Questions Everyone should Ask their Bank

Almost everyone who shops for a bank account asks questions about account fees, ATM locations, debit cards, interest rates, and account access, but there are a few more questions that people should be asking before making a decision about which bank to open an account with.

Although I would love to just tell you which bank is the best, the truth is there is no best bank. Each bank can be wonderful or terrible depending on your wants and needs. I can’t even tell you how many times I would have a potential new customer come to me and say something like “You wouldn’t believe what XYZ bank did! I am never again going to bank with them; they________.” Often, the situation they described next was a very common banking practice and could have easily been avoided if the person knew the rules under which the bank operated.

Here are a few questions you can ask to help ensure that your next account is a positive experience for you. In fact, you may want to ask these questions to the bank you already do business with. The answers may surprise you.

Under what conditions will you close my account? Many people believe that their account will close simply because they stopped using it. It doesn’t….at least not without negative consequences. All too often people leave a bank with an open account thinking that it will just automatically close, and then discover months (or years) later that they were reported to Chexsystems for a charged-off account and can not open an account at any bank. Many banks don’t even automatically close it if you leave the balance at $0 for awhile. However, it is important to ask because a few banks will close the account if it goes to exactly $0 for even a few days. Knowing the conditions under which your bank will close your account is very important because otherwise you may think your account is closed, but it is accruing various fees and becoming overdrawn. Likewise, you may think it is still open only to discover when you try to make a deposit that it was closed a week ago.

What is your policy regarding holds? Often, people assume that if they have had their account for a certain amount of time, they will not have to wait to access a large deposit they put in their account. Increasingly, this is not true. The bank’s primary objective is to not lose money. All incoming checks are viewed as potential liability for the bank. Here are a few examples of deposits and why the bank would put a hold on them.

Wire Transfers, direct deposits, or cash: Never placed on hold, but if the deposit happens after business cutoff time, they may not cover debits coming through until the next business day.

Check drawn on your bank: Very rarely placed on hold. Risks: could be counterfeited or signature forged

Cashier’s check/Money order: Short hold. Reasons: could be counterfeit, stop payment might be on it

Paycheck: Sometimes placed on hold. Reasons: It could be counterfeit, forged signature, stop payment, insufficient funds.

Personal Check drawn on another bank: Often placed on hold. Reasons: frequently counterfeit, forged, stop payment, closed account, insufficient funds.

Credit Card check: Nearly always placed on hold. Reasons: funds often unavailable, checks are sometimes stolen, credit card company can easily refuse payment.

P.S. Just telling your bank that a check is not counterfeit, forged, or payment stopped, does not mean that they are allowed to believe you.

There are still a few banks out there that almost never place holds on anything and others who hold almost everything. Either way, it is a good rule of thumb for you to be very wary of accepting checks as payment, especially if it is a large amount. If you must accept a check of any kind, plan not to use it for about a week. That will give you time to make sure the check has cleared the issuing bank and you will not have any nasty surprises when you go to pay for groceries. It will also help you avoid the accompanying avalanche of fees that occur if your account becomes overdrawn due to a deposited check being returned.

You are more likely to be able to quickly access all deposits if:

• You have had the account open for more than a year or two, and
• Your have less than two overdrafts a year on your account, and
• Your balance is consistently higher than the check(s) you are depositing, or
• Your savings account at the same bank has a balance higher than the check(s) you are depositing, or
• You have overdraft protection that would cover the entire check if it were to be returned

In what order will you post my transactions? Although this question may seem unimportant to you now, if you ever have an overdraft it may be the reason your account was overdrawn. Here are a few examples of how this could work, assuming that your bank has a $25 fee for each item overdrawn.

Starting balance $50

1. 9:45am $14.56 debit card transaction
2. 10:20am $40 ATM withdrawal
3. 11:55am $17.98 debit card transaction
4. 1:17pm $350 check for car payment
5. 3:36pm $375 deposit
6. 4:14pm $57.19 debit card transaction

Scenario 1: The order in which most banks post items is: Deposits, and then withdrawals in descending order ($350, $40, $57.19, $17.98, $14.56) they claim that they post debits in this order because your most important checks are usually the biggest, but we all know that it is because it helps them generate more fee income. In this scenario you would have 3 overdraft charges totaling $75.

Scenario 2: A less common order to post transactions is: Deposits, then withdrawals in ascending order ($14.56, $17.98, $57.19, $40, $350). In this scenario you would have only 1 overdraft fee totaling $25.

Scenario 3: A very uncommon order to post transactions is the order in which they are received. In this scenario your deposit doesn’t hit until after the car payment check so you are looking at 4 overdraft charges totaling $100.

What are your cutoff times? Cutoff time is extremely important to understand. Anyone who has had an overdraft as a result of making a deposit after cutoff time certainly already understands this principle. Cutoff time basically is the time that the bank sends “today’s work” to the processing center and starts doing business on the “next day’s work”. Cutoff time is usually (but not always) when the bank closes. Any deposit, be it cash, wire transfer, direct deposit, checks, etc. that are received after the specified time will not be applied until the next business day. That can be a really long time if you make a deposit on Friday after cutoff time and Monday is a holiday. What that means is that your deposit will not be available to cover debits until Tuesday night!

There is something though, that I have not yet explained that is somewhat confusing. Cash and electronic deposits can show as “available” even though they haven’t actually posted to your account. “Available” simply means that the bank is aware that there will be money there and is granting you access to it. It does not mean that it will clear checks for you. Example: You make a $3,000 cash deposit after cutoff time on Friday night hoping to cover a $2,500 check you wrote that morning. If the check tries to clear your account Friday night, the $3,000 will NOT cover it. However, your available balance will reflect the $3,000 deposit so you can go make debit card purchases over the weekend.

Understanding cutoff time can actually be a huge advantage to you. Say for example, the banks in your area have a cutoff time of 4:00 and you have an insurance payment due today, but you won’t get paid until tomorrow. If you wait until just about 4:00 and deliver the payment, the insurance company will not be able to get it to their bank until after cutoff time, so it won’t clear your account until at least tomorrow night. Be aware that some banks have different cutoff times for their ATMs vs. the Lobby. Check for signs that tell you exactly when cutoff times occur.

How can I get “this service” at no cost? Fill in the blank, maybe you spend too much money on checks, maybe it is wire transfers, maybe you make out lots of cashier’s checks. It is unlikely that you will be able to get everything free, but extremely likely that you can substantially reduce your banking costs by getting for free those services which you use the most. If getting your favorite services for free is a priority, it may be necessary to switch banks. Before you switch though, ask your current banker what conditions must exist to get your desired service for free (or at a reduced cost). Often, it is possible to simply switch your account type to get your most frequently used services at no cost. Also, sometimes you use a service so often that it is worth paying an account monthly fee to avoid the individual service fees. Example: You normally spend $10 to do a wire transfer and you end up sending 5 per month. If there is an account that costs $20 per month but gives you free wire transfers, it saves you $30 per month.

If you ask all the right questions, but your banker is not able to answer your questions clearly, check the banks rules and regulations pamphlet which they are required to give you upon opening an account or upon request. Actually, reading this pamphlet can help you understand a lot about doing business with your bank and help you avoid costly and time-consuming misunderstandings. Also, if you think you have done everything right and you still get unexpected fees, talk to your banker. Banks make mistakes too, and they are generally quite willing to fix them.