In our daily lives, we experience the simplicity of receiving a bill for services rendered – a straightforward and transparent process. While consumers receive clear and concise bills for most services, organizations of all sizes grapple with the complexity of account analysis statements banks provide for treasury management services. These statements can come in a variety of formats (PDF, CSV, Excel, and EDI 822) with a multitude of line items.
Bank fee analysis is an important practice for municipalities aiming to manage their public funds effectively. By scrutinizing the various fees associated with banking services, municipalities can uncover significant opportunities for cost savings, enhance their budget management processes, and uphold a high standard of financial transparency.
Conducting a thorough bank fee analysis not only helps in identifying unnecessary expenditures but also empowers municipalities to negotiate better terms with financial institutions, ultimately ensuring that public resources are utilized in the most efficient and accountable manner possible.
What is Bank Fee Analysis?
Bank fee analysis is the review and evaluation of the various fees charged by banks for their services. This process involves examining bank statements, identifying all applicable fees, and assessing their impact on an organization's financial health.
Key Components of Bank Fee Analysis
- Transaction Fees: Transaction fees are charges incurred for specific banking activities, such as wire transfers, ACH transactions, and check processing. These fees can vary widely between banks and even among different types of accounts within the same bank.
For municipalities, which often handle a high volume of transactions, these fees can add up quickly, making it important to monitor and manage them closely. - Service Charges: Service charges are fees imposed by banks for maintaining accounts and providing routine services. These can include monthly maintenance fees, fees for additional account statements, and charges for using certain banking features.
Understanding these fees allows municipalities to negotiate better terms or seek more cost-effective banking solutions. - Interest Rates: While not a fee per se, interest rates on deposit accounts and loans significantly impact the overall cost of banking. For municipalities, favorable interest rates on deposits can enhance earnings, while competitive rates on loans can reduce borrowing costs.
Including interest rates in the analysis helps provide a comprehensive view of the banking relationship's financial impact.
What is an Account Analysis Statement?
One of the primary tools for understanding banking fees incurred by municipalities is the account analysis statement. The account analysis statement outlines the fees applied to your account and delineates how your cash balances have been used to offset these charges.
What are Earnings Credit Rates (ECR)?
Banks offer earnings credit rates (ECR), which allow municipalities to hold balances in an account to offset some of the fees incurred. ECR is a crucial component in the relationship between municipalities and banks and while being different from a real interest rate, ECR acts in a similar manner. This rate is usually negotiable and actively managed by banks, moving similarly to the Effective Fed Funds Rate.
Here's how it works:
Earnings on Deposits
ECR represents the interest earned on the average collected balance traditionally maintained in a municipality's master concentration account and is used to offset or reduce service fees. This interest is a soft-dollar adjustment of bank fees vs. hard-dollar interest paid to an account and, at maximum, is credited to fully offset fees.
Calculating Earnings Credit
Banks calculate the earnings credit based on the prevailing ECR and the average collected balance. The resulting credit is then applied to offset service fees, providing municipalities with a cost-saving mechanism.
Optimizing Earnings Credit
By maintaining higher balances, municipalities can usually negotiate an enhanced ECR and, consequently, reduce the net banking fees paid. In a high-interest rate environment, it's crucial for municipalities to actively manage their account balances because any excess earnings credit, once fees are fully offset, is forfeited.
Steps to Conduct a Bank Fee Analysis
Here’s a step-by-step guide to performing a bank fee analysis:
Collect and Organize Bank Statements and Fee Schedules
The first step in conducting a bank fee analysis is to gather all relevant financial documents. This includes:
- Bank Statements: Obtain monthly bank statements for a specified period, ideally covering at least six months to a year. These statements provide detailed records of all transactions and associated fees.
- Fee Schedules: Request a detailed fee schedule from each bank. This document outlines the various fees the bank charges for its services.
Once collected, organize these documents chronologically and by account type. Maintaining a well-organized set of records ensures that you can efficiently analyze and compare data.
Identify and Categorize Fees
With your bank statements and fee schedules in hand, the next step is to identify and categorize the different types of fees incurred.
Create a spreadsheet or use modern software like DebtBook for easier management to record each fee, categorizing them accordingly. This structured approach helps in tracking and analyzing the fees more effectively.
Calculate the Total Cost of Each Fee Type
Once the fees are categorized, calculate the total cost for each fee type over the analysis period. This involves:
- Summing the individual fees within each category.
- Calculating averages and identifying any patterns or anomalies.
For example, if transaction fees for wire transfers are consistently high, this might indicate an area where cost-saving measures could be implemented. Calculating these totals provides a clear picture of where the most significant expenses lie.
Compare Fees Across Different Banks
The final step in the bank fee analysis is to compare the identified fees with those of other banks. This comparison involves:
- Benchmarking: Compare your current bank’s fees with industry benchmarks to see if they are in line with standard rates.
- Requesting Proposals: Consider reaching out to multiple banks for proposals or quotes on their fees and services. This can be part of a competitive bidding process to ensure you are getting the best rates.
Create a comparison chart or table that highlights the differences in fees for similar services across various banks. This comparison allows you to:
- Identify if your current bank's fees are competitive.
- Explore opportunities to negotiate lower fees or switch to a bank that offers better terms.
Interpreting the Results
Analyzing Patterns and Trends in Fees
Once you have compiled and categorized all the bank fees, the next step is to analyze the patterns and trends.
Look for recurring charges and note any fluctuations in the amounts over time. Are there particular types of transactions that consistently incur high fees? Identifying these patterns will help you understand the underlying causes of these charges and pinpoint areas that require closer scrutiny.
For example, frequent wire transfers might be driving up costs, suggesting a need to explore alternative transaction methods or renegotiate terms for these services.
Identifying Areas of High Costs
After analyzing the patterns, focus on identifying the areas of high costs. These are the fee categories that constitute the largest portion of your banking expenses.
Create a detailed report highlighting these high-cost areas, specifying the exact nature and frequency of the charges. This will not only give you a clear picture of where your money is going but also provide concrete data that can be used in negotiations with your bank.
Recognizing these high-cost areas is the first step toward implementing cost-saving measures and optimizing your financial resources.
Evaluating the Cost-Effectiveness of Current Banking Arrangements
With a clear understanding of the patterns and high-cost areas, evaluate the overall cost-effectiveness of your current banking arrangements.
Compare the total fees incurred against the services and benefits provided by the bank. Are you getting good value for the money spent? Consider whether the services offered align with your municipality’s needs and if there are any redundant or underutilized services that could be eliminated.
This evaluation will help you determine if it’s time to negotiate better terms with your current bank or explore other banking options that might offer more competitive rates and services.
Best Practices for Ongoing Bank Fee Management
Regular Monitoring and Review of Bank Fees
Effective bank fee management requires regular monitoring and review of all bank fees. Set up a routine to check your bank statements monthly, ensuring that all fees are accounted for and correctly categorized.
By regularly reviewing these statements, you can quickly spot any unusual or unexpected charges and address them promptly. This proactive approach helps prevent fees from accumulating unnoticed and ensures that your municipality remains aware of its banking expenses at all times.
Establishing a Routine for Periodic Bank Fee Analysis
In addition to monthly monitoring, it’s important to establish a routine for conducting a comprehensive bank fee analysis periodically, such as quarterly or annually. This in-depth review should follow the steps outlined in your initial analysis: collecting and organizing bank statements, identifying and categorizing fees, calculating total costs, and comparing fees across different banks.
Regular periodic analysis helps to identify any new trends or changes in fee structures that may impact your budget. It also provides an opportunity to reassess your banking arrangements and negotiate better terms if necessary.
Be Aware of Changes in Bank Fee Structures and Policies
Bank fee structures and policies can change frequently, impacting your municipality’s financial planning and management. Stay informed about any changes by maintaining regular communication with your bank representative and subscribing to updates from your financial institutions.
Keeping an eye on industry news and trends can provide insights into broader changes that might affect bank fees. Being proactive in understanding these changes allows you to anticipate and adapt to new fees or policies, ensuring that your fee management strategy remains effective and up-to-date.
Using DebtBook for Bank Fee Analysis
Incorporating advanced tools like DebtBook into your bank fee analysis can significantly enhance your municipality’s financial management capabilities.
During preliminary testing, DebtBook helped identify millions of dollars of idle cash that, when invested, could be earning between $200k to $2M on average in interest revenue on an annual basis.
(The on average $200K-$2M per annum calculation is based upon average balances identified in operating accounts that could be invested through daily liquid money market fund returning 5% APY.)
DebtBook’s Bank Fee Analysis feature offers a comprehensive solution for treasury teams aiming to gain better control over their banking expenses. This feature provides detailed insights into the fees being charged, helping you identify any discrepancies and ensure that balances are managed efficiently to offset fees without holding excess funds in low-yield accounts.
See Where You’ve Been Overcharged
DebtBook allows you to upload statements directly from supported financial institutions. Once uploaded, the platform provides a detailed breakdown of each line item, highlighting discrepancies between the charged and contracted prices. This feature enables you to quickly spot overcharges and take corrective action, ensuring that your municipality is not paying more than necessary for banking services.
Catch Fraudulent Transactions
DebtBook’s platform also enhances your ability to detect fraudulent transactions. It flags transactions that deviate from their intended purpose, such as a check disbursement in a receivables-only account. This functionality allows you to quickly identify and investigate suspicious activities, adding an extra layer of security to your financial operations.
With DebtBook, you can:
- Access Real-Time Data Visibility: Gain immediate insights into your banking fees and account balances, enabling faster and more informed decision-making.
- Reach Cash Decisions Faster: Streamline your cash management processes with DebtBook’s intuitive platform, allowing your team to focus on strategic initiatives rather than manual fee analysis.
- Maximize Value Contribution: Optimize your municipality’s financial resources by efficiently managing fees and account balances, ensuring maximum value contribution from your cash holdings.
By integrating DebtBook into your bank fee analysis routine, your municipality can enhance its financial oversight, reduce unnecessary expenses, and ensure that public funds are managed with the highest level of efficiency and transparency.
DebtBook customers are saying:
"The design of the module is simple and efficient and allows for quick analysis!"
"The fee analysis is a great snapshot of bonus dollar structure and seeing the calcs is very cool. I can easily see how each tab would provide value for us"
"I really like the snapshot of the monthly activity and right away it points to how MUCH we have exceeded necessary balances, which means we could have been earning our own interest elsewhere”
After seeing the tool and not doing BFA one customer said "If it was this easy, we would monitor our bank fees"
Explore DebtBook's Bank Fee Analysis feature in our 2-minute Feature Flash!
Conclusion
Navigating the landscape of banking fees for municipalities involves a nuanced understanding of account analysis statements and the role of earnings credit rates. By adopting proactive bank fee analysis, municipalities can not only control costs but also strengthen their financial position for the benefit of the communities they serve.
Related Cash Management Reading
- Bank Fee Management: Challenges & Insights for Treasury Teams
- [FREE DOWNLOAD] Cash Flow Forecasting Template for Treasury
- [FREE DOWNLOAD] Cash Position Worksheet for Treasury
Disclaimer: DebtBook does not provide professional services or advice. DebtBook has prepared these materials for general informational and educational purposes, which means we have not tailored the information to your specific circumstances. Please consult your professional advisors before taking action based on any information in these materials. Any use of this information is solely at your own risk.
