When floating gives you that sinking feeling

Today at Bank of America my wife and I made a deposit for Kate’s, my step-daughter, college tuition. Interestingly enough B of A just changed the length of time until a check posts to your account from 3 business days to 5. That’s very strange because that was the length of time for checks to post back in the 1980s. A dark little secret of the banking world is that checks are cleared every night through the Federal Reserve. So it quite literally only takes 24 hours to verify funds in U.S.-based banks. So why might B of A do this?

For float. Float is when Bank of America has the funds from your check in their possession but they don’t start crediting you with interest on those monies for 5 business days, or one week. And what does B of A do with the money? That’s right, they invest it in very short-term money market securities and earn interest on it even though they are certain that your check has cleared. In other words, this little “policy” change increases the return from their float by about 66% = 2 extra days of float from the original 3 days of float.

Another reason to do it, though don’t expect any bank to cop to this is that if you are used to checks posting in 3 days and you keep lean-mean balances in your checking account, now you will very likely have over drafts. That then allows banks to charge over draft fees. How very nice and considerate of them, yes? Frankly this shift by Bank of America cannot be justified as anything other than a backdoor attempt to increase earnings.

This is in line with my post of a while back entitled, “our culture of lying.” The heart of that post was the deception that companies undertake to work cash free out of your pocket. Instead of earning your business they steal it…legally. Nice.

Clearly bank earnings are down from a reduced use of credit by consumers. So this is an attempt to bolster earnings in tough times. This is not a good sign or a good thing and is despicable. When investors see companies engaging in this kind of behavior it is a way of gauging the integrity and quality of the management team in charge of a business. I hope you can tell that I am not impressed.

Check to see what your bank is up to…reasonable float is 3 days. Though even that makes my stomach turn.

Jason