Creators Syndicate

FIGHT BACK!  BY DAVID HOROWITZ 

Where's Our Share? 

         
        The basic theory of banking is actually quite simple.  Banks
borrow money from their depositors -- and from each  other and the
Federal Reserve -- at one interest rate and  then lend it out to
consumers, home buyers and businesses at  a higher rate. The difference
in interest rates, the spread,  is where the banks make their money. 
        When the banks' cost of borrowing from the Fed goes up,  as it
has recently, then the interest rate on consumer,  business and home
loans goes up accordingly. OK, that makes  sense. Except for one thing.
The interest banks pay on  savings deposits has not gone up with the
cost of borrowing.  Interest paid on savings and money-market accounts
is still  down around 2.3 percent, while rates on home loans have gone 
up as much as two percentage points. How come? 
        The answer depends on whom you ask. The Consumer  Federation of
America says the banks are just plain greedy --  increasing their
spread by raising loan rates while keeping  rates on deposits low. By
leaving their savings in low- interest bank accounts, CFA says
Americans are losing as much  as $3 billion a year in interest
earnings. And that's $3 bil- lion a year in the banks' pockets. 
        The banks say it's not that simple. They point out that  when
interest rates go up, borrowing goes down. When that  happens, deposits
pile up, profits fall and there is very  little incentive to attract
more deposits by offering higher  interest rates. So while the spread
may be larger, the banks  say their actual income is not. They also
point out that  their costs of doing business remain the same whether
they're  making new loans or not. 
        But even that explanation is a bit simplistic. Banks now 
broker mutual funds and other, more lucrative outside  investments. So
even if customers do move their savings, the  banks still make money if
they handle the transactions. 
        Then there are the "nickel and dime" charges and  penalties the
banks collect on bounced checks, late payments,  ATM transactions and
checking-account service fees.  Multiplied by millions of customers,
these fees add up to  billions of dollars every year. 
        These fees don't just cover the banks' costs, either.  The
penalty for bouncing a check varies from around $10 to as  much as $25
per check. That's nine times the bank's average  cost of processing a
bounced check. In addition, many banks  charge those who deposit bad
checks an additional $3 penalty  per check -- about twice the bank's
actual processing costs. 
        Bankers don't deny they're charging more than their  costs for
bouncing checks. Those penalties, they say, are  intended to discourage
people from writing checks against  insufficient funds. If you don't
want to pay the penalty,  then don't write bad checks. Or, apply for
overdraft protec- tion on your checking account. That way, if your
account is  short, the bank kicks in the money and charges you interest
on the loan. 
        The bottom line is that while banking may be profitable,  it is
still a highly competitive industry. Banks want your  business. So, if
you believe you're being overcharged,  underpaid or ripped off, shop
around. Find out what terms  other banks are offering. Ask about their
interest rates and  fees for service. And when you find a better deal,
go for it. 
        If you have questions or comments, please write to David 
Horowitz at 72662,1775. COPYRIGHT 1994 CREATORS SYNDICATE, INC.