Making The Choice For A Bank Account

Do not get caught up in the crazy maze created by marketers as they seek to woo bank clients. Make a sober choice.

Here below are some useful tips.

The main business of banks is to act as financial intermediaries. This involves the taking up of deposits from savers at a cost paid to the depositor in the form of an agreed rate of interest while using the same to issue credit products to the borrower at a higher rate of interest. According to the regulatory authority, banks do not keep fixed assets on their balance sheet, though in the course of their business they take into custody asset titles and charge them as loans security. There has been a lot of innovation in this industry lately but the core business remains credit-issuing alongside other services such as the support of trade finance, advisory, custodial, and now banc assurance services just to mention a few. It is for this reason that bank accounts are mainly recognized for serving two key purposes i.e. Savings-interest earning and the non-interest earning type which is commonly referred to as the current account. Savings as the term sounds serves to keep any extra funds that are not for immediate use for a specified period. The current account term refers to an account whose deposits is for call up immediately, including several times in a single day or hour without notice. Most current accounts do not attract interest with a few exceptions for some financial institutions offering to conditionally pay interest on some. Nearly all categories of savings accounts attract interest with tiered rates depending on balance thresholds, how long before withdrawal, and such like terms. From the bank’s perspective, the savings accounts are targeted to attract depositors into saving as such these portfolio type is not meant to generate income for the bank. It is also for this reason that most saving accounts do not attract charges. Current accounts are designed to not only support business people enabling them transact with ease as often as required but also help to generate income for the institution. This is where several charges are levied and lending is targeted.

A prospective bank customer should thus choose what will serve their purpose while maximizing earnings on their savings and keeping their banking costs at the minimum. All the many account products, with the accompanying fancy names and varying terms and conditions revolve around these two categories. Avoid the temptation to pick on financial products that seek to serve your ego or promote your status. Only opt for them when you find them serving your needs since they come accompanied by hefty charges. Bank sales staff in their business acumen are always seeking to close the deal at the earliest opportunity possible and when engaging a client most times they will have gathered some financial information about them and what income-generating activity they are engaged in. Their goal is to sell you a product that will generate the highest income for their employer. Seek to get matters clear to ensure you get the best value out of your banker. The writer once had a bank customer who always after making to them a presentation would pose to ask the question, “so what is the catch in all these?” Give them an ear, take notes and ask the relevant questions. We recommend a checklist to use before committing outlined in an acronym -FABs. This stands for Features, Advantages, and Benefits and can sometimes come in handy when in doubt.

In their effort to capture a bigger client base, market differentiation has lately taken root in the financial sector to maximize income and generate more customer account numbers. Banks are also in business and in most cases, these apparent superior products and services come with a cost thus the need to request to sight the bank tariff before signing on the dotted line. Bank regulations require that the prevailing tariff approved by the Central bank be prominently displayed on the customer noticeboard as such hidden charges are no longer the norm. The terms and conditions of the bank account becoming operational are usually printed against the account opening form. Do not ignore them as many frequently do while in a hurry to open the account and at the very the end get surprised when the consequences of breach are invoked. To avoid the trap of falling into a hurried decision, one is advised to take time and read through these and understand and if not certain engage a third eye in the form of a financial consultant who come in handy to help clarify what is not clear.

The client’s signing for the account opening is an indication of consent to comply with the terms and conditions set including the consequences of breach. It is not merely the capture of your specimen signature for the account mandates as many tend to believe. It means you the client has consented to the terms and conditions of the institution and now bound to operate the account within the financial legal framework governing financial institutions. The bank as a legal body is obligated to adhere to several acts and on behalf of the state ensure the account is operated strictly for the carrying out of legal activities only. This means they must report any suspicious, transaction which border on illegality such as money laundering, fraud, etc. On the other hand, the client is required to stick to the rule of law and seek to maintain a healthy relationship with the bank. Financial conduct is a key component of the human behavioral imperative holding true for the age-old held adage that: Where your treasure is, there your heart is. On matters of confidentiality, banks do get all their staff commit to the oath of secrecy to keep the customer financial information confidential. A few legal exceptions to this rule exist though. Some government agencies have sweeping powers to access individual account records under certain circumstances, for example when there is a reported suspected case of tax evasion or other financial criminal activities. Government bodies which include, the Revenue Authority and the Criminal investigation department through court orders will require banks to stop/block accounts, request for the direct remission of the associated funds to them, or order banks to settle credit claims by third parties through garnishee orders.

The matter of how many accounts one should operate, remains an individual’s choice. It is normal for an individual to have more than one bank account so long as there is demonstrated need. For example, one can have a current account for their frequent or daily transactions with an added savings account for keeping funds not needed immediately to earn them interest. Business accounts can take a similar trend of two accounts but as the entity grows more can be opened for convenience and ease of access. To easily monitor business activities some conglomerates open accounts to serve their various branches, territories, or business divisions. This makes it easier to monitor and control their internal financial transactions and activities. Others will go further than this to specialize their accounts for various functions such as salary processing, loan repayment, foreign currency accounts, client accounts especially for lawyers, etc. Caution should however be applied to ensure one does not open too many accounts that will attract higher banking costs. Experience has shown that an unnecessarily large number of accounts can become too complex to manage leading to losses resulting from fraud both internal and external as over sighting them becomes a challenge. It is advisable to keep the number as few as possible and may not necessarily lie within one bank.

In a nutshell, the above is a simple high-level and generalized, though not exhaustive enough guide on what to consider when making the account opening decision. Once the account type is determined, then the bank choice becomes an easier decision to make. Finally there is a common saying in the business circles that besides your family, it is key to always keep a healthy relationship with your banker, doctor, spiritual leader and lawyer and not change any of these without any real justified reason. In Kenya, it is noted that members of the Asian — Kenyan community are very good at observing this important tenet in the journey of life.

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