Dollar Bank - Business Center - Service Charges

The Ins and Outs of Bank Service Charges

Most banks assess fees for their business account services, including fees for deposits made and checks written to stop payments and wire transfers. Whether or not you are actually paying those services charges in cash, however, depends upon what type of checking account you have. There are four basic business accounts offered by banks under various names:

1. Simplified Business Checking: This is an account that expands as the needs of your business expand, with options for high transaction volume and low transaction volume. The monthly management fee can be waived entirely depending upon your balance and you receive a number of no-charge transactions including checks paid, deposits processed and checks deposited.
   
   
2. Checking With Interest: Available to sole proprietorships, municipalities, and non-profit corporations, Checking With Interest is a regular checking account and an interest-bearing savings account rolled into one. You'll earn additional money to help your deposits grow and receive an interest credit on a monthly basis.
   
   
3. Sweep Accounts: Because banks are not allowed to pay interest on most business checking accounts, the Sweep Account was devised to "sweep" excess balances out of the account into an overnight investment account where interest can be paid. This account is not FDIC insured, so you should be concerned about the type of investment into which your money is being transferred each night. At Dollar Bank, the funds are invested in Repurchase Agreements, backed by U.S. Government Securities. (For more information on Dollar Bank's Sweep Accounts click here.) With Sweep Checking, interest is paid in cash and fees for services are charged to the account.
   
   
4. Analysis Checking: This is the standard business checking account. With this account, a credit, not cash is given for balances maintained. This credit serves to offset service charges on the account. Depending upon the amount of the credit, service charges may or may not have to be paid in cash. Excess credits, however, are not paid in cash because, again, banks are not allowed by law to pay interest on a regular business checking account. Under account analysis, the credit for deposits is generally based on U.S. Treasury bill rates or similar short-term investment instruments. When such rates are relatively high, most companies have no problem earning enough credit to offset their service charges. When interest rates or balances drop, however, companies can find themselves paying part or all of the service charges in cash. An account analysis is not performed on all accounts, but if you have a standard business checking account, chances are your bank can provide you with your own analysis.
   
   

Below is a typical account analysis statement. In Part A, the company is "credited" with earnings on deposit balances maintained with the bank. In Part B, the company is "debited" for each service performed (a unit charge times the number of items). The difference between the credit and debits is calculated at the bottom of Part A.

Some banks use a combination of analysis checking, where a predetermined level of balances is maintained to offset service charges, and sweep checking, where excess balances over that predetermined level, are swept into an overnight investment account.

What is Float?
A check deposited into a bank account takes from one to three days to be "collected" from the financial institution upon which the check is drawn. A check drawn on a cross-town bank generally won't be good funds until the next business day.

Checks that are in the process of being collected are called "uncollected funds" or "float." So, if you write a check on your account before your bank actually receives the funds represented by a recent deposit, you may be using uncollected funds or "playing the float."

For the purpose of account analysis, banks do not pay interest on or give credit for uncollected funds. In fact, they may not even pay checks written on uncollected funds. To determine the practice at your bank, check with your account representative.

* For example only, and not representative of Dollar Bank's current pricing.

Sample Account Analysis Format *
ABC Corporation 210 Main Street Anytown, USA 12345		Account No: 25488 Statement Period: MM/DD/YY to MM/DD/YY
Part A: Balances and Earnings				Explanation of Items
Average ledger balance		$38,552.42		Bank's book balance before deducting float
Less: Average uncollected funds		(692.63)		Float or uncollected funds (see box)
Equals average collected funds		37859.79		Bank's balance after deducting float
Less: Federal Reserve requirement		(3785.97)		10% of deposits must be kept at the Federal Reserve
Equals average investable balance		34,073.82		Balance bank can invest after float and reserves
Times earnings credit rate@		4.13%		Usually based on T-bill rates, but can vary
Equals earnings allowance		117.27		Investable balance x earnings credit rate for one month
Less: Cost of Services (see Part B)		(62.00)		Costs of services detailed in Part B
Excess earnings available to support additional services		$55.27		Difference between earnings and cost of services
Part B: Cost of Services
Services Provided	Units	Unit Price	Total Charge
Account Maintenance	1	$15.00	$15.00
Checks Written	275	$0.14	$38.50
Deposits Processed	20	$0.75	$15.00
Checks Deposited	75	$0.11	$8.25
Total Cost of Services			$76.75