What is Banking?

A bank is a financial institution that allows individuals and companies to house and transfer their currency assets. Banks can also lend money, issue bank drafts, provide currency exchange services, and retain documents and other items in safe deposit boxes. A company’s relationship with its bank is a very important one. The bank provides a paper trail for all of a company’s transactions and insures that funds are moved in a legal and organized manner.

Why is Banking important?

Banking is important for any business because it allows the business to keep track of funds, earn interest on savings, send payments, collect payments, and more. By having a banking account, a business is able to control its financial assets without relying on cash payments.

In addition to allowing businesses to collect and store funds, a banking account also allows businesses to write checks and make payments to vendors. Therefore, many companies not only have a business savings account, but also have a checking account.

A business savings account may pay interest on funds housed in the account, which will help to ensure that the financial assets do not depreciate with inflation each year. Different banks will offer different rates, based on the term of commitment (such as a certificate of deposit) and other variables.

How should a vendor for Banking be selected?

Every business should have a bank account, regardless of how large or small the business is. Even if the business is a one-person enterprise, a separate business banking account should be established with the proprietor's social security number or Employer Identification Number (EIN.) The IRS will want to verify that such a banking account exists if the business is ever audited.

When looking for a banking vendor, there are certain considerations that a business needs to keep in mind:

• Fees and Rates - Some banks will charge a fee to open an account. However, most banks do not. You may have to pay certain rates if your funds fall below the monthly minimum.
• Minimum Balances - Many banks require that you have at least a certain amount of money in the account in order to avoid paying a fee. Make sure that you understand what minimum balances are required before you open a bank account and be sure that you have enough money to keep in that bank account on a monthly basis to avoid paying those fees.
• Transfer Balance Fees - Find out if there is a fee to transfer your balance from one bank account to another. Some banks will charge an administrative fee for this service.
• Online Access - Does the bank have an interactive online feature that allows you to manage your bank account virtually? If so, is it easy to use? Can you pay bills with it? Transfer funds into it? Transfer funds between different types of banking accounts at the same bank?
• ATM Cards - How many ATM cards can you get for each bank account? How many cards do you need for your business and employees?
• Interest Rates - Does the bank offer you an interest rate if you have your money stored in the account? For example, some banks offer 3% or more on the money that you have in the account, which helps you keep up with the rate of inflation.
• Additional Options – These include money market investing, overdraft protection, certificates of deposit, credit cards, and more. Overdraft protection helps to ensure that if you accidentally write a check or swipe your debit card for more money than is currently in the account, you can borrow from a line of credit. A money market account will provide you with a small percentage of money based on the amount of money you have in your account. A credit card may be associated with a banking account, which could also offer cash back options and other rewards. Be sure to check each bank account for these and other options that may provide additional incentives to open an account with a particular bank.
• Cost for Services - Is there a fee for a wire transfer? If so, what is it? Do you get a certain number of free wire transfers each month or year? What is the cost for checks? Will you get free checks when you open the account?
• Branch Locations - The location of the bank and its branches is important, especially if you plan on dropping off deposits or making withdrawals on a regular basis. Also, make sure that you choose a bank that operates in your area, even if you find the bank online. For example, if you are located in Maryland, you may not want to work with a bank that operates solely on the West Coast.
• Customer Service - Are the customer service agents friendly? Do they answer your questions when you need help? Is there a 24-hour hotline in case you have a question outside of normal business hours?
• Reputation - Does the bank have a solid reputation for working with businesses? Does it have complaints filed against it with the Better Business Bureau or on online review forums?
• Identity Theft Protection - Does the bank offer identify theft protection plans in the event that your account numbers or debit card is stolen? Is there a cost for this service?

Additional Resources:

• Tips for small business banking:

http://sbinformation.about.com/cs/bestpractices/a/aa102002a.htm

• Code of conduct for the Canadian Bankers Association:

http://www.cba.ca/en/viewdocument.asp?fl=3&sl=259&tl=261&docid=269