Stephanie has another one of those days, where she won’t be able to post a blog herself and thus, it’s me, the husband, again. Today is actually my youngest son’s birthday, so I will keep it short (and sweet).
I would like to come back to my previous discussion about banks. I got a few comments and I would like to address some of those.
I know that a lot of people are scared of changing their banks for a variety of reasons. When it comes to our money we tend to be very cautious and rightfully so. However, changing banks is not something that we need to be afraid of. As a matter of fact, financial institutions rely on the fact that customers are reluctant to switch banks and that’s why they do not fear too many repercussions when they raise fees. Demand deposits are what a bank considers a stable source of funds. They are called that because once a customer opens an account he or she is unlikely to move it. Thus, the customer’s deposits provide a stable and fairly predictable source of funds. For the longest time, banks were not allowed to pay interest on checking account balances and thus, they had to find other ways to attract customers. Those were the days when you would get beach chairs and coolers when you opened an account. The logic was easy. Once the customer has a relationship with the bank through the checking account, they are likely to use the same bank for all their other financial needs. Customers feel that they need to be able to trust their banks, because they give them their hard earned money. However, when you open an account and deposit money in the bank, the bank has a legal obligation to pay you back. The money that you give to the bank is like a loan that you make to the bank. They borrow money from you to lend it out to other people. They pay you a little and then charge more on the loan that they make and that’s how they make money. The banking business model is really rather simple. In addition, your deposits are insured in case the bank fails. Thus, you do not need to trust your bank, all you need to do is shop around for the best deal. Do you buy at WalMart or Target because you trust one store more than the other or beacuse one has better prices than the other?
A lot of times we shop at a certain store because we like their products better than the products of a different store. The products that banks offer do not differ substantially across institutions. Each bank has a line of different kinds of checking accounts and the more services you receive (e.g. interest on your balance, free unlimited checks, etc.) the more you will be charged in account fees. Thus, it mostly comes down to two factors when chossing a bank, convenience and price.
You want to pick a bank that is convenient to where you live and work, so that you do not have to drive to the other side of town to deposit a check and one that offers their services at a low price. Convenience is only important for transcation needs (like checking accounts). If you are looking for a loan, it does not really matter where the bank is located. Thus, shop around and shop around for every service that you need. One bank (or credit union) might have the best deals on checking accounts, whereas a different bank has better CD rates and a third bank has the lowest car loan rates. You do not have to do all your banking at the same bank, just like you probably do not do all your shopping at the same store.
Stephanie will be back tomorrow. Thanks for reading.