Check out bank for hidden fees
Check charges interest rates can vary widely
By Dan Lara Special to the Kansan
Searching for the right checking account can be a confusing process. But the search can be made easier if you know yourself and your bank.
Picking an account without knowing how it works can cost a bundle in fees and service charges.
"You want to shop around," advised Roger Randel, public awareness liaison for Consumer Credit Counseling in Topeka. "You need to find a checking account that matches your needs.
"Banks have different service charges amounts and offer different minimum balance amounts. Some banks offer more benefits and customer service than others."
The Federal Reserve Board conducted a study in 1991 that showed that almost half of regular checking accounts contained average balances of less than $500. The report also said the average regular account was drawn upon 22 to 25 times a month, through check writing and other withdrawals.
Terri Pippert, assistant vice president for Mercantile Bank, 900 Massachusetts St.,
said the number of withdrawals made against a typical account was probably higher.
"We figure the average consumer in the normal household may write 50 checks and other withdrawals per month," she said.
If you're like the 50 percent in the study, you may be better off with an account that doesn't require a minimum balance. But there is a tradeoff: Fixed monthly fees and, sometimes, restrictions on the number of checks that can be written without paying extra fees.
Bank IV, 900 Ohio St., has an account that lets customers write unlimited checks but charges a flat fee of $8 a month.
Accounts with a minimum balance charge a fee for each month the balance falls below a certain amount.
University National Bank, 1400 Kasold Drive, has an account that requires a minimum balance of $300 and gives customers unlimited check-writing ability. If the balance falls below $300, the bank charges $3 a month.
Benefits vary from bank to bank, but the most common features are overdraft protection and ATM cards.
Banks publish brochures that list their accounts' fees and benefits, but some charges are not always clear.
For example, checks can add at least $10 a year to the cost of an account. Lawrence banks charge from $10 to $12 for a box of 200 personalized, no-frills checks. For about half the banks' price, checks may be ordered through Current Inc., a division of
Deluxe Checks, by calling 1-800-533-3973.
Many people are confused by the term "minimum balance" because different banks compute it in different ways.
Two common ways of computing the minimum are the average daily balance and the monthly average balance, said Kylee Rhoades, mortgage loan administrator at University National Bank. The average daily balance is figured at the end of each day, the monthly average balance at the end of each cycle, which usually run 30 days.
Some banks require that a balance drop below both the daily balance and the monthly balance before you pay a fee, she said. Other banks set up only one trip-wire before customers are hit with fees.
The time it takes for checks to be credited to your account is an important matter. Does the method used to figure out the minimum balance take into account when out-of-state checks are collected? Such a balance is called an "average collected balance." Randel said.
Here's why it matters: The average collected balance could sink below the account's minimum because the balance doesn't reflect all the deposits made, he explained.
If you have an account that earns interest,
exactly what does it earn interest on?
Some banks pay interest on only 80 percent or 90 percent of the average collected balance, Pippert said. Some banks pay on 100 percent of the average collected balance.A few banks pay 100 percent interest
on a customer's total balance, which includes checks deposited but not yet collected by the bank.
Another area of confusion is determining the difference between annual percentage yield,the interest rate and how interest is credited.
Let's say an account has $1,000 with an interest rate of 2.38 percent and interest is credited each month. If you were to leave the $1,000 in for a year, the interest you would earn would actually be 2.48 percent. That's the annual percentage yield.
Often banks will keep the same interest rate and percentage yield no matter how much money you have in the account. Others, such as Mercantile, give you a higher interest rate and percentage yield if you have a certain amount in your account.
The more often an account credits, or compounds, interest, the more money will be earned, Pippert said. An account that compounds interest daily is better than one that compounds interest on a monthly or a quarterly basis.
Congress took action in June to try to lessen the confusion and make banks' brochures more understandable by passing the Truth in Savings Act.
Pippert said she didn't know whether the law had helped.
"The act makes it easier to compare institutions," she said. "But I think consumers basically will go for the most convenient location and the best service."
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GRADUATION • THE UNIVERSITY DAILY KANSAN • May 2,1994