Banking fact or ficiton

Posted in: Banking, Personal Finance
By William Pirraglia
Jan 15, 2009

As with many things related to personal finance, there are varying opinions when it comes to a lot of questions that deal with personal banking. These varied opinions, as well as personal beliefs can lead to the mixing of many truths and falsities.

Here are some explanations of both the myths and the facts that may affect your banking relationships and choices.

How Banking Myths Occured And Why They Can Cause Problems

For many years, there were few myths surrounding the subject of banking. The industry was actually quite simple and most people had a working understanding of the facts.

You deposited money, the bank safeguarded it, you were offered a rate of interest on your savings, and your bank loaned out their deposits to other customers for auto, home, and personal loans. The difference between the bank's loan interest rates and their savings rates was their income for expenses and profit. Simple.

It remained simple until the 1970's, when a new word changed the banking world: deregulation . Since the Great Depression of the 1930's, when over 4,000 banks failed, until around 30 years ago, banks and credit unions were heavily controlled and regulated by the Federal government, just as the nation's airlines were.

However, after serious political pressure, many former controls and prohibitions were eliminated. The process was called deregulation. Banks were now permitted to conduct business very differently and without the strict controls of the prior 40 years.

The theory was that by increasing banks' ability to offer other products and services, higher levels of competition would benefit bank customers with more choices and lower pricing. Unfortunately, the advertising and marketing of new products and services has created myths that help neither banks nor consumers.

The changing face of banking and more "new and improved" claims, similar to dishwashing detergent advertising, has caused consumers to make some poor decisions and banks to reorganize their operations to allow survival and, sometimes, prosperity.
For example, deregulation gave birth to fees. Look for the banks and credit unions with the minimum number of fees in their account agreements. Before you open a new savings account, money market account, or certificate of deposit, ask your bank or credit union about any associated fees and take the time to read your account or certificate of deposit agreement.

Some Important Fact And Fiction Issues

Myth: Internet banking and ATMs will make physical branches obsolete

In the period since deregulation, both banks and consumers have learned that this is fiction. The fact: Most bank customers want the opportunity of dealing with a bank employee face-to-face in many instances. Even those consumers that use the Internet and ATMs for the majority of their transactions want the ability to visit a local branch office and have human contact for loans, advice, product information, or just maintaining the connection they've developed with their bank or credit union.

Myth: Internet and mobile banking is not secure.

Many people still become quite nervous that using their computers or their cell phones to conduct banking transactions is dangerous for security reasons. The fact: While there may have been some good reasons for this concern years ago, the level of security offered by most banks and credit unions is greater than you enjoy when you do your banking in person at branches. The odds of losing your money or your identity are very slim.

Myth: Bank and credit union money market accounts are just like money market mutual fund accounts offered by investment firms.

Commonly confused, these two accounts are very different. The fact: A money market account in a bank or credit union is just another form of savings account, just as is a certificate of deposit. The only differences are in the interest rate and the number of transactions you're allowed to make in a given month.

The accounts offered by investment firms are short term investments in mutual funds. Unlike banks and credit unions, which give you insurance on your deposits, investment firm money market mutual fund accounts offer no insurance protection.

Separate Fact From Fiction

Separating banking fact from fiction will always give you a better opportunity to save or make money. Relying on commonly believed myths will normally bring you opposite and unwelcome results. Taking the time to learn banking facts typically results in a more rewarding, pleasant, and profitable experience with your financial institution.