After a week hiatus, JD and Jim are back on the Personal Finance Hour talking about Banking! While banking may sound boring to most, Jim has promised an entertaining show to all of the listeners.
When thinking about his book, JD has come to realize that banks are like a tool that you keep in your financial tool box. He used to feel that banks were all the same, but after his Frisbee story, he has realized that this is not the case. Meanwhile Jim, like his insurance, he looks for his banks to be boring.
Jim stated that with online banks these days, banks have made themselves commodities. The days of personal banking has come and gone. The guys discussed this as both a positive and a negative. JD talked about his local credit union that sometimes remembers specific transactions he has made years prior. It’s a bit disconcerting to him as it would be to most people.
JD uses his Wells Fargo account for his business banking; a local credit union for his checking account and an ING account for his savings. He really likes ING for their subaccount (multiple account) feature.
Jim has a ton of accounts throughout his financial network, mostly because of him reviewing the different banks for his blog. His financial map helps show how his money can move from one account to the next. He primarily uses Bank of America because they are EVERYWHERE.
In years prior he would check in with each account regularly and write down the balances. Nowadays he relies on Quicken to go and pull the data from each.
Jim described his perfect account as follows:
- An account that allows you to transfer instantaneously to savings.
- An obscene amount of ATMs.
- The sub savings account feature similar to ING.
Outside of those features, it’s down to what the interest rate is.
Interest Rates and Passive Barriers
The interest rates at banks have become so low that there is really no difference between each bank. However, a few years ago there were big fluctuations between each bank. This was in part because of how well the stock market was doing and the fact that people were seeing great returns on their money. In order to entice people to save, the banks had to offer really great rates upwards of 4%-6%. Unfortunately, with the way the market is now the banks are trying to de-entice people to save.
The guys then went into a further discussion of the federal rate for banks. In short, the federal bank is de-incentivizing savings by keeping the rate so low. This will hopefully pull us out of a recession as people are more likely to spend. JD mentioned how difficult this is for him to deal with considering he writes about the need for people to save, yet it is those that spend that will pull us out of the recession.
JD came back to the idea of passive barriers or financial roadblocks which impact his financial life. He prefers to have his money put aside automatically so that he doesn’t see it nor think about it. It automatically goes into his subaccounts in ING and makes it difficult for him to access. Jim cited that this takes the emotion away from JD’s saving habits and ensures that he is doing the right thing with his money.
Callers and Chatters
Craig (Budget Pulse) keeps all of his money in a money market account. He wonders if it’s worthwhile to switch to a high yield savings account. Both Jim and JD say that they see no need to transfer money to a new account if he is happy with his service. They asked Craig if he uses the money market accounts to write checks from. Craig doesn’t, but the three of them stressed that one of the key features of a money market account that makes it different than a traditional savings account is that you have the ability to write checks from it.
Kelly (The Centsible Life) called in to discuss how her family has their finances set up. They bank primarily through a local credit union that has ATMs in convenient locations. Additionally, there is a branch right in her husband’s office. The credit union also offers promotional rates (7% Interest on the first $500) in addition to things like Christmas funds that automatically deduct money around the holidays so you can spend it on presents. Kelly also has an ING account because it’s harder to touch. Furthermore, she has the subaccounts set up similarly to how so many of us have our ING accounts.
Brian (My Next Buck) wanted to discuss what referral or sign up bonuses are out there. Currently Brian is signing up for an account for a free $100 through Bank of the West. Jim says that banks used to do this often, but the trend had gone away as the economy got worse. However, these types of bonuses are starting to make a comeback. That said, Jim brought up an interesting point that Brian did not know prior to opening his new account. If you are opening a checking account with overdraft projection it is likely that the bank will do a hard inquiry pull of your credit report. If you are going to be buying a house or a car in the next few months it may not make sense to make a small amount of cash only to have your interest rate jump up a few tenths of a percentage point. It would be penny wise yet pound foolish says Jim.
Laura (Green Panda Treehouse) called in to talk about why she decided to switch banks from Bank of America. She had had a checking account with them that worked well, but once her and her husband opened a joint account, things started to go haywire and she started looking for banks that offered good customer service. She slowly started transferring her accounts over to ING and with such good service she moved the bulk of her accounts there. Even when she has had a problem with ING (that was more a problem with the USPS) she called ING and they resolved her issue immediately. Laura went on to discuss credit unions briefly stating that they often times offer unique services to their clientele. The example she provided was a teacher’s credit union automatically setting up a teacher’s salary to be deposit over 12 months instead of the standard 10 months they are actually working.
J. Money from Budgets Are Sexy was the last caller to chime and talked about USAA. He absolutely loves their bank and has several accounts with them. Jim expanded on his experience with USAA which was the insurance carrier for a person that hit and totaled his car a while back. He said that there were no problems and that the service was very expedient to take care of his claim and to get reimbursed for his vehicle.
The guy started to wind down by saying that it’s really helpful to ask for things. In particular, asking to have fees waived from banks. It never hurts to ask a customer service rep to waive a fee and they often times do. The guys did mention that it is important not to act entitled to having fees waived, but it really doesn’t hurt to ask and it’s entirely possible it is within the service reps power to make it happen.
Jim told his story about going through a Bed Bath and Beyond with his wife. Bed Bath and Beyond are famous for their 20% off coupons. One day his wife forgot to bring a coupon with her. At the checkout counter she asked the cashier if she could have a coupon, and without batting an eye, the cashier swiped a previously used coupon to discount the item.
One of the final things the guys discussed was reward checking accounts you can deposit a limit of up to 25,000 or so. You get a very high interest rate (like 4%) but you have to make several debit transactions. People ask how they can do this. Essentially the banks make money off of each debit transaction and they then pass the earnings onto the account holders in the form of interest. Jim gives a couple of suggestions on how to skirt the system so that you reap maximum benefits from accounts like this.
Concluding the episode the guys decided that, yes, banks and banking can be fun. Hope to see you next week in the chat room or on the phone with the guys.