What Your Bank isn’t Telling You
The average person knows less when it comes to understanding how you, and why banks operate the way they do. It’s all a person can do to balance a check book and hunt for high savings interest rates and low borrowing rates. But banks have a strategy when they raise rates and lower them. There’s a method when they lure you to automatic tellers and they charge outrageous interest on credit cards and loans. And they know you probably won’t complain when they pay you less interest on your savings and checking accounts.
Banks have to make money to stay alive. But you can keep more of that in your pocket if you learn some of the banker’s innermost secrets. Below is explanation on some of the key ones in simple English.
How Banks Stay in the Black
Banks come out ahead when they rent your money (savings accounts) at one price, and then peddle that same cash to someone else in the form of loans (credit cards, personal loans, and mortgages). Look at the banks as though it were a little one -room building with two doors – one in front, the other in the back. You deposit your savings at the front door; the bank marks it up, and then lends the money to people lined up at the back door to borrow.
When interest rate begins to plunge, banks cut their savings rates faster than they cut loan rates. The result was their profits got bigger and bigger. In addition to financing the enormous banking bailout by paying more taxes, you picked up the tab by earning less on your savings and paying more when you borrowed.
Fees and Charges:
Fees and charges have been growing – like weeds. These keep taking more and more out of your wallet. Customers focus mostly on interest rates – not on the fees. The bank slips in a higher fee here, a new little charge there, and you hardly notice it.
Fees have become so important to banks that they’re now considered “profit centres” all by themselves. In fact, it has been discovered that they are suddenly making money hand – over – fist from bounced – check charges.
The cost to use an automatic teller machine keeps on raising/ going high in shillings. That might not sound like much, but multiply it by millions of customers using their ATMs three to four times a month and you get an idea of how much money is involved. The number of fees is increasing too. For example, many banks now charge customers even to balance their statements.
Bank – beater secret: Ask your bank for a copy of its fee disclosure statement. Match it against your banking behaviour; switch to a low – fee outfit if necessary.
How Banks Work the Rates
This part/section explains some tricks that banks use to
Make the interest rates work to their advantage.
First, banks often push you to long-term savings when interest rates are low and short-term savings when interest rates are high. Banks want to rent your savings money at the cheapest possible cost.
Bank – beater secret:
-Buy (put) short-term savings when rates are rising, go long only when rates are declining.
-When the prime rate goes up, take out the loans you need immediately. Go short with savings until the prime goes down.
-Don’t keep a dime more than you need in low-rate savings accounts and checking accounts. Figure how much you won’t have to touch for X length of time; put that money into higher – paying savings accounts for that period of time.
Why Banks Try to Steer You toward ATMs
Gone are the days when your friendly teller handled all your transactions. It’s not a conspiracy, exactly, because the whole world including banks – is becoming more electronic. Their tellers have to put up with fewer people acting like pests in front of a long teller line.
On special checking accounts for low – balance customers, banks will charge you more for your transactions, if they are not through an ATM. When banks close their doors at 3:00 p.m., they know you’ll have to conduct your late business electronically.
This upside of this trend is that you can get fast cash any time of the night from an ATM. Plus, as banking becomes more electronic, one day you won’t even have to visit an ATM.
You’ll do your banking from your home computer and telephone.
Do banks make money from ATM transactions? You bet. Look at it this way: It can cost a bank tens of thousands of money to equip just one branch with an ATM system. But consider how much they save in human labour by having hundreds of thousands of transactions handled by machines!
-Bank – beater secret: Cut your number of ATM transactions to the bone. Check what each trip to a machine costs. Reduce fees by withdrawing more money all at once, instead of taking out small amounts several times.