Assessing the Inequality of the American Banking System The banks have set rules making it tougher than ever for consumers; here's a look at the tilted playing field with a few tips to keep more of your money. BY AL JACOBS
Avoid credit card fees by using them only as a necessity and when possible pay off the total amount each month.
“ My belief is that a credit card has a single purposeóa convenience when neither check nor cash is handy.”
"I rob banks for a living. I consider myself on a higher moral level than the crooks who run those banks." ~ Willie Sutton
Over the past decade or so, banking officials made a fascinating discovery. They found their customers to be an untapped source of bounty, with depositors willing to accept minuscule interest on their savings while tolerating the payment of fees and assessments limited only by the imagination of the bank hierarchy.
Consider the charges for a simple checking account. Although many banks provide low cost accounts to certain depositors such as senior citizens, and admittedly thereís a scattering of institutions offering "no-charge" accounts to the general public, these are not the norm. Most banks establish several plans from which the customer may choose, often with names like deluxe, ultimate, or preferred. Regardless of its title, the account normally includes one or both of two standard provisions: a minimum account balance to avoid a monthly service fee and a "per transaction" charge. In most cases you may expect to pay through the nose.
Another recent indignity is an increase in the price for imprinted checks. One large bank now bills the account twenty-five dollars for an order of two hundred. In response, many firms around the country are in the business of providing inexpensive checks as conveniently as ordering them from your bank. They charge but a small fraction of what youíll pay your bank.
Interest on savings accounts strikes a sore spot for many of us who recall when we collected 12 to 15 percent annually. Obviously those returns, unwarranted at the time, self-destructed as expected. That does not justify the many accounts currently paying as little as one-eighth percent or less. However, for those of you who, for whatever reason, must maintain an FDIC-insured bank savings account, there are banks which offer rates up near one percent, with no withdraw penalties and rates of from two to four percent on time deposits. It pays to do some comparison shopping and take advantage as you find it.
One final banking-related subject concerns the use of credit cards. Much of the debate involves matters like annual fees, interest rates on the unpaid balance, and the use of an account to establish credit. Articles abound on charge strategies to secure tax deductions for otherwise nondeductible interest payments. There are even dissertations explaining how balances due on one card can be financed for extended periods through borrowings on another. Much of the information is of marginal value, and some is preposterous.
Hereís the straight word: The lower the annual fee, the less the fixed charge you pay each year. Some banks and other organizations offer a card without a fee. If so, thatís your best bet. In case you cannot find a free one, shop around for the lowest price. In this regard, let me offer the philosophy of "Cheap Charlie," a one-time Huntington Beach, California, shopkeeper who operated on the stated principal: "You can't beat cheap"? certainly words to live by. Nonetheless, make certain itís not merely the first year's fee thatís waived. Also, give thought as to whether the card is sufficiently usable. MasterCard and Visa are universally accepted; American Express, Diners Club, and others are of less value because there are fewer businesses that accept them.
One final matter may surprise you is that interest rates charged on bank credit card balances are as high today as they ever were. How can this be when comparing the minuscule interest paid on accounts to the interest that credit cards incur, often running to 25 percent and higher? I think you know the answer; it fits into the "all the traffic will bear" banking philosophy.
This gets us to the bare bones of the matter. My belief is that a credit card has a single purposeóa convenience when neither check nor cash is handy. Most importantly, when the monthly statement arrives, pay the full cash balance before the date that interest is charged. Follow this rule and the interest rate means nothing. If for any reason you cannot regulate your credit card use in this manner, destroy your cards, swear off cold turkey, and fashion your life accordingly.
Al Jacobs has been a successful entrepreneur for a half-century. His business experience ranges from investment in real estate, mortgage loans, securities, property management and the operation of a private trust company. His latest book, The Road to Prosperity, embodies his last 10 years of newsletters on the subject of wealth ó how to get, keep and profit from it. To receive Alís free monthly newsletter, "On the Money Trail," visit his website at www.onthemoneytrail.com.