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Financial Question

Rob Markoff

PFG, Picture Framing God
OK fellow framers, here's the dilemma-

In a prior post I discussed having a "sweep" account where all money in my checking account not needed to cover checks written is transferred to an interest bearing savings account.

Until recently, I have not needed to transfer enough money so that the balance falls below the minimum reserve required to avoid service charges.

Lately my cash flow requires me to either advance my line of credit, or withdraw so much money from the savings account that I will incur service charges.

Assuming that I need $10,000 for a month,

1. The savings account pays 4.56% APR but requires a minimum balance of $10,000 to avoid a $15 per month service charge. Interest earned is taxable but the $15 service fee is deductible. How much interest is earned in 30 days?

2. I have a line of credit that charges 10.912% APR. I calculate that the interest charged to borrow $10,000 is $2.99 per day. Do you agree with this number? The interest paid is a deductible expense.

3. If I take the money from savings, I lose the interest earned and I pay a service charge of $15.

4. If I keep the money in savings, I will earn interest, avoid the $15 fee, but I will need to borrow the money from my credit line.

Which is the best thing to do?
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Hi! So glad to see you bring up this subject.
There are a couple of options you can look into.
1) There are internet only banks, an very good one that I think suits your needs perfectly and has a very high intrest rate is: www.pcbanker.com
There are downfalls and advatages that banking this way entails. I would be happy to expand on these if your are interested.
2) Bank out of state, online but through a brick and mortar bank. A good example for your purpose is: www.zionbank.com

My suggestion is to take a look at a couple of site that compare rates on different accounts first. For starters look at : www.bankrate.com

There are several ways to bank with no minum balance and earn 6% now a days. You need to shop around first though and realize what services you will be needing.
Things to think about: ACH out and in, deposits and redemtion of fees through atms, atm/debit cards that can be unsed internationally, and of course your comforart zone. If you find a bank you are interested in online, a good idea is to email them a question to get a feel for there customer service and reposne time. Check to see how late you can call and actually talk to someone, and if there is a fee and if so what is that.

Your #1 question, I will round off: If you have a money in an accoutn earn 5% with $10,000 in it, at the end of the first month you earn @$30. Then the second month a very little bit more - power of compunding.
Your question #2 - I do not know how much of a line of credit you have on your account or need, but there is acouple of factors to consider. 1)When does intrest start accruing, is there a grace period? I will expand on this later but for now, consider this, There is many instuitions that will happily have a line of credit lined to your banking account(s) for free no service fee and no intrest for the first 30 days. Once again it is a matter of shopping around.
Another possabilty is asking for an increase in your line of credit, most banks consider all accoutns when determining minimum balances...so if you have enough in ALL accounts you should not be paying the service fee (lines of credit are included)

From the math you gave, your saying basically you pay $90 a month for the privelage of borrowing money, but only earn @$30 by keeping money. Best advice switch banks there is much better deals out there.

I am sorry this is so short, and would be happy to discuss this further but am in a little bit of a time crunch right now.


CGF II, Certified Grumble Framer Level 2
Rob, My business is much simpler than yours so these are my thoughts, not my experience. Is this a temporary situation? Your setting up the account in the first place was well thought out and I would be inclined to keep the account open and try to extend my reach. Can you set up your line of credit so you borrow only what you need the day before you need it to keep the balance at $10,000?


CGF II, Certified Grumble Framer Level 2
This is actually a philosphical question -- Do you believe in using "Other People's Money" or do you prefer to skrimp, save & use your own?

My 2 Cents worth:

If you need the cash flow because of the business booming -- borrow the money. The extra production and profits could pay off that loan pretty darn fast. Also make sure you add more money to the "reserves" for the future while you are paying off the loan.

If you need the cash flow because the business is falling -- use those reserves of cash and promote like crazy to get the cash flow back up and/or reorganize your business, layoffs, etc.

If it's an inbetween scenario---like the rent (or utility bills) skyrocketed---then it's back to philosophy, raising prices, etc.

And, your $2.99 figure per day looks correct to me---but I'm NOT an accountant!

TL - Studio Frame


<BLOCKQUOTE>quote:</font><HR>Can you set up your line of credit so you borrow only what you need the day before you need it to keep the balance at $10,000?[/B]<HR></BLOCKQUOTE>

My experience is that if the bank has a posted minimum, and at any given point during a given month your balance falls below this minimum you will be charged the service fee. These are monthly service fees, so if it falls below once you technically do not need to replenish until next month, because you have already been charged this one time fee.
However, I would like to reiterate, you do NOT need to be paying any service fees to get that rate and actually a much higher rate.


As an aside, after you have done your due dilegence, open the account and ach in your funds (real time) into your new account, and promptly close your old one. lol, or else you'll get charged $15.
One of my banks time goes anything after 3:00 pm is recorded on the next business day. So, if I was in your sitatuion with this bank, I would ACH out my funds promptly or even use my debit card to fund through the ATM, first thing on Monday morning, and then walk into the bank and confirm the transfer went through and close the account.


PFG, Picture Framing God
Where's Bob Carter when you need him. This is the type of question that would be right up his alley.
C'mon Bob, we know your lurking out there.

Marc Lzier

<BLOCKQUOTE>quote:</font><HR>Originally said by Rob:
1. The savings account pays 4.56% APR but requires a minimum balance of $10,000 to avoid a $15 per month service charge. <HR></BLOCKQUOTE>

Call your current banker and see if there is an account with a lower monthly min, like say 7 or 5 thousand. Is 3 thou less of a min enough to cover the current dips you are having?

<BLOCKQUOTE>quote:</font><HR>Originally said by Rob:
2. I have a line of credit that charges 10.912% APR. I calculate that the interest charged to borrow $10,000 is $2.99 per day. Do you agree with this number? <HR></BLOCKQUOTE>

No, because you do not need to borrow ten thou unless your savings is being drained to zero. If you can not do option A) above and you are dipping to say seven thou, then you actually only need to borrow three thous. Calc interest based on that.

An additional math problem lies in that you need to borrow the money before it dips below ten thou. So, if you borrow three thou now, and add it to savings it is interest based on %4.56 on $13.000. You are loosing %6 (+%5 on your money and -%11 for their money) on the $3,000 to save the $15. (very rough numbers here). Is it worth the effort? That is something only you can judge.


<span style="color: red"><b><i>Charter Member</i><
Rob is not asking for advice on how to solve these problems, and it is not "actually a philosophical quetion". This is a math test. He is asking us to make a sound business decision after doing the math.

This is the way savvy business owners run their businesses. I'm not being a "smartie", one of a the reasons I closed my business is because I don't like this part of ownership. My new boss is great at this, but, like Rob, it pretty much takes him out of the day to day creative part of the framing business.

We have had several individuals on this forum trying to give us the same knowledge, Jay Goltz, Bob Carter, the Guru (whoever that is), and Rob Markoff. I personally find Rob Markoff to be the best teacher, not just a motivator, not a preacher, but a teacher with precise formulas for daily use. He is worth listening to and interacting with.


CGF II, Certified Grumble Framer Level 2
So, what are your opinions Rob? and Jay, Guru & Bob? Time for some feedback Rob.

Marc Lzier

framer was kind enough to open a forum that was intended to be a forum for such issues. It is called :
Trade Mag Comments and business issues.

You can find it at: http://www.thegrumble.com/cgibin/forumdisplay.cgi?action=topics&forum=Trade+Mag+Comments+and+business+issues&number=11&DaysPrune=20&LastLogin=

This thread, closed here, will be found there. I hope it will receive fruitful responses.

I would hazard a guess that framers have shied away from replying because they feel the question is too far from their own experiences. After all, how many of you have 10000.00 or anything close to it in a business savings account?

I will add a question: How many of you even have a credit line, other than a credit card?

A further possible reason that this thread has gotten little play is some information you have left out. For instance: The credit line interest is going to be compounded daily, and the savings account may not. If this is so your cost to use the money will increase daily, and your figures may be wrong, or at least in slight error. All questions you banker, accountant, business advisor can reflect upon with more accuracy.


but, 10,000 is basically payroll for 6 employees in a month.
How could a business not have savings and not have a line of credit?...
I'm serious, so don't take that the wrong way please, just asking!

#1 - The specfic dollar amount would depend how much money you have in your account.
However, if rates never changed (right
, you would earn 4.56 intrest on your principle compounded daily and posted

Intrestily though you wrote APR, I think you meant to write APY - because that is what would apply in this situation.

#2 - The APR does NOT affect your monthly payments. Your monthly (or daily) payments are a function of the interest rate and the length of the loan.

Wishing good week to all of you!!

[This message has been edited by KeepFraming (edited February 19, 2001).]

Marc Lzier

"but, 10,000 is basically payroll for 6 employees in a month. "

Please answer: How many employees do you plan to have in the shop you are opening?

The average small Frameshop, is just that. Small. Sole Proprietor. Sole, w/ P/T or F/T or two. Or Partnerships (often involving spouses, and or children).

"How could a business not have savings and not have a line of credit?.."

Unfortunately, very easily.

Jim Miller

SPFG, Supreme Picture Framing God

If you take the money from savings, you pay the $15.00 fee and lose about $38.00 in interest each month, so your total cost is roughly $53.00 per month.

If you keep chucking money into savings, you get to keep your $53.00, but you pay about $91.00 per month in interest. And your access to emergency cash (the credit line)takes a hit.

On that simplified basis, I say leave your credit line intact, and let your savings go until you can afford to resume the transfers. Pay the $15.00 per month fee for a while. I consider the automatic savings account as a reservoir for spare cash; when there's no spare cash, don't pay extra (borrow money from the credit line) to maintain it.

Having said that, there may be other considerations. For example, if the bank deal is a package, and if your actions could affect other things, such as your lease rates or variable interest loan rates, then one might be compelled to maintain the savings account.

And, if your forecasting says this situation could last longer than a few months, then it would be wise to maintain the credit-line availability. Who knows? You might really need it later.

A wise old man once told me: "Save your working capital." I still think he was right.

Marc Lizer

SGF, Supreme Grumble Framer

I know you must have overlooked this thread.

Was this an actual problem you had, or is/was it just a test of collective Grumble acumen?

How did we do?


SGF, Supreme Grumble Framer
never liked the spice.
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