Everything Banking with Keith Lazar
In this week’s episode we have Keith Lazar, who spent 41 years in the banking industry! He spent a lot of time in leadership positions and organizations around Iowa. He also authored a book, 2.8 to 4.5, after his employee satisfaction was through the roof. We are fortunate to have such a successful man teach us about the industry he worked in for so many years: banking.
Keith says, “A bank is a company that serves as a medium by which commerce is exchanged by use of money.” Banking is NOT simple, but almost every single person uses a bank. Some services a bank offers are checking and savings accounts, money market accounts, mortgages, Certificates of Deposit, debit and credit cards, security deposit boxes, trust services, lines of credit, and more. A few of these may need explaining:
Certificates of Deposit – This is a contract and if you let the bank borrow your money, they’ll pay you a higher interest rate. These are typically longer periods of time, like 1, 2, 3, 5, or 10 years. They often have penalties for early withdrawals.
Trust services – The bank is designated with managing money for customers for the benefit of a designated person.
Lines of credit – Companies or individuals can often can use this money to buy supplies for a business. For example, a farmer may use his line of credit to buy fertilizer and pay it back later.
How Do Banks Make Money?
Banks make their money two main ways:
Fees- They earn money on small fees for different services, wire transfers, overdrawn accounts, and such.
Loans- When banks give out loans, they earn money through interest payments on those loans. With these loans, they try to make a margin, which is the difference between their earnings and what they are paying to customers. So if someone pays the bank 5% interest and the bank pays 1.5% interest to a customer for their Certificate of Deposit, the bank’s margin will be 3.5%.
One of the most common loans at a bank is a mortgage. A mortgage is just a home loan. When you apply for a mortgage, you want to demonstrate to the bank you have the ability to repay the debt. Most banks will ask for the last 3 years’ tax returns and your current pay stub. Then, they will look at your income compared to your debt and all your other debts like an auto loan or student loans. Banks will check your credit report too. Keith suggested that people also look halfway decent when they go to the bank. You don’t need a suit and tie, but you shouldn’t look like you just mowed the lawn. Keith said you want a locked-in interest rate, but should check if there’s a fee for early payoff.
Other Bank Terms
FDIC- The Federal Deposit Insurance Corporation insures your deposits in case the bank fails. It was brought about because of the Great Depression, when banks failed and people lost tons of money. It also regulates and audits banks to make sure they are safe. The FDIC insures $250,000 PER DEPOSITOR. For a married couple, 1 spouse can have an insured account up to $250,000, the other with $250,000, and the couple together as $250,000.
Routing number- This is on the bottom left of checks and identifies your specific bank when checks are processed.
Overdraft fee- When your check comes to the bank and there aren’t sufficient funds in your account, you’ll be charged a fee. Don’t write the check if you don’t have the money in a bank!
Keith’s Biggest Mistakes young people make:
1. Not having a budget
2. Not communicating when dealing with money in relationships
3. Trying to keep up with people around them. Will Rogers said, “Too many people spend money they haven't earned to buy things they don't want to impress people they don't like.”
4. Wanting to start out at the level it took their parents 30 years to reach.
5. Letting emotions dictate decisions
“Money Tip of the Week”
If you don’t know how to manage your money, you’re always going to work for someone who can.
1. Banks play a part in your daily life. Try to have a basic knowledge of some basic banking terms and services
2. Be aware of different fees and AVOID THEM.