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BUSINESS CHECKING IT OUT

Apocalypse NOW, and other banking options.
By Tom Peeler |

NOW THAT bare-knuckles competition between banks and savings and loans has been legalized, we can expect to be bombarded with shortcuts to financial security. But if we follow some of these paths, we’ll need a compass to find our way back home. There are good deals and bad on every corner, so a careful analysis is critical before answering the call of a financial savior.

Take NOW (negotiable order of withdrawal) accounts for example. These are interest-paying checking accounts offered by banks and S&L’s as a result of a new federal law which went into effect the first of the year. Everybody pays the same rate of interest, 5 1/4 per cent, but that’s where the similarity ends.

If you keep $900 in such an account for a year at one local bank, and write SO checks a month, they’ll pay you $47.50 interest and won’t gig you for any service charges. Not enough to retire on, but at least a score for your side. Keep the same amount in a similar account for a year at a bank down the street, write the same number of checks, and they won’t pay you any interest at all. Not only that, but by the end of the year, your $900 will have been reduced to $696 through the assessment of various service charges. With a financial friend like that, who needs inflation?

Most depositories have disdain for small accounts. The cost of keeping up with nominal balances is bad enough without having to pay interest. So the local financial community has dreamed up several ways to discourage small deposits. As a result, a battle of wits has ensued between depositors who want to keep as much as possible in high-paying CD’s, and depositories who think that 5 1/4 has a nice ring to it.

The big banks like the high minimum balance deterrent. Any month in which your interest-paying checking account at First National drops below $2000, a $7 fine will be levied against you. Park Cities Bank has the same deal. Mercantile charges $7.50 any time your balance dips below $1500, and Republic National debits your account $7 when it dips below $1500. Oak Cliff Bank and Trust requires you to keep $2000 in checking or $1000 average in savings to avoid an $8 service charge. Promenade requires a $1500 balance in savings to avoid a $7 fee. Lake-wood National Bank and Dallas International charge $6 on accounts below $1000.

All of these banks still pay you 5 1/4 per cent interest, but when you let your balance drop below the magic number, it’s a losing proposition. Take our hypothetical $900 balance. It will earn nearly $4 a month in interest, but the proceeds will be eaten up by the service charge, and your balance will be debited for the deficiency. But things could be worse; Hillcrest Bank not only assesses a $7 penalty for balances below $1500, but also nullifies your entitlement to any interest that month.

Several local banks have set up sliding scale minimums. Greenville Avenue Bank and Trust charges $3 below $1500, $5 below $1000, and $7 below $500. National Bank of Commerce charges $5 below $1500, $6 below $1000, and $7 below $500. NorthPark National’s fee is $3 below $1500 and $6 below $750. Texas Commerce Bank – Dallas charges $5 below $2000 and $7.50 below $1000. Preston State Bank has the most liberal interest-paying checking account of any bank contacted. They charge nothing on accounts of $500 or more, $5 below $500, and $6 below $200.

A few banks charge check-writing fees in addition to service charges on accounts which fall below the minimum. Swiss Avenue Bank charges $4 below $1500, plus 16 cents a check. So the writer of 50 checks per month with the $900 balance will be stung with $12 in charges for one month’s enjoyment of his account. Trinity National and Inwood National also add per check charges to the regular penalties.

A couple of banks offer forgiveness accounts. At First City, as long as your account averages $2000 for the month, you won’t be charged anything. So even if your account plummets to $1.47 during a momentary setback, you can avoid a service charge with a $4000 deposit. Texas American also offers an average balance option. The average balance method is a better deal for the depositor, but it’s the devil to try to keep up with.

The arsenal at Commonwealth Bank includes all of the weapons known in the current state of the art to ward off small accounts. During any month in which an interest-paying checking account at Commonwealth Bank dips below $1000, the depositor will be assessed a $7 service charge, will receive no interest, and will be charged 20 cents for each check written. So the writer of 50 checks with the $900 balance will suffer service charges of $17 a month, with no offsetting interest. Rumors that Commonwealth has ordered a cat-o’-nine-tails are, however, unfounded.

By and large, the rules on interest-paying checking accounts at S&L’s are more liberal than at banks. The S&L’s are new at this checking account business and have to offer some incentive to get depositors to defect.

Here are some of the minimums and applicable service charges: Gibralter, $500 and $5; Guardian, $250 and $5; Farm and Home, $1000 and $5; Lamar Savings, $750 and $5; and Heritage, $400 and $5. Guaranty Federal has the lowest minimum I could find, $200, with a $5 service charge on balances below that.

A few S&L’s have opted to use the average balance test, as follows: Republic, $500 and $7; Southwest, $500 and $5; Royal, $500 and $7.50; and Trinity, $500 and $6. Dallas Federal, Metropolitan, Piano, and Commerce all have sliding scale schedules.

Several S&L’s believe that Day One is the ideal time to teach checking account customers how to behave. Richardson Savings and Loan Association advises inquirers that they are pioneering a new service as a part of their deal; you don’t get your canceled checks anymore. This is called “safekeeping.” You make your own copy with a special carbon-like extra in the checkbook, and then each month you are sent a computerized list of the checks you have written, showing the number and the amount. If this sounds shocking, remember that VISA and MasterCard did the same thing several years ago, and the world didn’t end.

Some S&L’s are offering options to entice depositors to go for the safekeeping scheme. If you open a safekeeping account at First Texas Savings, the minimum is $500, with a $2 service charge assessed if the balance drops below $500. But if you opt for the old fashioned “bank type” account, First Texas doubles the minimum and the service charge to $1000 and $4. NorthPark Savings offers similar options. It is unquestionable that savings institutions can save a ton of money in postage, record keeping, and storage by not sending your canceled checks, so this is one innovation that we might as well get ready for.

The minimum balance requirements and service charge assessments at Murray Savings are in line with the other S&L’s, but they have one additional rule that could be devastating if you aren’t prepared for it. Except for money orders, cashier’s checks, traveler’s checks, and government checks, a hold is placed on all checks deposited – five working days on in-town checks and ten working days on out-of-town checks. This means that if your salary check is written at the company headquarters on a New York bank, Murray is going to hold it for two weeks before you can spend it. Except for gurus and Weight Watchers, two weeks can be a long time to wait for your next Jack-In-The-Box hamburger.

The practice of check holding is not uncommon among savings institutions, but is peculiar in the checking account business. A new accounts consultant at a Murray Savings branch told me that the regular hold on my salary check would be lifted “once they got to know me.” Surely this practice will be subject to some softening, but in the meantime, be careful. There may be other institutions who intend to check hold, and aren’t talking about it.

I surveyed more than 40 banks and S&L’s, and found only one that gives any credit for CD’s. Texas Federal Savings offers a no service charge, interest-paying checking account to customers who maintain CD’s of $5000 or more. This is important, because any money in a non-CD account in a bank or an S&L is a subsidy to begin with. The money that you have tied up in a checking or savings account paying 5 1/4 per cent could be earning money market rates. When the money market rates are at 15 1/4 per cent, whatever amount you maintain to avoid service charges is losing 10 per cent off the top.

Republic National and its sister banks within the Republic of Texas umbrella offer another extra goody. They give you an interest-free 30 days on your MasterCard or VISA, if you pay your whole balance every month. This should appeal to credit card addicts who are puffy over the recent elimination of the free ride on credit card interest charges. Texas Federal Savings offers a strange creature called the VISA Plastic Check, that “looks like a credit card but acts like a check.” When you use it, the amount of your purchase is deducted from your checking account as soon as the purchase record hits the bank. If your account is insufficient to cover the amount, Texas Federal in effect loans you that amount, and will keep doing so on subsequent purchases up to a prearranged maximum. This could become a significant precursor of the checkless society.

Mercantile Texas Corp. is contributing significantly toward making the checkbook a collector’s item. This month, Affiliated Computer Systems, a wholly owned subsidiary of Mercantile Texas, will install 120 automated teller machines (ATM’s) in Safeway stores throughout Texas, including 48 stores in the Dallas/ Fort Worth area.

All you have to do is insert your MPACT card, punch in your PIC (personal identification code), and the machine will start spitting out crisp bills. It will also give you a reading of your before and after balance, if you ask it.

The Mercantile Texas subsidiary has a big jump on the rest of the field with its ATM network, and you don’t have to bank at Mercantile Bank to use it. There are 116 member banks in Texas, including 28 in Dallas/Fort Worth, with a lot more expected to join. According to Doug Kirk, senior vice president of the subsidiary, this is the largest statewide shared ATM network in the U.S.

The Mercantile subsidiary has been able to take advantage of a legal loophole in the law to get this head start, because it is not a bank. Kirk says that in August, when the recent Constitutional amendment takes effect, the ATM’s will be able to do even more. They’ll be programmed to accept deposits or withdrawals from checking or savings, to give balance readings of either, to transfer funds from one to the other, and even to accept loan payments.

Kirk says that the machines never cheat the customers. One tipsy ATM did malfunction and disperse $20 bills far in excess of a customer’s account, but the customer was smart enough to realize that the computer would remember his PIC, and he returned the money.

If you’re not ready for all this, you’d better take a deep breath because there’s a lot more to come. The battle of the bucks between the banks and the S&L’s is just beginning to get interesting. Weldon Fox, director of marketing for Metropolitan Savings and Loan Association, says the consumer is in store for more personal contact. “The days when you could just sit back behind a desk and wait for someone to come in are over,” says Fox. Fox expects some S&L’s to get into things like financial counseling and annuity programs, and he wouldn’t be surprised to see some S&L’s on the ATM networks later on.

It’s also a cinch that S&L’s are going to lose their bankers’ hours. The S&L near me is a great neighbor. They buy Girl Scout cookies by the gross, and put up “Go Team” signs before all of the high school games. But they close 30 minutes before I get off work, so I won’t be opening a checking account there. Of the myriad of comparative considerations, convenience still swings the election.

By the end of the Eighties, we’ll all be banking at home, on our cable TV. Punch a button and your bank balance will appear on the TV screen. Punch another one and your bills which are due within the next 30 days will be listed. Past due bills will flash on and off, like the numbers of flights which are boarding at D/FW. Punch the bills you want to pay and the bank will transfer the funds out of your account into J.C. Penney’s. Banking will be a breeze (if we have cable TV by then).

Even with what we have now the possible benefits to the consumer will beendless, once the financial community begins to combine all of the available toolsand services. Take just a couple: ATM’sand financial counseling. The ATM’s at Safeway can be rigged so that they cannotbe activated except by stepping on a scale.Your request for grocery money will bereduced by $20 for each pound gainedsince the last withdrawal.

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