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How to boost your bottom line at your bank's expense

Article-How to boost your bottom line at your bank's expense

Key iconKey Points

  • Never deposit operating funds in a savings account
  • Never deposit funds directly into your checking account
  • Never allow a maturing CD to roll over automatically
  • Never overdraw your checking account

New service charges, confusing account options and wildly varying interest rates are just three of the techniques banks are using to pump up their slumping profits these days — at your expense. These tactics, fueled by a financial industry reeling in red ink, make it likely that you and your practice will overpay your bank by tens of thousands of dollars in your lifetime, according to one former bank executive. Unless you learn how to beat the banks at their own game.

• Never deposit operating funds in a savings account

With the rates commercial banks pay on passbook savings accounts these days, they are guaranteed to lose money when inflation is factored in. If you keep any of your operating cash in a bank savings account, close it out and transfer it into a money market account where it will begin drawing substantially more interest.

Most banks pay little or no interest on business checking accounts. That's why your job is to keep the least amount of money possible in your checking account while making certain that you never overdraw it. Here's a little trick that will allow you to come out the winner:

• Never deposit funds directly into your checking account

Instead, ask your bank to link that new money market account to your checking account. Then, ask them to arrange for telephone or online transfers between the two accounts. Make all your deposits into the money market account and transfer cash into the checking account only when you need it.

If you or your office manager have never done online or telephone transfers, be assured that the process is simple and quick. Your bank will be happy to explain.

• Consider certificates of deposit (CDs) as a place to stash your extra business (or personal) cash

In our current economy, CDs are a good alternative to risky market investments. Break up your total kitty into several parts and invest them in CDs with staggered maturity dates. This allows you to take advantage of relatively high interest rates while ensuring that a maturing CD and its penalty-free cash are never very far away.

• Never allow a maturing CD to roll over automatically

Always call or visit the bank and ask to review all current interest rates, including any promotional rates that may be available. An automatic renewal will often get you something less than the bank's best available interest rate.

• Whether you're paying interest or receiving interest, never be satisfied with the first offer

Shop around before you sign. The current banking turmoil has produced a competitive environment with wildly differing interest rates and service charges. If you can find a better deal than your present bank is offering, take it.

• Never overdraw your checking account

In a largely invisible ploy, some banks make customers pay big penalties for small errors.

Let's say you accidentally overdraw your business checking account. You have $300 in the account and you write three checks in one day. The first is for $10, the second for $20 and the third for $320. Some banks process checks not in the order they receive them but in order of size. In such a case, the bank will process the $320 check first. That would mean all three checks, not just one, would bounce. Then you'd be hit with three separate bad check charges. You'd be out as much as $105 in painful overdraft charges (many banks are now charging as much as $35 for each overdrawn check).

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