|
|
The Ins and Outs of Bank Service Charges
Most banks assess fees for their business account services, including fees for
deposits made and checks written to stop payments and wire transfers. Whether
or not you are actually paying those services charges in cash, however, depends
upon what type of checking account you have. There are four basic business
accounts offered by banks under various names:
-
Simplified Business Checking: This is an account that expands as the
needs of your business expand, with options for high transaction volume and low
transaction volume. The monthly management fee can be waived entirely depending
upon your balance and you receive a number of no-charge transactions including
checks paid, deposits processed and checks deposited.
-
Checking With Interest: Available to sole proprietorships,
municipalities, and non-profit corporations, Checking With Interest is a
regular checking account and an interest-bearing savings account rolled into
one. You'll earn additional money to help your deposits grow and receive an
interest credit on a monthly basis.
-
Sweep Accounts: Because banks are not allowed to pay interest on most
business checking accounts, the Sweep Account was devised to "sweep" excess
balances out of the account into an overnight investment account where interest
can be paid. This account is not FDIC insured, so you should be concerned about
the type of investment into which your money is being transferred each night.
At Dollar Bank, the funds are invested in Repurchase Agreements, backed by U.S.
Government Securities.
(For more information on Dollar Bank's Sweep Accounts click here.) With
Sweep Checking, interest is paid in cash and fees for services are charged to
the account.
-
Analysis Checking: This is the standard business checking account. With
this account, a credit, not cash is given for balances maintained. This credit
serves to offset service charges on the account. Depending upon the amount of
the credit, service charges may or may not have to be paid in cash. Excess
credits, however, are not paid in cash because, again, banks are not allowed by
law to pay interest on a regular business checking account. Under account
analysis, the credit for deposits is generally based on U.S. Treasury bill
rates or similar short-term investment instruments. When such rates are
relatively high, most companies have no problem earning enough credit to offset
their service charges. When interest rates or balances drop, however, companies
can find themselves paying part or all of the service charges in cash. An
account analysis is not performed on all accounts, but if you have a standard
business checking account, chances are your bank can provide you with your own
analysis.
Below is a typical account analysis statement. In Part A, the company is
"credited" with earnings on deposit balances maintained with the bank. In Part
B, the company is "debited" for each service performed (a unit charge times the
number of items). The difference between the credit and debits is calculated at
the bottom of Part A.
Some banks use a combination of analysis checking, where a predetermined level
of balances is maintained to offset service charges, and sweep checking, where
excess balances over that predetermined level, are swept into an overnight
investment account.
What is Float?
A check deposited into a bank account takes from one to three days to be
"collected" from the financial institution upon which the check is drawn. A
check drawn on a cross-town bank generally won't be good funds until the next
business day.
Checks that are in the process of being collected are called "uncollected
funds" or "float." So, if you write a check on your account before your bank
actually receives the funds represented by a recent deposit, you may be using
uncollected funds or "playing the float."
For the purpose of account analysis, banks do not pay interest on or give
credit for uncollected funds. In fact, they may not even pay checks written on
uncollected funds. To determine the practice at your bank, check with your
account representative.
* For example only, and not representative of Dollar Bank's
current pricing.
Sample Account Analysis Format *
|
ABC Corporation
210 Main Street
Anytown, USA 12345 |
Account No: 25488
Statement Period:
MM/DD/YY to MM/DD/YY |
| |
|
|
|
|
|
| Part A: Balances and Earnings |
|
|
Explanation of Items |
|
|
|
|
| Average ledger balance |
$38,552.42
|
|
Bank's book balance before
deducting float |
| Less: Average uncollected funds |
(692.63)
|
|
Float or uncollected
funds (see box) |
|
|
|
|
|
| Equals average collected funds |
37859.79
|
|
Bank's balance after
deducting float |
| Less: Federal Reserve requirement |
(3785.97)
|
|
10% of deposits must be
kept at the Federal Reserve |
|
|
|
|
|
| Equals average investable balance |
34,073.82
|
|
Balance bank can invest
after float and reserves |
| Times earnings credit rate@ |
4.13%
|
|
Usually based on T-bill
rates, but can vary |
| Equals earnings allowance |
117.27
|
|
Investable balance x
earnings credit rate for one month |
| Less: Cost of Services (see Part B) |
(62.00)
|
|
Costs of services
detailed in Part B |
|
|
|
|
|
| Excess earnings available to support additional services |
$55.27
|
|
Difference between
earnings and cost of services |
| |
|
|
|
|
|
| |
|
|
|
|
|
| Part B: Cost of Services |
|
|
|
|
|
|
|
|
|
| Services Provided |
Units
|
Unit
Price
|
Total Charge
|
|
|
|
|
|
|
| Account Maintenance |
1
|
$15.00
|
$15.00
|
|
| Checks Written |
275
|
$0.14
|
$38.50
|
|
| Deposits Processed |
20
|
$0.75
|
$15.00
|
|
| Checks Deposited |
75
|
$0.11
|
$8.25
|
|
| |
|
|
|
|
| Total Cost of Services |
|
|
$76.75
|
|
To talk with a Dollar
Bank representative about your needs,
click here. |
Back
|
|
|