Are you really as bank savvy as you think you are? Maybe not. While you might know a lot about banks, you should note that there are a number of realities about banking that have almost the status of secrets. While you can find the information somewhere, it’s sometimes hard to find – and banks certainly don’t want you finding out the truth about how they make their money, and what you can do to keep more of yours.
Reports from the FDIC indicate that big banks pay lower yields than their smaller local and regional counterparts. This is something big banks don’t want you to know. You should shop around for the best yields. Even if you keep your checking account at a big bank, you should look around for a better place to park your CDs, savings accounts and other deposits.
This is another secret that big banks don’t want you to understand. These big banks not only stiff you on your yield, but also rake in money from the fees. You can see why big banks have been fighting fee caps so fiercely when you see that, according to the FDIC, the 10 biggest banks made 54% of their revenue from fees. The smallest banks, though, only received 28% of their revenue from fees.
You probably think of your money as just sitting in the bank, earning interest for you. However, that money is actually being put to use by your bank. Banks take your deposits, and lend them out to others – usually at much higher rates. So you might be earning 0.95% on your money market account, but the bank can turn around and lend some of that money at a higher rate of 5%. Not a bad way for banks to earn money. They can even lend out some of the money in your checking account – and you might not even be earning interest on it!
Many people assume that the rate quote they receive for a mortgage loan or an auto loan is the final say. However, you can negotiate. For help, though, you will need to comparison shop. Banks like you to believe that being a customer will net you the best deal. However, you might find another bank willing to give you a lower rate. Shop around. Additionally, you are entitled to a good faith estimate on a mortgage within three days of your application. Try to compare this a good faith estimate from another mortgage lender. If you find a lower rate, bring it back to your bank and give them a chance to beat that rate.
While some bank employees, such as those with securities certifications or insurance licenses, have certain qualifications, not everyone at the bank is an expert in his or her field. Even in the case of licensed professionals, you still need to remember that the bank exists to make money. These are salespeople, looking to make money. Most bank employees have no fiduciary duty to you, which means that there is no legal compulsion for them to ensure that what they recommend you do will be in your best interest, rather than providing them with a bigger commission at the expense of your financial future. You might want to double-check that advice.
Understand that your money might not actually be available to you. Banks have different policies about when deposited funds become available in your account. In some cases, out of state checks can be held for as many as five days or more. You should also understand that what is seen online isn’t always the actual case – and your transactions might be re-ordered at the end of the day using an algorithm that puts you at a disadvantage.
Have an overdraft? The bank has first right to your deposit. You can’t direct the bank to hold off on paying itself back for overdrafts and the fees you incur as a result of your financial slip-up. That means that once that money is deposited in the bank, you don’t have the control over it that you think you do. Your bank can take it out, in some cases instantly decimating your latest deposit.
Your banker probably won’t advertise it, but many banks have a policy of waiving some fees if you ask. Some banks will waive one fee, no questions asked, as a courtesy, one time in every 12-month period. You can also get rid of some charges and account fees if you ask about other accounts and products that offer similar benefits. And, of course, you can always take your money to a bank that doesn’t charge as many fees.
Not too long ago, a law was put in place requiring that banks require you to opt in to “standard overdraft services.” This is the service that allows you to overdraw your account at the store and at the ATM. These standard services are real moneymakers for banks, since you are charged a fee for each transaction that goes beyond your available funds. As long as you have opted in for this “protection,” your bank will keep on letting transactions go through – you might even be able to withdraw cash using an ATM. At between $25 and $45 per transaction, you could find the fees adding up fast. Some banks will let you rack up hundreds in fees before denying your transaction. And once you make a deposit, the bank can collect.
You know that you are supposed to read the fine print, but what if the fine print is even incomplete? When the Government Accountability Office studied the way banks explain their fees to customers in 2007, they found that 1/3 of branches didn’t actually make the information available – even though they are required to by law. More than half of the bank branches surveyed had no information about fees, terms and conditions listed on their web sites. Clearly, even if you think you are getting the full story by reading the fine print, you might not be.
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