Banking in a Tough Economy

by Stephen Fluin 2009.02.18

The US and World economy is currently undergoing an adjustment resulting in lost jobs, tough credit, high inflation, and low interest rates. Standard banks and credit unions do not provide high interest accounts, and investments at this time are fluctuating greatly. In this type of economy, it is important to consider all of the aspects of banking relationship.

Ease of Use - Your ability to understand the costs and features of your accounts is one of the most important elements of your banking situation. The second most important part of making your banking easy is your ability to track your financing. Whether you use, quickbooks, or create your own spreadsheets and text files to track your finances. Tracking your finances is the number one way to ensure you effectively manage your financial situation. Understanding where you spend your money, and where you money comes from determines the monthly changes to your financial situation and net worth.

Interest Rate - For me the second most important item is interest rate. I generally keep 6 months of expenses in the bank as an emergency fund. While I do this to mitigate risk, I simultaneously focus on preventing value loss against the opportunity cost of having my money sit, and the losses that will come from inflation. Achieving the highest interest rate possible minimizes the losses from these sources. The best interest rate I am currently achieving in Minnesota is around 2.4%. Even though I am losing money to inflation, and that stocks or funds could achieve me a higher rate of return, it is important to me to keep my funds safe in the short term.

How do you balance these items and pick a single banking relationship? I don't. I currently work with 5 banks for different purchases and rewards. This adds more difficulty to managing my finances, but I mitigate this by ensuring all of my income and spending passes through a single account.