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Choosing an Account - Federal Insurance,Check-Clearing Policies and Tie Ins

Published by sam - 23/08/07 - 07:08:58 am

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This is a continuation of the series regarding choosing a Checking Account. See previous article here.

Federal Insurance   

Bank only at commercial banks insured by the Federal Deposit Insurance Corporation (FDIC) and at Savings & Loan Insurance Corporation (FSLIC).  Federal insurance protects each person’s total deposits at the same bank up to $100,000 (see p. 32).

Check-Clearing Policies 
Once a major issue, the unrestricted length of the time that banks could deny you access to funds from a deposited check has been curtailed legislation passed in 1987. 

When you deposit a check, the bank has only a piece of paper until it collects the cash electronically or otherwise from the bank on which the deposited check is written.  This process usually takes about a day for local checks and rarely more than two or three days for out-of-state checks.  But banks have typically made customers wait much longer before giving them access to the ready-collected funds.

 As of September 1988, the money from U.S. Treasury checks, state and local government checks deposited in the same state, and personal checks drawn on the same bank they are being deposited to must be available to the depositors no later than the next business day after deposit.  Money from all local checks must be available no later than the third business day after deposit.  All non local checks must be cleared no later than the seventh business day after deposit.  By 1990, the “check-hold periods” shrink; banks will have to credit local checks on the second business day after deposit and out of town business checks by the fifth business day.

Tie-ins 
For several years, banks have been directing consumers toward so-called relationship banking, whereby one has a checking account, mortgage, savings account, IRA, credit card, and as many other accounts as possible at the bank.  The inducement for consumers is that they can perhaps get a reduced-rate auto loan or mortgage if they also keep a  checking account at the bank.  Sometimes such bundled services actually reduce total costs, and consumers should consider the benefits of service tie ins- but only after a careful analysis of all the costs involved.  Some costs are well hidden.

For the banker, tie-ins sometimes offer an opportunity to mislead consumers with false economies.  You may be lured into free checking at Bank A if u also keep $10,000 in an 8 percent CD there.  But bank may offer free checking anyway, with no strings attached, while your $10,000 CD might earn 9 percent at Bank C.

Personal Relationship 
Another kind of “relationship banking”—based on the genuine personal relationship between a particular bank officer and the customer – is potentially more beneficial to the consumer.  Wealthy depositors and business people recognized long ago the value of personal banking, and they still demand it. 

By knowing you and your special needs, by knowing that you are a valued customer, and by knowing that you bring the bank an abundance of good business, a banker is more likely to “bend the rules” for you.  If you need an out-of-state cashed immediately every so often, and if your banker is a “friend” who knows you, chances are he or she will approve the unusual request.  If your check is about to bounce, he or she alert you by telephone so u can make a deposit to cover it.

Establishing such a relationship is naturally less difficult at a smaller bank where there are fewer customers and there’s more a chance for bankers to get to know customers.

Although bank advertisements frequently imply that they maintain personal banking for the mass-market consumer, a true personal relationship does not start in a bank marketing department; it starts with you.
 One way establish a personal relationship is to utilize the relationship your employer already has its bank.  Because the company brings so much profitable business to a bank, the bank will sometimes offer the company’s employees free or reduced-cost checking.

Another is to deal with the same officer in the same branch each time you do business with the bank, be consistently pleasant and businesslike, and bring them more business.  Send a friend interested in opening an account to your banker—and makes sure the friend mentions your referral.  Also, assuming you cannot get a significantly better deal at another bank, bring as much as possible of your own financial business to your banker.  Knowing that you have $2,000 in CD, or $8,000 in an IRA, or a sizable mortgage that you never fall behind on, can make a banker very friendly.  But, as suggested previously, never accept a tie-in that will cost you too much in terms of actual fees or reduced interest earnings.

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