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CLOSE UP: SHOPPING IN THE FINANCIAL SUPERMARKET

Published by sam - 30/09/07 - 04:09:10 am

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As we have noted in previous blog post, the dramatic changes that have occurred in the financial marketplace offer consumers some very attractive opportunities to increase the yield on their savings and to reduce their costs for checking services, credit cards, and loans.  But consumers will fail to realize these potential advantages if they assume that all banks are more or less alike or that a bank is doing them a favor by offering them a loan.

In reality, a proliferating number of institutions are competing for a relatively fixed number of potential customers, and each of them can compete successfully only by providing services that are superior, more versatile, or less expensive than what the competition has to offer.  You have much to gain from carefully analyzing your financial needs, comparison shopping the markets to satisfy them, and continuously monitoring the market for new, better, or less expensive services.  You can also try to negotiate for better terms in any given transaction—for a better rate on a certificate of deposit, for example, or a lower rate on a loan.

You need also be aware, however, that institutions competing with another often use advertising that stresses the advantages of a service while glossing over its costs or other disadvantages or by offering specials that appear to be bargains but prove to be costly.  Both banks and non banks, for example, have been known to lure depositors with certificates of deposit or money market accounts promising yields significantly higher than those prevalent at the time.  But, as the fine print of the advertisement indicates, these rates are subject to change, and they tend to decline as soon as sufficient number of customers has been sign up.

Perhaps the best way to find the services you need and to avoid paying for those you do not use is through a careful review of your overall financial need and activities.  For example, one u have analyzed your past year’s checking account and stock market activities, you may conclude that an asset management account is a bargain, despite its $35 annual fee and high minimum balance requirement.  Then, too, you may decide that a free checking account, an $18-per-year credit card, and a money market account are all you really need.

A thorough review of your assets can also save you money.  You may finds, for example, that getting the money for a new car by dipping into your savings or by selling some shares of stock will cost you far less than a loan, even at the most favorable rate.  Or you may discover that you have far too much money earning a low yield in a traditional savings account at your local bank and that shifting it into another form (or another institution) can increase its yield significantly with no loss or liquidity.

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