Here’s a shocker… ten percent of all Americans do not have a basic bank account. Ten percent of our fellow country-men and women cash their checks at stores, pay fees, and keep their money in safes at home, under the mattress, buried in the back yard, or up their own rectum, or even sadder, have nothing left over after paying all their bills. Can you believe that? I can… and after our last few blog installments, I wouldn’t blame you for wanting to do the same. But I advise you not to. Banks are the scum of the earth, but as long as you know how to manage your money, manage their bullshit, and manage your expenses you can almost always come out on top.
I’m going to get personal here… Because I believe that full disclosure and honesty are the best way to convince people that you are not full of shit. When I graduated High School and went into the University system, I was beset on all sides by people offering me free T-shirts if I signed their forms. I was swept up in being an adult and being trusted, so much so, that by my sophomore year I was in debt up to my eyebrows. This cascade of stupidity and lack of understanding of the finance system caused me to declare bankruptcy by 22 years of age. Today, I have a near perfect credit score, I haven’t paid an account late since they entrusted me with credit once again (A mere YEAR after bankruptcy) and I haven’t paid a goddamned penny of interest to these assholes since then either (We will discuss this in detail in our chapter on CC’s). To quote the brilliant Tyler Durden… “It’s only after we’ve lost everything that we are free to do anything.” And having the shame of declaring bankruptcy was losing everything to me. When I got into the banking world, a couple of years later, it was financial boot camp.
In banking, you see all things… On any given day, you will make one person’s dream come true and an hour later, give birth to someone’s biggest nightmare. But one thing you get from this horribly dynamic work environment is the understanding that above all else, you must protect your good standing in the financial world. Bankruptcy stays on your report for upwards of ten years, a home foreclosure, depending on the circumstances, may end up in litigation for decades and stay on there much, much, longer than the expected ten years. Ruining your credit can ruin your life. But there is also another danger… Having no credit, in other words, having no credit history or any history within a transactional institution can lead to you being unable to secure even the most modest loan.
There have seen studies and surveys done on this ten percent… on these “unbankable” people (that is an industry term). Many of them come from poor areas, or were raised in families with either hatred or lack of understanding of the banking system. It is a sad situation to be honest, because statistics show they would spend MUCH more cashing their checks at a store than they would if they opened up a checking account, managed it responsibly (overdrafts, ATM fees, etc.) and took PERSONAL RESPONSIBILITY for their lot in life.
Most people in the US can open a bank account at a regular depository institution… But let us take the worst case scenario and start with those who cannot. Even if you cannot open a bank account at your local Citibank or Chase or Ocean Bank, does that mean you are fucked and can never open a checking account, therefore being at the mercy of money changers at the western union or the publix?
The short answer is… no.
First off, if you know you have bad/no credit, or have gotten in trouble with a bank in the past it might not even be worth going to the major depository institutes. Banks use something known as “Chexsystems” (I know, why trust a company that can’t even spell its own fucking name.) which checks your history and gives the banks a simple Yes/No answer as to whether YOU can open an account. Want to know the funny part? The call center is in India, so when you call them in, they repeat the report to you in a monotone robotic voice. We used to make fun of them while they were jabbering away… Therefore, IF you are one of these people, do not pass go, do not collect $200, rather, get your ass to a thrift institution.
In my opinion, going with a thrift is worth considering whether or not you have credit. But before I talk up the wonderful, socialist institution that is the credit union, I must preface this with a bit of history lest people accuse me of not painting accurate portraits. In the 1980’s the “S&L Crisis” occurred, and 750 thrift institutions failed. This was due to a number of factors, such as lending to unqualified people, tax reform, and other things. Since then, the industry has been fixed. And your local credit union, is truly the friendliest experience you are likely to have. The thrift industry isn’t some perfect shining beacon on the horizon, but it’s the best damned option most of us have. I have had the opportunity to be a member of credit unions twice in my life, the University CU and Eastern Florida Financial CU.
The problem with Credit Unions is that they tend to be small, and you won’t have a billion ATM’s within a 10 mile radius like you will with your big-box bank. But the benefits far outweigh the inconveniences. First, as we discussed before, CU’s are owned by the members… that means you. In public banks the shareholders are the first priority, and profitability trumps relationship or anything else regardless of what you see on television. Over the years fees have begun to creep up, Think about overdraft fees, they’ve been creeping slowly higher over the years… So have maintenance fees and penalties of all sorts. At a CU, the point isn’t to make money. The point is to get deposits from its members and make loans to them. That’s it.
When I refinanced my car a few years back, the Credit Union was great. As I mentioned before, I had a bankruptcy followed by perfect use of credit! The banker happily took my application, and the next afternoon I had a call from her. The approval officer had seen my bankruptcy and wanted to know *why* because my credit history from the last 4 years had been spotless… Yes, she didn’t call to tell me I was declined because I had a bankruptcy on file, she called to find out *why* I had declared bankruptcy. I explained it to her, exactly as I explained it to you all above, and lo and behold, I was approved the very same day. I also walked out of there with a checking account (Fund it with $5.00 and they knock 25 basis points off the loan…) and a savings account. Try explaining away a bankruptcy still on your record to a major bank and getting an approval, much less close to prime rate.
Objectivity is king. So to eliminate all doubt, I am going to post some comparisons right now lest someone think I am a paid representative of CU’s or that I work for one (I don’t, quite the opposite). As of current, according to their websites, here are some CD rates from the major players.
· Chase 6-mnth CD (Minimum $1,000.00) – 0.25% Annual percentage yield (APY)
· Wells Fargo 6-mnth CD (Minimum $2,500.00) – 0.40% APY
· Citibank 6-mnth CD (Minimum $?) – 0.80% APY
· Bank of America 9-mnth CD (Minimum $5,000.00) – 0.90% APY [promotional cd]
· Suntrust 10-mnth CD (Minimum ?) – 1.10% APY [promotional cd]
So how does that compare to our humble Credit Union?
· Eastern Florida Financial CU 7-mnth CD (Minimum $500) – 2.05% APY [promotional cd]
Don’t believe me? Go check it out for yourself on their websites (Disclaimer: CD rates change CONSTANTLY, so unless you are reading this over the next couple of days, don’t hold me to these rates!) Not only is the rate amazing, but look at the minimum deposit… Who is encouraging middle-class savings here? The banks above, or the Credit Union offering you 2% on even $500.00. Even though it is a promo rate, odds are when it matures you can use a little of that hard earned leverage to talk, in person, with your banker and get another promo rate (or similar). The truth is that credit unions by and large want to keep your business. They are usually community based in one way or another, and have a desire to work with you. They also offer some of the best rates out there, whether it be savings, checking, CD’s or loans. In fact, the High-Yield checking account from EFFCU yields more in a demand-deposit account than any of the CD’s listed above! And all you need to do to have the account free of fees is simple enough that even a caveman could do it…
If you are wise, you will have 2 accounts (at least). A checking, and a savings. And honestly, if one bank is good at one, and not good at the other then have accounts at TWO places! Don’t buy into this convenience bullshit, or relationship. I hate to break hearts here, but in most banks relationship means absolutely nothing. To quote the Wu-Tang Clan, “Protect ya neck.”.
I recommend that everyone sit down and evaluate their personal financial situation anytime they have a major life event or incur or finish paying off debt. Having a kid, breaking up with your other, paying off a major loan, incurring new debt, all change your cash flow in one way or another, and understand how is essential to avoiding things like overdrafts. My paycheck, as most of yours probably are, is direct deposited. Meaning you know exactly how much is deposited into your account whenever you get paid. Those of you with paper checks, same thing, except your deposit doesn’t hit at exactly the same time every period, but odds are you know the number on that check. Whether wage or salary, I have learned that we always know what to expect… what we do with it, how it is spent, is a whole other matter.
Personally, I have automated the process. I have my billpay make the payments it needs to make, and I handle the credit cards myself (more on why in the future). Meaning that after expenses, I know approximately how much capital I have. The reason understanding your personal cash flow is important is a simple one. Without knowing how much you have left over on an average month you won’t know how much you can move into savings. And yes, we’ve just GOT to move some of that money into savings!
Later on, we’re going to talk about investing and retirement, but suffice it say that after all your payroll deductions and liabilities paid, any money you have left over should go into SAVINGS of some sort. Why? Simple… most checking accounts don’t pay you any interest. There are some that do, but most of them pay horrible rates. However, some high-yield checking accounts are out there that might just pay you more interest than a savings account, but I must interject this Caveat…
If you have money in your checking account… You… will… find… reasons and opportunities… to… spend it. There, I said it, plain fucking god-honest truth. We are fickle beasts, myself included, and if I see a surplus of cash in my checking account I might just go out and buy a lil’ something for moi. This is why automatic savings plans are great! If they take it out of your check, you never see it, that means you LEARN, like Pavlov’s fucking dog, to live within your means without even knowing it! In reality, your money is being saved and although your standard of living is reduced it isn’t so much so that you can’t make ends meet. Before my paycheck hits my bank account, 22% of it is already accounted for. In other words, when I get paid my check is substantially less than it should be, but I live a rather happy life without debt (other than my car) and saving is always worth it.
Americans used to be good savers, but recent data shows that we are saving less and less, not caring about the consequences or future all that much… This is irresponsible, and in my opinion it is a disservice to your fellow man. When one has nothing saved up in case of a rainy day, more often than not that rain lands on the heads of the taxpayers or one’s own kin. Saving can mean the difference between a peaceful old age and a crotchety old person who hates life and its circumstances, and is in some cases viewed as a burden on his family. Saving is responsible in all senses.
This is a big chapter, and for that reason it will be broken up into two parts… tomorrow we will discuss *why* we should have a savings or interest-bearing account.
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