Banks Sleeping With
I hesitate to deposit money in a bank. I am afraid I shall
never dare to take it out again. When you go to confession and
entrust your sins to the safe-keeping of the priest, do you ever
come back for them? Jean Baudrillard (1929- ), French
O.K. Banks aren't exactly the
enemy, but don't confuse them with your kindly old uncle either.
Banks are in business to make money, and they've learned how
to carry out that assignment quite handily. Your bank will take
as much of your money as the law will allow . . . and as much
as YOU will allow.
Former banking executive, Edward
Mrkvicka, Jr., estimates that you will likely overpay your bank,
through mortgages, credit cards, loans, and checking and savings
fees by tens of thousands of dollars in your lifetime. Personally,
I'm inclined to believe that Mr. Mrkvicka's estimate may be a
trifle ambitious. Still, the lesson is clear: your relationship
with your bank is going to cost you money.
Fortunately, you have a great
deal to say about how much money your bank will make off you
. . . at least as compared to the next guy.
Banks are heavily regulated by
federal and state governments, but the law gives them considerable
leeway in both the nature and the cost of the services they provide.
It's up to you to learn how to deal with them in a way that will
allow you to maximize the benefit of the services they offer
while keeping their paws off as much of your money as possible.
This is not an academic exercise.
Over a period of years, a well-informed bank user will have a
huge financial advantage over the poor klutz who lets the bank
make financial decisions for him. Let's start at the beginning.
Banks love customers who open
passbook savings accounts, and for good reason. Of all the types
of accounts banks offer as safe havens for your money, passbook
accounts pay the lowest rate of interest to the depositor. Said
in a different way, it's the lowest-cost way for a bank to attract
deposits. If you browse through those cute little brochures that
your bank displays in its lobby, you'll find passbook savings
accounts described in glowing terms (though they may call them
by different names).
If your account comes complete
with a passbook (or a monthly statement) into which is carefully
entered each deposit you make, and you are allowed to withdraw
your funds at any time (but not by writing a check), you have
a passbook or statement savings account. If you have one, you
are not alone. Millions of Americans who simply don't know any
better have all or most of their money deposited in savings accounts
in banks and savings & loan associations.
Now, consider this: The interest
rate structure in most of today's commercial banks guarantees
that you will lose money if you keep your savings invested in
bank saving accounts. This curious situation is due in part to
a phenomenon that you've heard about, but may not fully understand.
It's called inflation.
In modern times, the average cost
of the products and services that we must buy with our money
has gone up each year. That means that each dollar will buy less
next year than it can buy this year, and even less the following
year. The rate at which prices rise each year is called the inflation
rate and is expressed as a percentage. An inflation rate of 3%
means that the average cost of goods and services has risen by
that much during the 12-month period involved.
Put another way, your dollar is
worth only 97¢ in purchasing power after an inflation rate
If passbook savings accounts are
such a lousy deal, why do they still exist? Why do so many people
buy into them even though their shortcomings are so well documented?
Most likely, it's because savings accounts are the simplest,
easiest to understand, and the oldest form of bank savings (not
to mention the fact that banks are happy to promote them at every
When it comes to money management,
many people are downright lazy. Worse, many savers are intimidated
by, or ignorant of, the relatively simple banking options available
to them. If you will stick to the principles outlined in this
chapter, you won't have that problem.
So, for openers, what should you
do if you have ANY money in a passbook savings account?
If you have any of your money
in a bank savings account, close it out at once, and put your
money in an account that will pay you a higher rate of interest.
As you have undoubtedly heard,
good money management calls for keeping a reasonable amount of
money readily available for emergencies. Most financial advisors
suggest that you should have enough ready cash to keep you going
for about six months in the event that your normal source of
income is cut off.
That's good advice. And that emergency
fund must be kept in an account that will give you immediate
access to it, without penalties. A bank savings account fulfills
this requirement nicely, but the shrewd saver knows that there's
a much better way to handle this need. Happily, it's available
right at your own bank. It's called a money
In all likelihood, your bank offers
a money market account that pays more interest than a savings
account, allows you to withdraw your money on demand, and may
even allow you to write checks against it. To be sure, the improvement
in interest will not be nearly as dramatic as it would be if
you put your money into one of the other account types that we'll
be discussing later. Still, good money management, the kind of
management that will help to lift your financial status above
the masses, calls for taking every advantage available to you
without wasting time.
Time, as they say, is money.
So, go to your bank, ask what
interest your savings account is now paying (a good money manager
would already know this). Then, find out how much more you would
get by transferring that money to a money market account.
Don't worry if the difference
in interest rates seems small. The following paragraphs will
illustrate the importance of understanding the range of interest
rates available to you. And you'll see how important it is for
you -- not the bank -- to decide where and how your money will
be left in their custody.
Let's take a look at one of the
most common mistakes made by the average saver/investor. Many
people, perhaps most, pay little heed to what seem to be minor
differences in the rates paid among different types of investments
savings options. . . .
Thank you for reading this brief
excerpt from Chapter 3 of :
Money is an essential guide to money management
for anyone who has neglected their fiscal education. Whether
you are a student, business or professional person, or approaching
retirement age, Money will help you to avoid the financial errors
that can lead to financial ruin for you or children. It will
show you way to gain maximum advantage from your available financial
Original print edition available through bookstores at
$15.95 Save two-thirds with the e-book edition
for your Kindle or any other e-book reader
to purchase, Go to the Kindle
bookstore and search for "Lynott"
for other e-book readers, log on to: