Most of us know what a bank is. We know that in order to better manage our financial life; we should have both a checking and savings account at a minimum. We also know their services are similar across the board for most banks. Some of these services include:
• Accepting deposits
• Making auto, home, and business loans
• Reporting what you paid and earned
• Issuing credit cards
• Online bill payment
• Providing investments
The list can go on and on, but those are basic things most banks will offer. However, what vary from bank to bank are the terms and conditions. That is why everyone should consider their unique needs and then select the bank that best meets those needs.
Comparing Your Choices
There are national, regional, and local community banks around the country. These banks are further categorized into the following segments:
• Commercial Banks
• Savings &Loans (S&C)
• Credit Unions
• Mutual Funds and Brokerage Firms
• Virtual (Online) Banks
Commercial Banks
Commercial Banks serve both individuals and businesses. They typically have multiple, well-located branches throughout a region, and offer broad range of services. Deposits are FDIC-insured up to $100,000 per type of depositor’s account. The only con is that fees at these banks can be the highest.
Savings and Loans Banks (S&L)
S&L banks tend to have lower fees than commercial banks. In some cases, service can be better due to the lower number of clients at the especially smaller banks. Most are FDIC-insured. The only con would be that they sometimes require you inform them of a withdrawal you intend to make. They often have fewer branches; therefore you can rack up lots of ATM fees for using non-partner banks.
Credit Unions
Credit Unions typically have the lowest fees and loan rates because they are non-profit. Earnings are paid out to members at the end of the year. The main con is that as few as 1 or 2 percent happen to be federally insured. Like S&L’s, they often have fewer branches; therefore you can rack up lots of ATM fees for using non-partner banks.
Mutual Fund and Brokerage Firms
Mutual Fund and Brokerage Firms often offer very limited banking services with low-cost or free checking linked to some interest-paying money market funds. The most notable con is that they often require larger minimum balances and they are not FDIC-insured, but have private insurance.
Virtual (Online) Banks
Virtual Banks are all online, thus there are no branches. In many cases, they don’t even send paper statements. Clients are emailed their monthly statements to view or print from online. They are FDIC-insured. They have started to lose some of their appeal as many commercial banks and even credit unions offer 100 percent online banking. The primary con here is that there are a limited number of ATM machines. Thus, if clients can’t find partner ATMs they can pay lots of money annually in ATM fees.
Checking Accounts
A checking account is a service provided by most banks which allows individuals and businesses to deposit money and withdraw funds from an FDIC-insured account. The terms and conditions of a checking account may vary from bank to bank, but, in general, a checking account holder can use personal or business checks in place of cash to pay debts. Most checking accounts allow customers to withdraw their money using an ATM machine.
Almost all banks offer some form of checking account service to their customers. Some may require a minimal initial deposit before establishing a new account, along with proof of identification, and a physical address. Students or other lower-income applicants may opt for a low-featured checking account, which does not charge fees for the use of personal checks and other limited services. Other applicants who open traditional checking accounts may benefit from interest payments by maintaining a high minimum balance each month.
Checking Basics
A typical checking account will handle deposits and withdrawals. The account holder has a supply of official checks which contain all of the essential routing and accounting information. When a check is written, the account holder’s account is debited for the amount of the check. The account holder is ultimately responsible for keeping track of their available funds, even though the bank will issue monthly statements.
When a Check Bounces
Checks must represent an actual amount of money in the checking account. If a check is written for an amount higher than the available balance and the bank pays that check, then the account holder that wrote that check will face an overdraft fee and potentially legal action. Further, the recipient of the bad check may also incur fees if the check bounces. Then the writer of the bad check may owe fees to both his bank and the recipient’s bank.
The recipient of the bad check can demand immediate cash payment for the original debt as well as a substantial fee for the returned check. Some banks will protect checking account holders by making the proper payments and notifying the check writer that an overdraft has taken place. Most often the bank will recoup their losses through substantial service charges, so it pays to avoid writing checks when the balance is unknown.
Savings Account
We have discussed the importance of saving back in the section on saving. In this section we will discuss some savings account vehicles.
In the world of Savings Accounts, there are three primary vehicles: Standard Savings Accounts, Certificates of Deposit, and Money Market Accounts.
Standard Savings Accounts
Standard Savings Accounts often allow you to withdraw your money whenever you want without penalties. Though the interest rate is low (rarely above 3%), it is less risky and steadily grows.
Certificates of deposit (CDs)
CDs typically pay a higher interest rate than regular savings accounts. However, you have less flexibility to withdraw whenever you want to. If you withdraw too soon, you could be penalized and lose some or all of the interest earned.
Money market accounts (MMAs)
MMAs also pay a higher interest rate than regular savings accounts. Unlike CDs, however, you are usually allowed to write a limited number of checks or even make a transfer during each month assuming you do not go below your required minimum balance. If you do go below your minimum, you could be assessed fees or lose any interest earned, or both.
Debit Cards
A debit card (often referred to as a check card) resembles a credit card and provides an alternative payment method to cash when making purchases. The card is an International Organization Standard (ISO) 7810 card which is similar to a credit card; however, its functionality is more similar to writing a check as the funds are withdrawn directly from either the cardholder’s bank account or from the remaining balance on a gift card.
Depending on the store or merchant, the customer may swipe or insert their card into a credit card terminal, or they may hand it to the merchant who will do so. The transaction is authorized and processed and the customer verifies the transaction either by entering a PIN or by signing a sales receipt.
The use of debit cards has become widespread in many countries and has overtaken the check and traditional cash transactions. It is very important to be mindful of what is spent by maintaining your check register.
Bank Fees
For both individual and business customers, the primary objective when selecting a bank is to save money. Therefore, knowing exactly what a bank is going to charge to up front can better help you select the account that works best for you. During this process, it is important to pay close attention to the fine print which often reveals hidden charges and fees. For example, if you opt for a free checking account at a smaller bank with limited ATMs, you may actually pay more in ATM fees throughout the month than you would have on monthly fees with a checking account at a larger bank with many local ATMs.
You should pay close attention to the fees that will affect you most. At most banks, the fees that will affect most customers include:
• ATM fees
• Debit card fees
• Stop payment fees
• Check printing feeds
• Overdraft fees
• Bounced Check Fees
• Monthly Checking Account Fees
• Check writing fees
• Balance inquiry fees
• Wire transfer fees
Choosing the right bank is an important financial decision. Be sure that you fully understand all of your banking options, products and services, and ultimately what your costs will be before you open an account.
I know that Bank of America’s fee is $35 but I want to know how much Woori Bank will charge.
What follows is information regarding VISA cards, transaction fees, on line banking advice, debit cards and other financial information concerning expatriates in Spain.
Upon going to open a bank account account in Spain one of the first hurdles you must overcome is that of the language barrier. It may well be that the cashier is a non English speaker and has not experienced opening an account for a foreigner previously. Certain information regarding set-up fees is not always provided accurately or followed through upon either. Having an interpreter with you can significantly reduce the frustration and hassle.
For foreigners, two types of bank accounts are usually available:
Firstly is that of a resident bank account. This allows you to set-up an account in either euros or any other current that your bank offers.
Secondly is that of a Nonresident bank account. This account is normally for those people who do not posses an NIE card and are originally not from Spain. The regulations governing Spanish banks nonresidents are allowed to own bank accounts in foreign currencies or euros. To open the account you must provide valid identification such as your passport or ID number from your country of origin. The main reason for doing this is because you have to hand over a percentage of the interest you earn on your account which is different depending upon your residential status. Usually about once every six months the bank confirms your residency status. Residents of course get the better deal.
Most utilities will be paid as a direct debit from your account although some landlords may request ‘dinero negro’ or more commonly known as cash in hand to avoid declaring their tax accurately.
It is definitely worth shopping around accounts or even considering keeping most of your money back home due to the fact that bank fees are relatively high in Spain. The usual type of fees often apply: per debit card, annual fees, minimum balances and so on. Typical fess of one of the larger banks, La Caixa for transfers into or out of an account are as follows: 0.5% from or to an international account, 0.25% from or to an international account unless it is in the same currency or 0.25% from or to a national non-La Caixa account.
For keeping track of banking records, bank books (known as Libreta) are usually offered but not mandatory. However Visa and Debit cards are of course the most practical and efficient.
Overall the Spanish banking system is very efficient and successful. Online banking is offered by the majority of banks and money transfers are also fast. American Citibanks do exist but the to transfer money overseas the money transfer fee is the same cost as if you were using a different banks account. It is however possible to open an account that operates in several currencies such as UK pounds, US dollars and Euros; however expect the normal baggage of fees to apply.
Finally if you are feeling conscientious a bank known as Caja spends their profits on more culture endeavors and not just to line the pockets of shareholders. Overall their are plenty of methods and opportunities to fit all budgets and requirements so as ever…shop around!
The Orchard Bank MasterCard is designed for those cardholders who have an average or limited credit history who do not want to secure a credit card account with a savings deposit. Although this card can help a cardholder with a limited credit history build a foundation for a positive and solid credit history if payments are made on time, a few costly factors must be taken into consideration first.
At 15.65% variable for purchases, the interest rate for this type of card is competitive for other similar cards, but it can still be rather costly for those who intend to carry a high balance on the card. On cash advances, you can expect to pay a variable rate of 24.40%.
The card carries an annual fee of $49, not excessive for this time card. There is a cash advance fee of 5% with a minimum of $5. Although this is higher than other cards that usually assess a 3% cash advance fee, there is no balance transfer fee. In addition to the annual fee, there is an application fee of $49, so during the first year, a cardholder will pay a total of $98 for the Orchard Bank MasterCard.
In spite of the high interest rate on this card, its use will allow a cardholder to build a positive credit history. Of course, those who are able to pay in full each month and avoid finance charges will benefit the most from this card. For those who are unable to do that and carry a high balance, it can be quite expensive.
Though it offers minimal benefits, a cardholder will receive some perks with this card such as the following:
• Online access to account information
• Emergency card and cash replacement
• Reporting of lost and stolen cards
• No liability to cardholder for unauthorized transactions
It is amazing when you consider all the money that we simply throw away each year for fees that are attached to a lot of things. They seem to be almost endless. There are credit card fees, ATM fees, late fees, bank fees and so many more fees that are usually connected with business transactions we conduct. If you have never paid much attention the total amount of fees that you pay each year, then you should start paying closer attention to monthly statements and any contracts you might have.
There will probably be fees that are unavoidable sometimes, but there are probably some changes that you could make that can help you save money on some of them. This may require that you read some of that small print that comes with a credit card, home mortgage, bank statements, and the like. You will need to track down and acquaint yourself with business related things you do that can have a fee of any kind attached to it.
When you search out all the fees that you are paying for particular services or privileges, you may find that there is really not a lot that you can do about them. Some banks have free checking, free checks, and no or lower charges for using your ATM card. It will be up to you to decide whether changing to a bank that may offer these things that will save you money is worth it or not.
Everyone knows that late fees are one of the biggest items that can cause you to spend more than you have to. Unless it is absolutely unavoidable, you should always make your payments on time. Utility companies will charge you late fees for delinquent payments too. If you have a problem keeping things paid on time, you might consider using automatic bill pay through your bank. This way what ever reoccurring monthly bills you choose can be automatically deducted from your account when they are due, thus avoiding costly late fees.. There will probably, of course, be a fee for this service, but this might be one that can actually benefit you.
Some people might think that a three or four dollar fee here and there does not amount to that much, but over a years time it could add up to several hundred dollars. This is a sizable amount when you think of it in terms of additional savings that you might be drawing interest from instead of money that was needlessly spent for something that did not benefit you very much or at all.
I was just wondering if the bank charges a bank to send bank statements.
If you dealt with banks long enough, you’ve probably heard that the best time to go to them is when you don’t really need the money. That’s actually not too far off of the truth, depending on what your definition of “need the money is.” Its also relevant to note that if you owe your bank $500,000 that’s your problem. If you owe them $500 million, that’s their problem.
Your typical bank standards have changed significantly from 20 years ago. By and large, banks don’t invest, they loan. And they loan only when they are fully secured. In other words, they don’t really take any risk. Actually, they don’t like to take any risk at all. They do take fraud risk. Meaning, if you want to cheat your bank, you can. Not a good idea, but its possible. If you are a start up, in the pre-revenue stage, or aren’t profitable, don’t expect too much from a bank, certainly not the main lending department. However, its worth keeping in mind that some bank do have start up loans and so forth that are often government programs developed to spur small businesses. At the very least, you can call your bank and ask to be put in touch with the person or department that handles their small business division.
When we say that banks don’t take any risk, that means that they only lend against collateral, against assets. Assets are either land, inventory, accounts receivable, work in progress, equipment, and so on. And they only lend against a certain value of the those assets. They might lend up to 75% of your accounts receivable and 50% of your inventory. That way, they know that if your company suddenly goes under, they just collect the receivables, liquidate the inventory, and pay themselves back.
Generally speaking, the process for bank financing is going to go something like this:
Development of the bank package. Make this package a clear and concise as possible, outlining what the business does, the management team, the track record, how much you want to borrow and why, and what kind of security you have.
Contact banks and introduce the opportunity.
Presentation of the package. Do this in person.
Verbal follow up with the bank to answer any questions that may have risen as they went through your information.
If interested in the opportunity, the bank will prepare a term sheet outlining what they will consider offering to you. Some banks issue a discussion paper with is often just a more informal term sheet to make sure they are on the right track with what you are looking for. The general parameters of the term sheet will be amount, term, interest rate, security, and closing conditions.
The bank is going to ask you to sign their term sheet and pay them a due diligence fee. This fee is usually $15,000 or $40,000 on amounts over $5 million and $3,000 to $15,000 on amounts less than $5,000. This amount is somewhat negotiable, but the banks want to know that you are serious about taking their money once they do their due diligence and devote resources to your company. Make sure that in the term sheet it states that if the don’t issue a commitment letter, the money is refunded.
The bank starts their due diligence. Although it may seem like they are asking for a bunch of information, it is miniscule in comparison to other types of financing. They’ll want your incorporation papers, any minutes, your lease contracts, a list of your suppliers, a capital asset listing, and so on. If you are talking to your current bank, they should have all of this information of course, and they’ll be more concerned about the growth opportunity than historical information. This process might take them 10 days from the time they get the information.
Once their due diligence is complete, the bank will issue a commitment letter. If their due diligence has gone smoothly, the commitment letter will be the same as the term sheet. If they’ve uncovered a few things that were different than what they were expecting, you might find a few changes in there.
The bank is going to ask you sign their commitment letter, and in some cases, give them a commitment fee. Generally, try to negotiate this down, or suggest that you pay it out of the proceeds of their financing. The commitment fee is designed to cover their legal costs.
The bank will then start its legal process. They’ll get in touch with your lawyer, file their security agreements, and go through the closing process.
The key is to present the information in the way the bank wants to see it. That makes your account manager’s job a lot easier when she or he has to go back and talk to his credit department.
It’s never a bad idea to use an advisor to help you though this stage. It might sounds like something you can do yourself, and it probably is, but you time might better spent running the business.
Scott Larson is a Director at Redgate Capital, www.redgatecapital.com. Redgate Capital assists companies in their financing efforts. They have recently launched www.businesstradeboard.com which assists entrepreneurs who want to buy a business or sell a business.
Many people group banks into one big group as if they are all the same. However, that is not the case at all. Banks vary significantly depending on what services they offer, how they treat their customers, and the interest rates they offer.
So, you should know that all banks are not the same and it could mean the difference of thousands of dollars to you to do the research and find the best bank for you. All you need to do is go out looking and taking notes. In a little while you will have a good idea what bank is best for you and your money?
All banks are different, but people are different too. Some people want a bank that offers an interest bearing checking account while others prefer a lower interest rate on their home mortgage. The best bet is to find one bank that offers you as much as possible so it can cover most of your banking needs.
But, feel free to shop around and have your mortgage at one bank, a checking account at another, and a money market account at another. It’s your money, so you should be the one who decides where it is spent and how it is managed. Consider the following points when looking for a bank. They just might help you find the right one.
Tip 1. Interest rates
Interest rates are really important because they can affect how much your money earns you as well as how much you pay. You want to look for a bank with high interest rates of return on checking accounts, CDs, money market accounts, and the like. However, you want a bank with the lowest possible rates for home loans, personal loans, car loans, and the like.
Finding one bank that specializes in everything is not going to happen. So, decide what you are looking for and compare banks based on that asset alone. Remember to include online banks in your search, too, because many times they can offer you better rates than brick and mortar banks simply because they don’t have the overhead.
Tip 2. Fees
Banks charge fees. That is just another way they make money. However, some banks charge lower fees than others. As a potential client of a bank you will want to do your research and find out what fees you will be charged and how often.
Knowing this information up front will allow you to compare better. Many banks are willing to negotiate with you and you will find credit unions generally have the lowest fees. Look around, search the web, and in no time you will find the bank with the lowest fees and best service.
Tip 3. Customer Service
Customer service is really important when you are looking for a bank. That’s because without customer service you won’t get the help you need and this can make you quite angry. Save yourself the frustration and anger and find a bank known for its customer service. You will be glad you did.
Yesterdays announcement by the Bank of England delivered an unexpected statement that they were cutting their base rate by 1½% from 4.5% to 3%. It has been done to kick start our stalling economy and to try and prevent a deepening recession. Everyone was expecting a ½%; but, we all hoped for a full 1% interest rate cut, so this announcement was a real surprise. This interest rate cut is the largest ever percentage cut in British history; the lowest interest rate cut in 53 years and the last time we saw a full 1% interest rate cut was back in 1981.
So the question we should all be asking now is. “What does the Bank of England know that needed such drastic action?” They are normally such a cautious institute that has a history of ¼% cuts and increases. We know that millions of families are struggling, unemployment is rising and will soon reach 2 million, the manufacturing industry is on its knees with the lowest sales, companies are implementing a three day week and Christmas spending is looking like a wash out. I believe they saw an economy on its knees and close to slipping into a deep recession.
The drop in interest rates were to stimulate our economy and yes it may do that; if the banks pass the interest rate cuts on in their entirety to the mortgage borrowers. A 1½% interest rate cut to a homeowner with a £100,000 mortgage would reduce their mortgage payment by £125 per month. Unfortunately this will only help borrowers on a standard variable rate, tracker or discount rate mortgage that is linked to the Bank of England base rate. It will not help anyone with a fixed rate mortgage. It is hoped that this interest rate cut will encourage us to start spending in the shops and that should get the economy moving again.
The banks need their interbank lending rate known as the Libor rate to reduce so that banks can start to borrow money from each other. The libor rate is still far too high. The banks need to reduce their libor rates so they can start offering better remortgage deals. There are millions of homeowners who are desperate to remortgage to a better rate. Homeowners looking for a new remortgage product should watch out for banks offering mortgages products with large arrangement fees. It might be better to consider a mortgage product with a higher interest rate and a lower arrangement fee; than a lower interest rate with a higher arrangement fee. Consider using a mortgage broker to find the best remortgage product to suit your circumstances that saves you real money. Latest news is that the Libor rate has just fallen by over 1% to 4.49% on the back of the Bank of England’s decision yesterday – there is hope!
The decision by the Bank of England is not welcome by everyone, especially savers and pensioners. They rely on their savings for an income to live and this interest rate cut has reduced their incomes by 33%. This will hurt savers that are pensioners more than anyone else as they live off their savings and do not have a job to support themselves. Most of these people have saved all their lives and now when they need a decent income in their retirement the Bank of England hits them the hardest.
So what is the answer? Well if we let inflation take over we will have everyone asking for bigger annual pay increases; mortgage rates will rise and the people who save money will get higher returns on their money invested. To see the consequences of a country that has been ravished by inflation you only need to look at Zimbabwe where they have major monetary problems caused through politics. Their inflation rate has risen to a staggering 100,000% and a loaf of bread now costs 16 million Zimbabwe dollars. They actually have 50, 100, 200 and 250 million dollar bank notes. A $50 million dollar bank notes is enough for three loaves of bread. Scary isn’t it!
We must hope that the Bank of England has seen something in their crystal ball and that they have taken the correct action – there will always be winners and losers. Time will tell whether the Bank of England has made the right decisions.
The scale of the credit crunch has not yet been fully disclosed as banks and other financial institutions struggle to work out which of their loans are going to be problematic. Previously banks were happy to lend loans to people in difficult financial situations, which they then packaged up and sold on to other banks for a profit.
This system worked while whilst their customers were able to pay back the interest on their loans. Times have got significantly tougher since then, and for some customers it became harder and harder to make the monthly repayments, which lead to the loans becoming debts. Banks are now losing money as the loans are not repaid which has led to them to restrict their lending criteria so that they avoid the same situation in the future.
In recent days one of the UK’s biggest loan providers HBOS, has disclosed that they own almost five billion pounds of problem home loans. HBOS has said that twenty-six percent of its £250 billion pound mortgage loan book was made up of its specialist mortgages, which include buy-to-let and self-certified. The bank has admitted that over three percent of these specialist loans are now in arrears. A mortgage loan is considered in arrears when it has not been paid for three months or more. When combined with all of HBOS other home loans the total percentage in arrears drops to just fewer than 2 percent. None the less, 2 percent of £250 billion is a considerable amount of money.
Trying to re-coup this money may seem like a difficult task in the face of economic downturn but the banks have come up with some ways to make their money back. As those people who have defaulted on their mortgages or are in arrears can no longer afford to pay, the banks have started to target those who can. It is estimated that one million people will reach the end of their fixed rate deal at some point during this year and will be looking to remortgage in order to find a cheaper deal than their current lenders standard variable rate. These are the people the banks are targeting, with interest rate increases. Over the last couple of months the ‘big four’ banks on the high street have put up their mortgage rates on two year fixed deals. Fixed deals for three to five year loans have also met with some interest rate increases. So far the only home loans which have not increase significantly are the longer term ten year deals, which unsurprising aren’t as popular.
Another way that the banks are trying to recoup their profits is through the charging of loan arrangement fees. The Leeds building society recently topped the best buy loan tables with because of its relatively low interest rates; however they charge a three percent arrangement fee, which on a £250 thousand pound loan is £7500 pounds. In addition other lenders have also increased their lending fees with more than thirty percent now charging more than £750 pounds to organise a loan. These figures are steep and are going to hit consumers hard, however they will mean that the banks make some of the money back that they have lost through bad loans.
