The best bank for your financial needs.

When picking a bank, convenience takes a back seat to interest rates, personal services and a healthy balance sheet.

Not so long ago, opening a bank account was a snap. All a person had to do was march down to the local branch and sign up. And if folks were enticed to go to a distant bank, it was because they were able to get a percentage point higher in interest rates and walk away with a brand new toaster under their arm.

But anyone who has been to the local branch lately is bound to notice the changes taking place in banking. Not only are banks competing more fiercely than ever with each other for customers, they're offering products and services that were once only available through insurance and brokerage firms.

Today, many large commercial banks, along with smaller community banks, are becoming full-service financial supermarkets. They offer everything from free-checking accounts and certificates of deposits (CDs) to asset-management accounts and mutual funds. The era of opening a simple passbook savings account is over.

Yet, in spite of this surge in banking activity, a vast array of savings and investment vehicles goes untouched. "That's because a lot of consumers just don't realize all the services banks now offer," says Rick Shelby, vice president in retail sales with Seafirst Investment Bank in Seattle, formally Security Pacific Bank. According to Shelby, Seafirst, like many of the major banks, offers virtually the same investment products that most brokerage firms do: tax-free municipal bonds, treasury securities, government-backed securities and discount brokerage services.

To stay on the playing field and compete with majority banks, many of the nation's black-owned financial institutions are expanding the number of their products and services to attract customers. But the cost of implementing full services is still financially prohibitive for many black commercial banks, says Casdell Singleton, senior vice president of Atlanta-based Citizens Trust Bank.

"The best way for smaller black banks to offer more products and services is to establish a joint-venture relationship with an outside agency, preferably a minority-owned one," explains Singleton. "Initially, we would collect a fee from them. But once we learn the business and train our people, it will be easier for us to take over." At the end of 1991, Citizens had raised $8.5 million in capital with $111 million in assets.

The BE FINANCIALS LIST firm also is considering offering corporate trusts and insurance.

Granted, banks are doing a lot more to encourage customers to keep their money in one place--and as they see it, the best place is with them. But is the bank really the best place to put your savings, investments and retirement dollars? Three post-Depression generations have built up confidence in the banking industry only to have it shaken by recession-battered financial institutions.

Since 1985 some 1,181 banks have folded, and the losses at many big banks are still mounting. Then there was the fear that the Federal Deposit Insurance Corp.'s (FDIC) bank insurance funds would dry up. However, FDIC was able to borrow up to $30 million last year from the Federal Treasury to cover losses from closing banks.

This impending shortfall in the banking industry hasn't eased consumer anxiety. In fact, the phones have been ringing off the hook at Veribanc Inc., a Wakefield, Mass.-based firm that sells financial stability ratings of U.S. financial institutions.

But this picture is not as bleak as it looks. Anyone who has a federally insured account under $100,000 is safe. Insured depositors nationwide have been fully reimbursed when their banks failed (although some have suffered losses for amounts over $100,000).

Even if you're confident that your bank won't go belly up, is it capable of meeting you financial needs? Will the bank leverage your mortgage should you need additional funds to send your teenage son to college? Are you recognized as a valuable customer because you've had an account at your branch for more than 10 years? If your answer is no, maybe it's time to switch banks.

Just as important: Is one bank enough when it comes to cultivating your savings and investment dollars? Or is it better to spread your seeds among many financial institutions? The following advice will help you evaluate your bank and to take advantage of a crop of products and services that will turn your portfolio green.

One-Stop Financial Center

Some years ago, the Federal Reserve Board approved a measure allowing bank holding companies to engage in certain types of securities transactions. Several bank holding companies now have the authority to underwrite corporate stocks and bonds (under limited conditions). And banking institutions are able to engage in interstate operations and offer such services as credit cards accounts on a regional or national basis.

Many banks also have begun offering proprietary or private label funds, discount brokerage services and mutual funds marketed by third-party service firms.

With private label funds, the bank acts as an adviser and appoints an outside company as sub-adviser. In this case, the bank essentially attaches its name to part of an existing investment fund managed by an outside company.

Because private label funds require large investment dollars to manage (about $25 million in assets), most funds are associated with trust, institutional and retail sales activities. Major banks such as J.P. Morgan & Co. Inc., Bankers Trust Co. and The Chase Manhattan Bank N.A. are among some 200 banks nationwide that offer private label funds.

Discount brokerage services and competitively priced investments are becoming available at more and more banks. Unfortunately, banks are still prohibited from giving their retail customers advice on which securities or mutual funds to buy. The reason has more to do with federal banking restrictions than with the bank's ability to provide financial advice. Several banks already offer such services to their corporate and private banking clients.

For the average customer, banks usually provide either an information desk or a toll-free number to use to trade securities. Because discount brokerage firms are designed for do-it-yourself investors, only a few market-savvy clients--about 20% of all investors--benefit from their services.

By far the most common method used by banks to market securities and mutual funds is via third-party service firms. By using an outside marketing company, a bank can offer brokerage services through a registered sales force within the bank's branch offices. Companies such as Invest Financial Corp. and Wall Street Investor Services are just a few of the firms that operate brokerage sales through commercial banks.

Many banks are taking advantage of new, sophisticated computer systems to offer a myriad of checking accounts. Some accounts include such features as buyer-protection insurance on goods bought with checks, merchandise discounts, travel discounts and even health care benefits.

By offering a variety of checking accounts, SunBank in Orlando, Fla., can target different market niches with its products. SunBank's Portfolio Banking account, for example, requires a $20,000 minimum combined balance. But it comes with no-fee checking, a high-interest "Super Now" account, no-fee gold (Visa or Mastercard) credit card, access to a personal banker and discount brokerage services.

In addition, commercial banks are getting involved in underwriting securities and bonds. Seafirst in Seattle, for example, is able to offer municipal bonds that the firm has underwritten at lower rates than secondary markets (such as retail brokers) can charge.

Right Product, Wrong Bank

There are some drawbacks, critics say, to having banks get involved in providing financial services other than their traditional business. For instance, investment companies specializing in mutual funds can offer a greater number of funds, thereby allowing customers to match their investment strategies with appropriate funds.

Erick Kanter is vice president of public information and marketing with the Investment Company Institute, a Washington, D.C.-based national trade association for mutual fund companies, with 3,500 members. "It's not just a matter of investing in a mutual fund," he says, "but the type you invest in. Perhaps, a high-yield fund? Or maybe a income fund might be more appropriate for an investor's needs."

Another concern is that consumers may assume that mutual funds and other securities acquired through their banks are covered by the FDIC. Not necessarily so. Certain brokerage accounts are secured by the Securities Investor Protection Corp. (SIPC) for up to $500,000 per account. But the best safeguard is to research the funds and banks you invest your money with.

Banking: The Old-Fashioned Way

For many consumers, investment products and services are not as important as having a strong relationship with their banker. "One of the things that has bothered me since opening up a corporate account with my bank was that the folks I had worked with are gone," says Carl McCaskill. Two years ago, McCaskill started his own public relations firm, McCaskill Communications Inc., and decided to do business with one of the major banks near his New York office.

"I no longer get the kind of personal attention that I was used to," he says. "I liked being able to call my banker and say 'transfer funds from my personal account to my corporate account.'" McCaskill and his architect wife, Betty, see little difference in the investment products and services offered by most banks. This is why, for them, convenience is a major factor.

Indeed, convenience and personal service is what consumers want from those banks serving small communities, says Diane Casey, executive director of the Independent Bankers Association, a Washington, D.C.-based organization representing more than 6,000 community banks nationwide. Many of the smaller banks offer the kind of personal service associated with old-fashioned banking, where the president of the bank knew every customer by name.

This isn't to say that community banks aren't producing and marketing new products. "These banks have been selling insurance for many years [primarily because of a provision in banking regulations that allows banks to sell insurance in communities of 5,000 residents or fewer], but they're now expanding their services to include issuing credit cards and are slowly moving into discount brokerage services," says Casey.

The mainstay of community banking is still primarily commercial and personal lending. However, a number of banks are customizing services to meet the needs of consumers in their respective neighborhoods.

Not to be left out, the larger commercial banks are emphasizing customer service. "Many of the big banks are offering priority service," says Vernon J. Brown, a managing partner and certified financial planner with Bilal, Brown & Williams Inc. in Tarrytown, N.Y. "If you walk into the lobby of almost any major bank today, you will see a desk or window for priority services or special bank customers," says Brown.

These services are normally targeted at customers with accounts totaling $25,000 or more. "But most people don't even realize that they qualify for special services," says Brown. "because they fail to combine all of their accounts [i.e., checking, savings and investments] which often add up to more than that amount."

What is so special about priority service? At some banks, customers are assigned a personal banker who will handle all of their bank transactions directly. Some preferred customers receive a sticker on their bank cards, which allows them to avoid standing on line and instead walk right up to a teller that handles special-service clients.

The major banks also are responding to the demands of the community. For example, Citibank N.A., one of the nation's largest consumer banks, offers express banking and investment services for busy commuting professionals. In addition to longer banking hours, customers can take advantage of automated teller machines (ATMs) that have been expanded to handle a greater number of transactions and investment planning.

Getting What You Want

Regardless of what your bank has to offer, the bottom line is, what do you really want? Is it the new high-tech big bank with diversified investment products and a financial planner on staff? Or is it the friendly neighborhood banker who remembers your name, finances your mortgage and pays 3.5% interest on a personal savings account?

According to a recent survey conducted by the Gallup Organization Inc. and American Banker, an industry publication, consumers want the best of both. Of the bank, thrift and credit union customers surveyed, 70% say they would be inclined to invest in a money-market fund offered by their bank; 60% would invest in stock and bond mutual funds or annuities. The respondents are less likely, however, to invest in insurance products, only 39% responded yes.

When it comes to service, according to the survey, credit union customers were the most satisfied. Nonetheless, banks remain the financial institution of choice--57% of the respondents say their primary relationship is with a commercial bank. Another 23% listed thrifts, followed by 12% at credit unions.

The survey also revealed that consumers are concerned with the cost of banking. For instance, most customers say they want hassle-free checking--no-charge fees, low minimum-balance requirements but high activity (interest). Overdraft protection is another feature deemed important, at least by 69% of the survey respondents.

All financial institutions have their strengths and weaknesses. Before deciding if your bank is the best place for your money, determine what you want to accomplish, says Robert Rinfrow, a certified financial planner with IDS Financial Services Inc. in Columbus, Ohio.

"If you're conservative and only interested in such bank investments as CDs or money markets, or your risk tolerance is low, you are probably a good candidate for the investment products that banks have to offer," says Rinfrow.

Commercial banking, for instance, offers the most extensive distribution network. No other financial institution--financing company, credit card or brokerage firm--can match the 51,962 branches throughout the country, not to mention the ATMs that connect them with other financial services.

Besides convenience and easy access to funds, most consumers look to banks to provide for their day-to-day cash needs. Moreover, customers expect banks to serve as the main source of consumer and small business loans.

Rinfrow urges small business owners to make their bankers work for them. Don't just give your money to any one institution. "Make them earn it," he says. Small and home-based businesses won't necessarily have the facilities to manage funds, so it pays to have personal and business accounts with a bank that can provide cash management, lock boxes, accounts receivable, recordkeeping and consulting services.

Credit union services, of course, are available to members only. Because of their nonprofit status, credit unions are able to give customers more competitive rates, and they generally charge lower service fees. Although most credit unions are able to make loans and have a reputation for responding to loan applications faster than many banks, they are very limited in the kinds of investment opportunities available to members.

Investment companies and brokerage firms offer a greater variety of investment options and provide expertise and advisory services unmatched by other financial institutions. Moreover, they manage a significantly larger share of investment dollars. For aggressive investors, they can offer more high-yield products. And investors who want more sophisticated products and money-management services may have to consider using an investment company in addition to their bank.

But there are some valid reasons for having your money in a single institution. For one, it will be much easier to manage. If you have a six-month CD with your bank that currently earns about 3.25%, you may want to roll it over into a mutual fund that earns a higher return. Transferring the funds should be simple. For customers who already have a mutual fund through their bank, dividend payments can easily be swept into their checking account.

It's not enough that your bank offers the services you want. You ought to make sure your bank can adequately deliver these services and whenever you need them. "Talk to a bank or commercial loan officer and question their expertise," says Rinfrow. "Contact libraries and rating services to help evaluate the health of your bank or investment company."

Banks will continue to work hard to diversify their income stream. Although many people may have misgivings about their overall financial and economic stability, they're more than receptive to innovations in banking. It's simply a matter of learning to fall back on experience with the bank, based on trust, good service, quality products and community involvement.