Our big box banks are borrowing money from the Feds (you and me) at almost 0% interest. They are loaning that same money to us at 6% and paying us .25% or less on our deposits. I don’t think they need to gouge us with monthly account fees and high interest loans.
I think the following video says it all.
So imagine my surprise when I opened my mail this week. Now I don’t know about you, but I hate mail. It’s not as though I get a lot of bills since all of my routine expenses such as utilities, homeowners fees, and credit card statements are set up on paperless billing with an auto-pay feature. It is all the other stuff I hate: mail order catalogues, sales flyers, political propaganda, and of course, bank and credit card offerings.
When an envelope arrived on Monday from Chase, I almost set it aside for later and possibly for filing in the shredder. Luckily I opened it since after all, it did say “contains important information about your account”. Now usually this means that I have received some so called checks that I can use to pay for things that I can’t afford. Wow, checks. That must mean I have money. But I am in on the the scam since in tiny print there is typically a statement indicating that a 3% cash advance fee will be added to the total. Jeesh.
Anyway, I am getting off topic. So I opened the envelope and was shocked and I mean SHOCKED to see that my free business checking account that was originally opened with WaMu years ago would no longer be free. Oh yeah. There were some exceptions such as keeping an average daily balance of $7,500 or more during the month, making $1,000 in purchases on the linked credit card and other nonsense. Sorry, those are simply not options for most of us.
My first reaction was disgust. This was the bank that the tax payers subsidized when WaMu failed. As a taxpayer, I felt a that the hand that feeds had been slapped. This was outrageous!
My next reaction was panic. Now what? My business had nominal banking needs: about 15 deposits a month and a few direct payments out of the account for health insurance, credit card payments, and personal draws. To go from $0 to $180 in a year was outlandish and not something I could afford. Would my fee free credit card come next?
My last reaction was action. It would be a hassle but I had one month to make my move, one month to come up with an alternative.
And that is exactly what I did. I found a no-fee institution to park my money. There were lots of options out there but feeling a bit of sting from the big bank behemoth, I decided to check out alternatives. I found a great community bank but they charged a monthly fee for using their bill-payer feature. Forget it.
This left me with two options: an online bank and a credit union. Ultimately, I am going to go with both. As long as there are no fees, I can keep one as my primary account and the other as a back up just in case the fee-monster rears its head. Kind of like an insurance policy with a one time fee of $25 which is the balance I will keep in the back up bank account.
So, to summarize, here are some hints for frugal banking:
1. Look for a no-fee bank or credit union. Just don’t forget to check on things such as bill-payer costs and per check charges. Also check for specific requirements such as a mandatory direct deposit or a minimum balance.
2. Limit ATM use. Speaking of ATMs, in most cases you will have free access to ATMs affiliated with your local bank. Use them. And if you must use an ATM, think about this: a $50 ATM draw with a $2 fee = 4% of the total. A weekly ATM draw of $50 = $2,600 and if you are lucky to only pay a 4% fee, than you are paying $106. Instead, take out enough cash to last you awhile.
3. Wipe out overdrafts. A typical overdraft will cost you $15 to $25 dollars each.
4. Look for a bank with prepaid deposit envelopes. Petty, I know but 52 deposits (one weekly) x 44 cents = $23 bucks give or take. Did I mention I was frugal?
5. Open all mail from your bank. Don’t be caught uninformed.
6. Watch those pesky “foreign transaction fees”. This applies to credit card usage while traveling. Did you know that most credit cards assess up to a 3% foreign transaction fee for charges made while traveling outside of your home country? (Disclosure: I know this is the case for US travelers. If your home is elsewhere, your mileage may vary.) I know of at least one credit card that does not charge this fee: Capital One. I keep a Capital One card safely tucked away for my travels. Just remember to give them a call at the number on the back of the card before leaving for your trip to let them know where you will be going. This will avoid your card being denied at point of purchase due to questionable, international charges.
7. Spread your business around. You don’t (and probably shouldn’t) put all your funds in one place.
8. Ask for a Senior discount. If you are over 55, there is a strong chance that your financial institution will offer a “senior” account with no fees. This is worth checking in to. Locally, I know of a few banks that even provide your checks (the paper stock) for free. It is a good deal.
9. Be vigilant and check your monthly statement whether online and paperless or the printed statement that arrives in your mail. Catch those fees as they occur and remedy the problem immediately. See my next tip.
10. Request a fee waiver. If you are hit with a fee, call your bank and politely apologize for the mistake and ask for a waiver. If this is a rare occurrence, say only once every year or two, there is a strong likelihood that the fee will be waived on a one time basis. Don’t forget to be grateful and thank the kindly person that offers you the fee waiver.
11. Consider co-mingling business and personal funds. I have been told by a reliable source that if you are a small business owner (a sole proprietor or single person LLC), there is no IRS stipulated rule for maintaining a special business account per se. You can use a personal account not only for deposits, but also for you business expenses. Ditto the business only credit card. The caveat is you must maintain meticulous records of all income and expenses related to your business so that they can be reported on Schedule C at tax time. Realistically speaking, I find it easier to keep things separate but if you are willing to take the effort to categorize income and expenses as they flow through your personal account, I say go for it. This is especially easy if you use a personal finance program such as Quicken or even the online financial site, Mint (www.mint.com). Note: this is not advice. Every situation is different so check with your business financial advisor first.
Enjoy your next adventure, wherever it takes you!