Sunday, July 31, 2011

Take Advantage of Your Bank

Ever since working for a major bank, I’ve learned several ways to take advantage of the products and services they have to offer.  
In a middle-class family, it’s important to make the most of the money you have coming in, and minimize the expenses you may incur.  And there are several ways that you can make the bank work for you.

1.       Take advantage of FREE rewards programs – I must first begin with stressing the importance of financial discipline.  Credit card or debit card rewards programs will only work in your favor if you are a disciplined spender.  Setting and maintaining a budget for your home is critical to your financial success.  When your expenses are within budget, then rewards programs have the potential to provide you with added income.  Most credit/debit rewards programs offer around a 1% return on your purchases, sometimes more for purchases made at certain locations or during certain times.  According to an article on an average family spends around 14k on non-loan expenses per year.   If that is the case, then it’s safe to assume that if all of these expenses were paid for with your rewards card you’d have the potential of earning about $140 in rewards for that year (or more depending on the rewards program.)  And in my town, that’s probably close to most folks’ monthly electric bill.  Moreover, my bank offers you a 10% bonus for depositing the rewards money in a certain type of free savings account that we have, adding to our return. Again, I cannot stress enough the importance of frugality and discipline in your spending, as any unbudgeted splurges you may have each week or month will easily outweigh the “reward” you would later receive.  And rarely will rewards programs that charge you a fee actually provide a positive return for your typical middle-class family.
2.       Utilize the Investment Advisors – My bank offers free consults with their trained investment advisors.  And from my experience, they will only make money if you decide to purchase products from them (nominal fee for setting up or maintaining various accounts).  But their advice is valuable, and I would strongly recommend at least sitting down with them to talk about the options available to you relative to your income and budget.   You may not be able to invest at the time you sit down with the consultant, but the knowledge you gain is certainly worth an hour of your time.  I have met with several investment advisors to bounce ideas off of them, and as a result have a great start on my retirement and daughter’s college savings plan.  And my discussions with them were not a onetime event, but rather an ongoing review of my account and other investment options.  Drop these folks an email or voicemail from time to time with any questions you may have.  They want your business, and will give you a little time from their schedule to provide advice and options.  Don’t limit your inquiries to just one institution or company either.  Talk with various institutions to validate the advice offered and build confidence in the investment decisions you will be making.
3.       Talk with Your Mortgage Broker – While the opportunities to take advantage of your mortgage broker (MB) may be limited to new home purchases or a refinancing, it’s important to know that the MB is there to help you, and will do so at no charge.  If you’re in the market for a new home, go speak with a MB about the rates and all associated closing costs.  A good MB will be able to keep you updated if rates drop so your mortgage payments will be as low as possible.  Based on the numbers they give you about estimated monthly payments and closing costs, you will be able to make an educated decision about your purchase.  Similarly, when the mortgage rates drop, refinancing should be on the top of your mind.   When my wife and I bought our first home rates were around 6.25%.  And when the market went south, rates dropped nearly 2%.  And it just so happened that we were planning on moving at that same time.  We doubled the size of our home, and our mortgage payments barely increased.  Keep an ear out to the current mortgage rates and if your current mortgage rate is significantly higher than what the MB can offer you, then go in and get an estimated monthly payment after you refinance.  You and your MB can do a little math to see how long it will take for the refinance to begin saving you money.  For example, if you have $1000 in refinance/closing costs, but will save $100/month, then in less than 1 year you will begin to save money.  And let’s say you have 20 years remaining on your mortgage loan, you could be saving $24,000 in the long-term.  That’s $1200 more a year to contribute to retirement accounts, day-care, or utilities.
4.       Shop Around for Savings – Savings accounts generally do not offer a great long-term return on your money, but I think most financial advisors would recommend still having one set-up for back-up funds that you may need access to quickly.   And when you set it up, find the best account interest rate possible.  This will require a fair amount of shopping around, and possibly some online searching, too.   I personally chose an online savings account as they can generally offer a much better return, and you can shop around for banks that don’t offer branches in your area.  The best my bank can offer is about 0.15% on a small savings account, which amounts to a few cents a month.  Online I can get about a 1% return right now, without any account fees.  (Be aware of account fees!  I don’t think there’s any good reason for the average middle class family to pay for any type of regular bank account).  So when you set-up your account, find the account with the best interest; don’t just settle for what your local bank has to offer.
5.       If charged a fee, ask your bank for help – I spent 2 years working for one of our country’s top 10 banks. I saw thousands in fees charged to customers for overdrafts.  Overdraft fees always ticked off customers and they can add up quickly.   Some customers would just get mad, pay it off, and close their account.   If a customer made a habit of overdrafting their account, usually there was little the bank would do to help.  But if it is a one-time mistake, or very infrequent, the bank would usually “forgive” a portion of the overdraft fees if the customer asked to speak with a manager.  As a customer service rep, it was never in my power to waive fees, but if you can wait to speak with a manager and you don’t normally overdraft then I would bet there’s a good chance some or all of the fees can be waived.  Our bank would also consider how long you’ve been a customer, so even if you’ve had an overdraft in the past, bring up your tenure with the bank manager.  I can’t guarantee that your bank will budge on the fees, but it never hurts to ask.  I’ve seen a customer have nearly $250 in fees waived (albeit only half of what they owed) by politely asking for help with the charges.   Be polite, ask for help, and your bank may very well be willing to help you out.

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