One of my favorite sayings in business was always “We don’t take percentages to the bank. We take DOLLARS to the bank.” But sometimes looking at percentages, especially as a return on investment (ROI) can be helpful in comparing current performance to past performance, looking at a variety of investment opportunities, and so on.
But I also suggest that we should also look at percentages when considering the fees we are charged by banks and how they can very quickly erode our account balances, something I like to call “unconscious spending”.
First, let’s set a baseline for comparison and consider our opportunity cost. We can use an example of a typical savings account with no huge minimum balance requirement. Shopping around at some of the larger national banks we may find that they are currently offering between .1 and .2% interest. Keep in mind that this is not 1% or 2% – it’s .1 and .2!
With that in mind, the easiest and most aggravating examples of unconscious spending are ATM fees. You grab $100 from your local ATM. If, as our friends at Bankrate.com tell us, you incurred the average transaction fee, which last year came in at a whopping $2.22, you just paid 2.2% to access your own money! Of course, if you only got $20, you just paid a fee of more than 10%!
But it gets worse… If the bank is paying you .2% interest on your savings, that is the ANNUAL percentage yield on your money, generally compounded daily. BUT was your ATM fee an ANNUAL fee? No! In fact, if you need another $100 later that week, that month, or anytime in the future, these transaction fees, when taken as a percentage of your account balance, are enormous and always dwarf what the bank is paying you on the same amount.
Of course, that $2 fee and the ability to access your cash anytime you like is a great convenience. Hmmm… It is as long as you don’t mind paying a huge percentage for your own money.
It’s certainly something to think about.