CHAPTER THREE

Banks — Sleeping With the Enemy

I hesitate to deposit money in a bank. I am afraid I shall never dare to take it out again. When you go to confession and entrust your sins to the safe-keeping of the priest, do you ever come back for them? —Jean Baudrillard (1929- ), French semiologist.

O.K. Banks aren't exactly the enemy, but don't confuse them with your kindly old uncle either. Banks are in business to make money, and they've learned how to carry out that assignment quite handily. Your bank will take as much of your money as the law will allow . . . and as much as YOU will allow.
Former banking executive, Edward Mrkvicka, Jr., estimates that you will likely overpay your bank, through mortgages, credit cards, loans, and checking and savings fees by tens of thousands of dollars in your lifetime. Personally, I'm inclined to believe that Mr. Mrkvicka's estimate may be a trifle ambitious. Still, the lesson is clear: your relationship with your bank is going to cost you money.
Fortunately, you have a great deal to say about how much money your bank will make off you . . . at least as compared to the next guy.
Banks are heavily regulated by federal and state governments, but the law gives them considerable leeway in both the nature and the cost of the services they provide. It's up to you to learn how to deal with them in a way that will allow you to maximize the benefit of the services they offer while keeping their paws off as much of your money as possible.
This is not an academic exercise. Over a period of years, a well-informed bank user will have a huge financial advantage over the poor klutz who lets the bank make financial decisions for him. Let's start at the beginning.
Banks love customers who open passbook savings accounts, and for good reason. Of all the types of accounts banks offer as safe havens for your money, passbook accounts pay the lowest rate of interest to the depositor. Said in a different way, it's the lowest-cost way for a bank to attract deposits. If you browse through those cute little brochures that your bank displays in its lobby, you'll find passbook savings accounts described in glowing terms (though they may call them by different names).
If your account comes complete with a passbook (or a monthly statement) into which is carefully entered each deposit you make, and you are allowed to withdraw your funds at any time (but not by writing a check), you have a passbook or statement savings account. If you have one, you are not alone. Millions of Americans who simply don't know any better have all or most of their money deposited in savings accounts in banks and savings & loan associations.
Now, consider this: The interest rate structure in most of today's commercial banks guarantees that you will lose money if you keep your savings invested in bank saving accounts. This curious situation is due in part to a phenomenon that you've heard about, but may not fully understand. It's called inflation.
In modern times, the average cost of the products and services that we must buy with our money has gone up each year. That means that each dollar will buy less next year than it can buy this year, and even less the following year. The rate at which prices rise each year is called the inflation rate and is expressed as a percentage. An inflation rate of 3% means that the average cost of goods and services has risen by that much during the 12-month period involved.
Put another way, your dollar is worth only 97¢ in purchasing power after an inflation rate of 3%.


If passbook savings accounts are such a lousy deal, why do they still exist? Why do so many people buy into them even though their shortcomings are so well documented? Most likely, it's because savings accounts are the simplest, easiest to understand, and the oldest form of bank savings (not to mention the fact that banks are happy to promote them at every opportunity).
When it comes to money management, many people are downright lazy. Worse, many savers are intimidated by, or ignorant of, the relatively simple banking options available to them. If you will stick to the principles outlined in this chapter, you won't have that problem.
So, for openers, what should you do if you have ANY money in a passbook savings account?
If you have any of your money in a bank savings account, close it out at once, and put your money in an account that will pay you a higher rate of interest.

As you have undoubtedly heard, good money management calls for keeping a reasonable amount of money readily available for emergencies. Most financial advisors suggest that you should have enough ready cash to keep you going for about six months in the event that your normal source of income is cut off.
That's good advice. And that emergency fund must be kept in an account that will give you immediate access to it, without penalties. A bank savings account fulfills this requirement nicely, but the shrewd saver knows that there's a much better way to handle this need. Happily, it's available right at your own bank. It's called a money
market account.
In all likelihood, your bank offers a money market account that pays more interest than a savings account, allows you to withdraw your money on demand, and may even allow you to write checks against it. To be sure, the improvement in interest will not be nearly as dramatic as it would be if you put your money into one of the other account types that we'll be discussing later. Still, good money management, the kind of management that will help to lift your financial status above the masses, calls for taking every advantage available to you without wasting time.

Time, as they say, is money.
So, go to your bank, ask what interest your savings account is now paying (a good money manager would already know this). Then, find out how much more you would get by transferring that money to a money market account.
Don't worry if the difference in interest rates seems small. The following paragraphs will illustrate the importance of understanding the range of interest rates available to you. And you'll see how important it is for you -- not the bank -- to decide where and how your money will be left in their custody.
Let's take a look at one of the most common mistakes made by the average saver/investor. Many people, perhaps most, pay little heed to what seem to be minor differences in the rates paid among different types of investments and
savings options. . . .

Money is an essential guide to money management for anyone who has neglected their fiscal education.  Whether you are a student, business or professional person, or approaching retirement age, Money will help you to avoid the financial errors that can lead to financial ruin for you or children. It will show you way to gain maximum advantage from your available financial resources.