Financial Slight of Hand

Years ago when I moved to my current home, I took a survey of the local banks. Thankfully the one with the best interest rates was also an independent bank nearby, though I didn’t place as much emphasis on walking distance then as I do now. It has since then been bought, and the name progressively watered down until the old name has essentially disappeared. Still, they haven’t done anything else to offend me, and it is pretty nice having the bank just down the street. But that is a bit of tangent. The point is, that since I first joined, the interest rates have proceeded to, basically, stink.

A while ago they started advertising a new program; a checking account, which if you maintain a certain rather high balance, earns a decent interest rate – several times what my ‘savings’ account was earning. It still baffles me what logic led to this program. Of course, there were lots of reasons to not take the offer. The prospect of getting a new account – with new checks and different account numbers, especially with several automatic payments, was somewhat daunting. There is also a little bit of a scam with the savings account – interest is paid quarterly, and unpaid interest is forfeited if the account is closed before that time. I’d also heard of socially responsible investing, but have never had time to investigate.

The net effect of this, was, of course the inevitable non-action, for most of the year. But a few months ago (the time delay until now evidencing yet more procrastination), it was just after the end of the quarter and social investing had gotten no further than before, so I asked about. It turns out that they are much smarter about it than I had feared – they changed the type code on my existing checking account with a few clicks (and a signature for the sake of form), closed down the savings account, and the whole thing was over rather painlessly. It still baffles me a little that they will raise the interest rate so much for the asking; I guess they are counting on lazy people like me not to ask, while having the program there to attract some new customers.

To be fair they bank will save a little a money for having one less account to maintain, and fewer transactions between them – I would deposit a little of each paycheck into the savings acocunt; my bank visits go much faster now that I have a single deposit.

It also points to the virtuality of money; to the bank the transfer was just subtracting one number and adding to another. Now I have a similar effect – I have one account that is both checking and savings, and the dividing line is kept entirely ‘on paper’ solely for my own purposes. This actually made for something of interesting question in the beginning – do I keep my checkbook in ‘available funds’ or in the actual account balance? I ended up going for the actual balance to simplify balancing with the bank statements. But now I can play the same kinds of financial games the bank can – I rolled my personal ‘minimum balance’ into the the virtual savings balance, since any short term shortfalls can just borrow from the savings instead of actually hitting a bank level overdraft. Likewise my ‘saving deposit’ has become a small book-keeping entry, together with keeping the new dividing line in mind as I make payments in the checking account.

Meanwhile, I ran across Zopa, which has a bit of the anti-institutional flavor, and even better rates. Of course this a bit of a long term investment (minimum 12 months for full repayment) and the savings ‘account’ is my 6-months living expense buffer + liquid emergency cash + big purchase savings. I’d have to double the 6-month figure to be able to withdraw living expenses at rate I want, and of course the longer term markets have better interest rates. In any case I’ve put off experimenting with it until the tax year is over, for the sake of simplicity.

One Comment

  1. Anonymous says:

    Zopa

    Hi Justin – Dave from Zopa here.

    Thanks for taking an interest in us – but I’m afraid we’re UK only at the moment….we’re looking to launch in the US next year though – so don’t abandon hope yet!

    We’ve just celebrated 100,000 members in the UK, and after 18 months we’ve only had 1 defaulting borrower – so things are looking good.

    Cheers

    Dave