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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
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..