Over my 25 years of working with small businesses, I have come to realize that not all banks are created equal.
Like in most business sectors, banks vary wildly from one another, and a bank that’s a great fit for you may not be the best option for the business next door. With the recent mass transition to a remote work model due to COVID-19, seamless digital banking services, data availability, convenience, and consistent customer experience have come to differentiate banks more than ever.
While switching banks can be a huge hassle, I often find that changing banks may serve my clients’ needs better than their current institutions. If you are on the market for a new bank, or simply want to see how your bank measures up, the checklist below covers the points that I encourage my clients to look into when considering a move.
One thing that would not figure into my calculations are a bank’s interest rates, such as getting an extra 0.5% interest on $5,000 amounts to a whopping $25 a year, or a little over $2 per month, before taxes. So, while I, like many others, am dissatisfied with the low interest rates that my money earns, getting a slightly higher rate would not sway me towards a different bank that lacked more important features or had higher fees. If the difference was 2%, then it may make sense, but that is extremely rare.
Frequently asked questions
Q – Does the bank account suit my needs (minimum amount of deposit, number of transactions, fees for wire transfers or certifies checks, etc.)? Are there monthly service fees?
A – Bank charges can eat away at business profit, but sometimes paying them may be worth the benefits. The real question is, are these charges worth the convenience features that this bank provides?
Q – Does the bank work with the accounting software I am using now?
A – QuickBooks® is the most commonly used software by small business owners, and most banks support it, but there are still some that do not, or do so poorly. Unless your bookkeeping consists of Excel and a shoebox, find out how well your bank integrates with your tools.
Q – Does the bank support automatic download of transactions into my financial software, or does it require manual steps?
A – Having the download fully automatic can make your bookkeeping process more streamlined.
Q – Which other financial software packages does it support, in case I decide to switch in the future?
A – This is a minor point. Presently, Intuit’s® QuickBooks Online and QuickBooks Desktop are the highest-rated programs for small businesses and represent the largest share of the market. Still, these tools are not perfect, and a number of smaller, but agile and innovative competitors may well come up with the product whose features you absolutely must have. Flexibility is the key.
Q – Does the bank provide access to past statements online? If so, for how long, and in what formats? Does it support only PDF, or Excel/CSV as well?
A – Most banks do, but not all, and this is an important feature. Being able to download past statements into Excel and analyze them can be a valuable feature to complement functionality of your financial software.
Q – Does the bank provide images of the deposits (i.e., scanned copies)? If so, for how long? What happens after that? Is there a way to retrieve for a fee, or not at all?
A – Some banks provide rudimentary information about deposits, while others provide full scanned copies of deposited checks and slips. Depending on how you work with your customers, this could be an important feature.
Q – Does the bank provide the option of generating monthly statements with copies of the cleared checks?
A – For our legal customers documenting their use of trust account funds, it is a requirement to include check images with the monthly reporting package. Having to pull checks one by one adds a lot of extra work, especially if you have a busy practice.
Q – Is there a minimum balance requirement? Is it a daily or monthly average balance?
A – For a business owner struggling with cash flow, this could make a big difference.
Q – Does the bank charge for direct deposits? Is there a fixed-fee option?
A – If you make direct deposits to vendors’ accounts, having this capability is useful. Some banks allow a limited number of such transfers for free, but charge a fee for additional ones.
Q – If you deal with foreign entities, do you have an option to avoid foreign transaction fees?
A – Some businesses that deal with foreign vendors or franchisers may benefit from having an account or a credit card that does not charge foreign transaction fees.
Q – Does your bank accommodate your accountant’s access to your accounts and provide access to the functions you need them to do?
A – Certain banks allow your accountant or other authorized users to view statements and transactions, as well as do BillPay, while others make these features available only to the primary user. If you need your accountant/bookkeeper to pay your bills, this function is of primary importance.
Q – Is there a branch close to your home or office?
A – Sometimes, we select a bank that offers low fees, but if there is no branch nearby and they don’t cover courier or ATM fees, the time and expense of traveling to a remote location may outweigh the cost of the extra fees.
Q – Does the bank let you work with a dedicated banker?
A – Building a relationship with your bank has many benefits, and working with a dedicated banker lets you build such a relationship, even when dealing with a major bank.
Q – Does the bank offer a mobile app? If so, what features are built in? Are there limitations or charges for these services?
A – Many institutions now offer mobile apps, and at minimum, these apps usually let you see current balances and recent transactions. However, you should also check what other features are built in, such as scheduling/making transfers and mobile check deposits. These mobile features are especially important for businesses that have a large volume of checks to deposit, are often away from their desktops, and/or are concerned with cash flow.
Q – Are your funds FDIC Insured?
A – It’s a given that your account should be FDIC insured, so if a bank you’re considering is not, steer clear!
What you need to know
Rather than comparing banks by offered interest rates, I would recommend looking closely at the fees you’ll be charged. According to an article in The New York Times, U.S. banks made over 11 billion dollars in overdraft fees alone in 2019, and by some estimates, NSF fees constitute only 60% of all total fees charged by banks. While it’s not unreasonable to pay service fees for features we need and want, overdraft charges can often be avoided by following good bookkeeping practices.
If you do end up being charged fees – whether recurring or one-off – this is where having a relationship with your bank becomes particularly important. Bankers (and bank managers) have latitude when it comes to lowering, adjusting, and removing fees, so it’s always worth building a relationship with, and reaching out to, your banker if you notice you are charged for something unexpected, or want to explore lowering overall banking costs.
All in all, finding the right bank for you can make a significant difference in not only saving money, but also facilitating better business processes and making your life less stressful. Although there may not be one institution that is right for everyone, selecting the bank or credit union with the right mix of features to suit your needs should far outweigh the cost of service fees.