Planning Series : Thinking Outside the Bank
During a very recent client review, I heard some complaints regarding bank fees and an overall lack of service provided by large national and regional banks.
The question that was asked: should I make ditching my bank and choosing another one a resolution for 2012?
In honesty, if you've picked up a Wall Street Journal or have been watching the television lately, Americans' appear to be simmering in resentment towards big banks. A perfect example is in the month after Bank of America threatened a monthly fee on debit cards, 221,000 Bank of America customers left their big bank for more consumer-friendly institutions like credit unions. In addition to this example with Bank of America, a recent research study conducted by consulting firm, CG42, states that of the 10 largest retail banks, these institutions stand to lose a combined $185 billion in deposits over the next year because of fees and lending practices.
Although some individuals would like to simply switch banks, making this move needs to be well thought out. Recognize a different institution could adopt the same miserable practices a few months from now and as an advisor to wealthy families, I certainly can't recommend stuffing your money under the mattress as a recommended strategy. So instead of identifying a problem with no solution; let me attempt to provide you with alternatives for managing cash, growing savings, and even borrowing that doesn't involve some of the traditional routes.
Checking alternative: Brokerage cash account
Most major brokerage firms and custodians offer cash-management accounts that function exactly like bank checking. In essence, you can set up direct deposit, get an ATM/debit card, write checks and even pay bills online. At VisionQuest Wealth Management, we utilize and recommend roughly 3 or 4 different alternatives for our clients and an additional benefit comes in the ease of saving additional dollars. Many times cash builds up in a checking or savings account and is not working for you and the ease of moving funds into your managed non-qualified accounts or IRA accounts from this brokerage cash account is often easier and more cost effective than working with your bank.
Best savings alternative: GE Interest Plus
When a client requests or we determine that a certain amount of cash is necessary for a certain goal, we have been moving this cash to GE Interest Plus. This account is linked with your checking account so that funds can easily flow to and from GE. The main motivation of using GE is simple; they pay between 1.00% and 1.21% annually depending on your account balance. These rates are no longer found at your big banks, so it's a no-brainer.
Best borrowing alternative: A credit union
While credit unions offer similar services to banks, these not-for-profit cooperatives aren't beholden to shareholders or the bottom line.
This unique structure typically translates into more favorable terms for borrowers. A five-year new-car loan averages 4.9% at banks, vs. 3.5% at credit unions. For home-equity lines of credit, banks are offering 4.7%, credit unions 4.4%. And while rates on fixed mortgages come up about equal, you'll probably save a few hundred in fees and get more direct access to decision-makers at a credit union.
Search options at findacreditunion.com or ask a VisionQuest team member for a recommendation. The transition away from banks isn't always the easiest, but VisionQuest is here to help. Again, if you have any questions - contact me at email@example.com or call 919.433.3560.