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Today we are going to talk about banks. It is such an exciting subject I can barely contain myself. Sure, your eyes might be glazing over but this information is actually going to be useful. This isn’t another ‘Investment Banker that makes $650,000 a year and spends it all on drugs, women and a glamorous lifestyle’ article. This is actually going to give you an inside look into what a retail bank can bring to the table and help you out with.
You see, when my friends have questions about their bank, they come to me. I’ve been working for a traditional bank for over a decade now. I put in my time as an analyst doing modeling and risk analysis while writing more credit memos then I will ever care to remember. That job was truly the bane of my existence. Eventually I was able to weasel my way in to a producer role and even into management. Now, I’m going to use this knowledge to educate you all as I assume a lot of people would have to google what FIRREA is before telling me all about the changes to appraisal standards it enacted.
First up, personal deposits.
Talking spending cash here folks. Your demand deposit account (DDA) is what you use to pay bills, eat at restaurants and generally live your life day in and day out. I would venture to guess most of this audience keeps their personal accounts at a big bank. The top 5 largest retail banks in the US are as follows:
1.) JP Morgan Chase
2.) Bank of America
3.) Wells Fargo
4.) Citi
5.) US Bank
Now, some of you may keep your personal cash at your local community bank. Look at you, helping local business. How quaint. How noble. Now do me a favor – stop reading this, go close that account, and move your spending cash to one of the banks listed above. There is no nobility in making your life more difficult than it needs to be. Community banks thrive on having you come into the branch to conduct your business. Big banks have efficient online banking and mobile apps that are designed to keep you away from branches. Why? Because branches cost a ton of money to operate and everything that you need to do can be done online, through the app, or over the phone. While there is a time and a place for the community bank (more on that later in the series), personal deposits is not one of those.
Next up, let’s talk a retail bank’s bread and butter – LOANS.
This is how bank actually makes its money. Like Michael Lewis said, “it is the 3-6-3 rule. Borrow from the Fed at 3%, loan it back out at 6%, golf course by 3 p.m.” But what types of loans should you get at a bank and what loans should you look for elsewhere? Simply put, banks do a phenomenal job at approving and sourcing mortgages. You want to buy a house or get a line of credit off your existing house, a big retail bank is where it’s at. They will almost always offer the best rates, terms and fees and will typically offer a totally free personal account to go along with it.
Now, a car loan? Totally different story. Car dealerships make it idiot proof to buy a car from them, usually at 0% for several years. If anyone offers you 0% interest, TAKE IT. That is free damn money. Banks will usually juice their loans at 2-4% for new vehicle purchases so you tell me which option is better. Dealerships will approve you on the spot whereas a bank can take 2-3 weeks to approve a simple car loan.
How about a personal loan? Typically, a personal loan is used to consolidate debt and make it easier to payoff in a set period of time (in the biz, we call that amortization). Unfortunately, big banks are no good at personal loans. There are a ton of Fin Tech’s that offer significantly better terms and quicker approval times than a bank will ever offer. No free ads here, but a quick search will get you informed.
Now everyone’s favorite topic: credit cards! Everyone and their mother are all about that points lifestyle. Not me, though. I like cold, hard cash with a cash rewards type card. Another thing I like? NO ANNUAL FEES. I hate paying fees simply to have access to a credit card. Now, this is my personal philosophy around credit cards. If you travel a ton, then maybe you will get the benefit from the annual fee to gain access to the airline’s private club. If you make a ton of money and spend a lot on your credit card, then odds are the reward type will easily offset the annual fee. This is really a personal preference with no hard and fast rules.
At the end of the day, your personal banking should be done at a big bank. And, to be honest, most big banks are the same. Find a location that is close to your house and an app that you like and you will be all set..
Respond
@billfromthebank
Credit cards with annual fees can be worth it if the math lines up for you. For example: American Express’s Blue Cash Preferred has a $95 annual fee, but you earn 6% cash back at grocery stores, compared to their free Blue Cash card, which earns 3%. Simple math ($95/3%) says that if you spend more than $3,167 a year (about $264 a month) at grocery stores, it makes sense to get the card with the annual fee. Once you reach that $3,167 threshold, it’s free money. And that’s doesn’t even count the opening bonus.
Travel cards like the Chase Sapphire Reserve have similar ways to offset their much higher annual fees. If I have the time, I’ll try and write a piece on credit cards this week/weekend.
I would 100% be all over this
Can you break down Amex Plantinum. That’s really onlyhigh fee I’ve mulled over
Could be worth it depends on how you use it. That $550 is tough, but you get $200 of Uber credit a year, so you’re looking at a net of $350. That all depends on how often you can use their lounges. I’d say if you can use them 5-6 times a year, it’s worth it. Their rewards program is good (and 5x back on airfare is nothing to sneeze at), but it’s only good if you’re already entrenched in the Membership Rewards program. The concierge service is pretty awesome too. I had a friend use his to get face value tickets to Hamilton without much issue.
I cancelled mine earlier this year because I’m too entrenched in Chase’s Ultimate Reward ecosystem to make use of MRs and only fly a few times a year so it didn’t make sense for me.
Forgot about the $200 airline credit, which brings your net cost down to $150. Still think that it all depends how much you fly.
Although it’s absolutely worth it at least for the first year if you can meet the minimum spend and get the 60,000 (or 75,000 through the incognito trick) MR points. That’s enough points to get you at least a one way business class trip to Europe/Asia, easily worth thousands.
Just got the Charles Schwab Plat. It has all the same benefits but you can transfer you points at a rate of 1.25 cents/1 MR point to a Charles Schwab brokerage account (which you can invest or just cash out right away), which gives you an effective cash back on hotels/flights of 6.25% cash back. If you parlay that with the new Amex Gold Card you would also be getting 5% cash back on restaurants and groceries. Also the plat has the $200 airline incidental credit (which is every calendar year so you get it twice your first year) which you can use to buy United/Southwest gift cards. I’ve already like 7 chase cards so I have enough UR points to travel for a while so rather just focus on cash back at this point. All depends how much you travel though, if you hardly fly there is little value here IMO.
Love the sound of this CS Plat. I have the CSR so this may be my perfect other card.
Delta Amex Plat. $195/year. Points (who cares), discounted access to delta club (hella snacks) but the biggy is a free “companion” ticket. Aka BOGO ticket for your sig other. Or one of your crew that will venmo you a discounted rate, hopefully $200
yes please
The Sapphire Reserve comes with a $300 annual travel credit, a credit for either Global Entry or TSA pre, and also Priority Pass lounge access. Most lounges will allow you to stop in once you land in your arrival city as well. Very underrated to stop and get a free meal or at least a coffee after a trip and before you head home to prepare for the upcoming week and whatnot.
Love the CSR, will never give it up.
I’d really appreciate that. I’ve been exclusively on the debit card train but I know I need to start building credit.
I wasn’t aware there could be a column on this site that could arouse my brain boner that wasn’t written by Nived…. Well done.
Also – Thoughts on messing around with a few hundo in the markets? Little quasi day trading, little getting butt effed financially.
My man, do we have the sponsored content for you. Stay tuned.
Robin Hood?
Raging Bull. Essentially a day trading bootcamp. Think we’re launching it today on the site.
Is it a way to dig me out of my -45% hole on Robinhood? Got flagged for day trading so now I’m stuck getting Weinsteined til I can dump this tank of a stock
Don’t mess around with day trading. You won’t win unless you know how to trade straddles and complex options.
Advice: Open a Roth and put into the growth fund of America. You will not lose that battle over 40 years. Trailing returns of about 13.7% since inception which was about 1960. It’s not fun but neither is losing your ass because you thought you could outsmart the market/retail bank traders (hint: you can’t.)
As a trader, I second this comment. You’ll need some serious statistical expertise and top of the line computing power to find and trade on positive alphas. Plus, you’ll need a lot more volume to justify exotic positions you’ll have to take to make money on those arbitrage opportunities.
Just buy passive index funds (S&P 500 for example) and you’ll likely come out better than the active traders in the long run
To be clear… the big money (401k) is all invested with fidelity index funds/large cap growth (since I’m under 40) and targeted retirement date funds. I mess around with with a couple hundo in the app of a one time sponsor of RBP/Grandex. No REAL money is in the market, like the casino but on my phone. I’m corporate finance guys… I know my limits.
If that’s the case, then… blue horseshoe loves Anacott Steel
What about your sm./md. cap domestic and international funds? Or world bond funds? Or your emerging markets exposure?
I have some intl exposure. Blue Chip Growth (30%), Freedom 2055 Retirement (20%), Fidelity Enhanced Intl Index (30%), JH Ined Vlalue MidCap (20%)
I have 15/15% small and mid cap domestic, 50% international and 20% S&P ETF for my 401(k) and similar for my mutual fund.
I’ve had too much coffee… I disagree on your take about community banks. I have a credit union for all my cash based accounts (AMEX for all credit based, whats up AMEX fam) and I couldn’t be happier. I’m able to have my bills auto withdraw from a savings, then manage it all in excel like a residential escrow
Right there with you. Our credit union has all the bells and whistles as a big bank and routinely beats the shit out of everyone else when it comes to interest rates. 3% interest on checking for starters
Be careful with day trading. It’s hella risky and a lot of firms/banks will typically require you to trade on a margin account which can require up to $25K from you.
Speaking of credit cards, Amazon Prime CC. 100% worth it. No fee, 5% back on amazon.
YUP.
I get 2% interest on my checking account, can use any ATM fee free, and have an app to deposit checks. There is no way I would switch to one of the big banks
If you don’t have an online-only savings account where you’ll see something closer to a 2% interest rate nowadays, you’re doing it wrong.
Don’t take out a car loan. Cars are a horrible investment. Save up and buy a used car cash.
Travis, is that you? My husband is a big believer in this advice and has never bought a new car ever and guess what? He’s debt free and tons of cash in the bank that he made before we got married just saving and making smart choices…like buying Dollar Store soda…Holler if you drink Faygo (btw, what a horrible name to pick Dollar Store). And no I don’t drink it- I have dignity
I have accounts at three banks. Small community bank and two large regional banks. All three have full service apps.
Stop commenting on every blog I follow (BSD, 247, etc.).
I bank work a big bank and support local by banking with PNC.
At the end of the day, online-only banks can do a much better job with personal banking than large banks. My Chase savings account was a waste of space. I now earn 1.85% per quarter at Ally, and my rate has gone up 0.5% since I became an Ally customer just over a year ago. As regional and local banks are catching up with the digital banking capabilities, the mobile app features of large banks are less of a competitive advantage.
As for mortgages, QuickenLoans has surpassed all large banks to become the largest mortgage provider in the U.S., and looking at bankrate.com, it’s mostly small or online-only lenders that have the best rates.
I appreciate your advice, but I think you have your blinders on about non-large bank options that are working better/smarter for a lot of customers out there, especially for Millennials.
Of the 5 C’s of Credit, character is the most important. If the bank can’t trust the numbers you give the other 4 Cs don’t matter. Not sure how online banking can sort that out.
Tell that to wells fargo….
This is good. More of this please!
Since we have about ~20 years left of semi-normalized living before we create an environmental hellscape that will kill off much of the planet’s population as we enter the 6th major extinction period, we need to purposely collapse the economy. Stop paying your debts but before that, take out loans you have no intention of paying back and go do fun shit while there’s still time to do it. This will help in collapsing everything because once we collapse and halt business, we effectively lower the overall greenhouse gas emissions. Or we could keep doing this penny pinching shit just to get some shitty credit perks that continue to drive us into a black tunnel…there is a bright light ahead of us in that tunnel though and it’s an inferno lol
Also would love some of you financial guru’s advice on investing. I’ve been told to look into it but no clue where to begin.
Highly recommend Ally for savings accounts
Can someone help me with investing small amount I may want access to in 5-10 years. Like 7K
What would you like to know?
Basics: Max your 401k, but at the very least to the match if you get one. Roth-401k as well if you make too much for a regular Roth account ($118k<)
More advanced: Open a Roth and have a few mutual funds in it, ride it for the long term; you will not lose.
Even more advanced: If you make too much for a Roth, back door that bitch and make a Traditional IRA contribution and convert it to Roth money and profit (in 35 years.)
Also look into S&P 500 ETFs (SPDR is a good one). They trade like stocks and mirror the S&P 500 index. Buy some and forget about it. Guaranteed to go up in the long term, just look at the performance of the S&P 500 over the last 5/10/20 years. Just don’t sell when the economy inevitably tanks at some point in the future, because it will rebound.
Invest in vices like tobacco, alcohol, marijuana, junk food. Also look into water desalinating companies and electrical utilities. The tech sector is bloated and over-valued and a correction is due. Pretty soon, we will have to do something drastic like back our currency with a more sustainable resource like water which is why companies like Nestle are working to privatize access to water instead of seeing it as a given human right even though we live on a planet that’s made up of 70% of it. I wish I could lol for this one
For someone just starting out like yourself, a simple 3 index fund portfolio is the best move. Open an account at vanguard or fidelity and put 1/3 into total bond market fund, total US stock market index fund, total international stock index fund. That’s it. You are completely diversified in the market with stocks and bonds.
Advice – Don’t. Manage your 401k to your age. Investing with small amounts when you’re not in/around the markets is the same as roulette. Having a financial adviser, like an actual person isn’t bad but they generally wont mess with you unless you have a decent chunk of $$ since they are paid (at a high level) based on how much money you do or dont have. Or trade commisions which is different beast.
Can’t go wrong starting with index funds. Disclaimer: am not a financial adviser.
This obviously deserves a column, but here are some bullet points to start off with.
Don’t buy individual stocks. The best bet for us civilians are called index funds which own little pieces of EVERY stock.
Target date funds from Vanguard or others will give you a sensible mix of stocks and bonds based on how far you are from retirement
The advantage of accounts like 401k/Roth IRA/Regular IRA is that your investments are not taxed the same . Good rule of thumb: put enough into the 401k to get any employer match, then work on maxing the Roth IRA, then max 401k if you can
Always look at the cost of the funds you pick, called the “expense ratio”. Go for as low as possible and tell anything at or above 1% to fuck right off
You’re advice on Financial advisors isn’t usually true. The big guys, yes, but there are more out there that work with folks that don’t necessarily have a ton right now but will build it as they age.
Source: Financial advisor.
No. See below comment.
I’ll have to learn more about the smart beta funds. My thinking about active trading vs passive is that most people (including myself) aren’t able to put the time, energy and expertise it takes to beat the market. Passive wins out for most people.
Active/passive doesn’t just mean YOU are actively/passively trading. An active fund is one that is managed by portfolio manages that will actively trade in and out of stocks in a mutual fund if they feel it is underperforming or there’s a better company in that sector. The S&P 500 index fund doesn’t do that. It may be good in doses to reduce cost/own the market but it isn’t managed by anyone but an algorithm. Basically an actively managed fund is an added layer of protection and human interaction that helps picking the companies inside the fund.
Honestly an algorithm gives me more peace of mind.
I’m out here living my best life. Don’t harsh my buzz. Also, somebody gonna nuke somebody soon, that will cool off the planet and solve a piece of the overpopulation problem
yea…maybe
The best bet for you civilians isn’t index funds. The typical S&P 500 index fund right now would lead you to believe that it’s made up of the 500 companies in the S&P. This is true, but it’s what we call “market-cap weighted” which means that the largest companies basically own that fund. The revenue from the top 10 companies is just as large as the bottom 238 companies. Basically saying if you think you own the index fund for diversification, you don’t. You own Apple, Amazon, Google etc. If you must have an index fund look at smart beta funds who weight it based on % not market cap.
Cheap expense ratios? You get what you pay for. Go ahead and buy the cheapest funds but don’t expect much from it either. You can tell the 1% and above ratios to fuck off while I cash in on my 129% growth year in an international small-cap fund that killed it during 2017 (part of a diversified portfolio of course.)
Passive management has its place but active will always be the champion. Don’t worry about expense ratios too much. Above 1% is indeed high but the returns they give are sometimes through the fucking roof. No balanced or large cap growth fund is larger than 1% expense. The only 1%ers are the small cap and international small cap funds which you don’t necessarily need. They help, but are not necessary.
This only works if you don’t have any Pre-Tax IRA monies already
If you knew about dark pools it wouldn’t. If the market drops 20% you want your portfolio rebalanced so it comes out strong. Algorithms won’t do that, active mutual funds and having a financial advisor will. Also minimizing the down side is just as important if not more important than maximizing the up, and having a human manage money does a much better job on the down side than an algorithm does.