's simple and quick. Your bank representative can sign you up for the service—if necessary—and show you how to use the service.

3. Invest cash you don't need right now in CDs

For faint-of-heart investors, certificates of deposit (CDs) are a good alternative to riskier investments.

One way to maximize your investment 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 lets you take advantage of relatively high interest rates while ensuring that a matured CD and its penalty-free cash are never far away.

4. Never let a maturing CD roll over automatically

If I've sold you on CDs, here's my next tip: Always call or visit the bank and ask to review all of its current interest rates, including any promotional rates, before you renew. An automatic renewal is practically guaranteed to get you something less than the bank's best available interest rate.

5. Never go with the first offer

Which bank is best? Look online
Shop around before you sign. Bank deregulation has produced a competitive environment with differing interest rates and charges. If you can find a better deal than your current bank is offering, take it. Don't stick with a bank that isn't competitive.