My first bank account was opened for me by my parents. I think I was 6 years old.
Many years later, when I started my first small business, I opened my first business checking account. Since I had been doing all my banking with the same big bank for a long time, I started my business account with them too.
Now, yet more years later, my wife and I have checking accounts with that bank for each of 5 businesses. Between those accounts, a slew of personal checking accounts, business and personal credit cards, and even a commercial mortgage, I think we’d be considered good banking customers by any reasonable definition.
However, based on how this big bank changed the rules of the game recently, I guess they see all the above as simply meaning we’re a great source of extra revenue they can squeeze out of us. Since I'm unwilling to in effect burn our money to benefit the bank, I had to take action.
The Advantages of Doing All Our Banking with a Single (Big) Bank
In fairness, it’s not all bad. Our current setup has some nice advantages.
- Super-convenient single-portal online access to all our business and personal accounts, allowing us to seamlessly and quickly move money between accounts, be they personal checking, business checking, or even credit cards (to pay off balances).
- Easy to use banking app, including free mobile deposit of checks to any of our personal or business checking accounts.
- Access to a commercial mortgage, that already had a competitive rate and was recently modified to reduce our rate even further.
The Problem of Doing All Our Banking with a Single (Big) Bank
As I alluded to above, things aren’t all rosy. Here are some examples of where things didn’t go so well.
- When I first applied for the commercial mortgage, the bank declined because it required two years of revenue above $250,000. I pointed out to the rep that most businesses have profits that are under 10% of revenue, and I had profits far above $25,000 in the two years my business had been in existence at that point. The rep shrugged and said he couldn’t change the (big) bank rules, so I had to find financing from a small bank.
- After three years, big bank came back and asked me to refinance my commercial mortgage with them. They offered extremely generous terms, so I reluctantly accepted. One of their promises was that they’d never charge me monthly account maintenance fees for the business checking account they required me to open with them. After a year, the fees started up. A few calls later they were refunded and stopped. Until a year later. Rinse and repeat multiple times, until they recently told me that the rep I had worked with was no longer with the bank, and should never have made that promise – they have no way of setting up a permanent fee waiver, so I should expect in a few months that they’ll start charging me those fees again.
- The online access has a glitch that prevents my accessing the monthly invoices for the commercial loan, and sometimes I can’t even access the loan balance. I’m told this is a known issue that affects some customers. They’re working on it. For over 3 years now…
- Most recently, they changed the rules on business checking accounts, increasing the monthly fees to $16 ($192/year).
- They pay miniscule interest on personal checking balances and none at all on business checking balances.
How to Save Money on Business Checking Account Fees at the Big Bank
In defense of this bank, they do offer several ways to avoid having to pay the monthly “account maintenance” fee.
- I can keep at least $5000 in the account at all times (it was $3000 until recently, and this increase was the last straw for me), for each business account; for our 5 accounts that works out to $25,000 that would sit earning nothing.
- I can open a linked business debit card for each business, and spend at least $250 each month on each of those cards; the “problem” is that most of my businesses don’t require significant monthly payments.
- I can place at least $20,000 in linked accounts (3-month average), to allow 4 checking linked accounts to not have to pay monthly fees.
However, as you can see, if your practice or other small business doesn’t need to spend $250/month via debit card purchases, you’re stuck having to choose between parking far too much cash in perpetuity in your business account earning nothing, or paying at least $192/year in fees per account.
How to Avoid Being Taken Advantage of by a Big Bank
I reached out to my small-business rep at the bank. She had always been unfailingly friendly, helpful, and professional. I asked if she could help. She did her best, but the bank had tied her hands.
That's when I decided to look for a different bank that wouldn’t try to take advantage of me like that. I found a list of possibilities on the NerdWallet site.
In a few lines I’ll let you know which of their suggestions I picked, but first a couple of caveats.
- I’m not endorsing the bank I chose to go with for anyone else. I don’t know what your specific situation is, so this bank could be a great fit for you, or a terrible one.
- I’ve just opened my account at that bank today, so I don’t even know how good a fit they will end up being for me. On paper, however, it looks very promising.
The one I picked is called BlueVine. I picked it because it has a very promising business checking account.
- No fees
- 1% interest paid on all balances up to $100,000 (while this isn’t much, it’s about 20x more than my big bank pays on personal checking accounts; big bank pays nothing on business checking balances)
- Free mobile check deposits
- Cash deposits (though given that this is an online bank, these have to go through another entity, and they do charge a fee – not a problem for me because I don’t take cash payments).
The Bottom Line
If your practice or small business is just starting out and you can’t afford to give a big bank an interest-free loan of $5000 per account in perpetuity, and prefer to minimize your expenses, you may be better served going with a smaller bank, likely an online one.
This is especially true if you plan to follow the “Profit First” model. In that book the author recommends opening 7 checking accounts for your business across 2 banks, and even says, “When in doubt, add an account.”
To be clear, I’m in a good enough situation that I could afford to park the needed cash in the big-bank business account. Alternatively, paying $192/year (about $134/year after the tax deduction) wouldn’t break me, even if multiplied by 5 businesses.
However, as I see it, if I give the bank my money, which they then use to lend to other customers and charge them interest, then the bank should pay me part of that interest or at least not charge me a fee for the privilege of letting them use my money.
I’m just unwilling to help a bank take advantage of me.
In fact, I’m planning to also move the largish sums of money I’ve been keeping in my big-bank personal checking accounts to a small bank or credit union that pays between 40x and 80x the interest on balances of up to anywhere between $3000 and $25,000, but that’s a story for another day...
This article is intended for informational purposes only, and should not be considered financial or legal advice. You should consult a relevant professional before making any major decisions.