You know how banks tell you they have your best financial interests at heart, and how they try to convince you to open accounts with them? Enticing offers and promises can be tempting but not all that glitters is gold, especially as banks are concerned. There are several means through which banks earn money, and many of them are result of taking yours. Here are the seven top ways banks on a financial ride of a lifetime!
Number 1: Savings Account Rates
There are two popular ways by which you can operate a savings account. You could have a traditional savings account, or as the modern-day permits, an on-line savings account. Regardless of the type of savings account you operate; the interest rates are absolutely nothing to write home about. Over the years, savings account rates have nosedived drastically, and keeping your money in these accounts will never amount to anything tangible.
Going by the FDIC’s reports, all you can get in terms of rates via an average U.S savings account is about 0.06%. Shocked? I know I was when I read this statistic but let me explain further. If for instance, you have a savings account with $10,000 in savings, all you would earn in interest in a full year is a measly $6. Yes, just $6!
How awful is that? Considering all the trouble you went through to open the account with the bank you would think they could at least offer interest that would somewhat fight inflation. Now, you may be scratching your head, wondering why the rates on your savings account are so low? Well, you can blame the Federal Reserve’s monetary policy. This policy aims at reducing interest rates for the purpose of stimulating growth. But you, the customer, can take part of the blame as well. I say this because banks are so used to having so many deposits from their customers, that they are nonchalant about offering higher rates. Why should they, when customers keep making endless deposits without demanding higher rates?
Like I mentioned earlier, the 0.06% interest rate is what most average banks offer. However, there are top-tier banks that offer as much as 10 times that value in interest. If the customers have the mindset that they deserved more, they would logically open accounts with such banks and have their deposits flow in that direction. This singular action would force these average banks to offer better interest rates since they don’t want to lose all their customers to the banks that offer more mouth-watering interests on savings. Sadly, many customers are not aware of the opportunities the top-tier banks offer in terms of rates and therefore make no attempt to investigate and go for the best options.
Number 2: CD Rollovers
I’m sure you’re aware of what a CD is, but if you don’t, I’ll tell you. A CD is a Certificate Of Deposit, which is a type of federally insured savings account. With a CD account, you are given a fixed interest rate, as well as a fixed date of withdrawal. This date is called the “maturity date”. A lot of customers simply allow their CDs to roll-over automatically at the same bank. Here’s the question, if the bank knows full well that a CD is going to roll-over passively, what makes you think they will make the effort to give you a better rate?
With different banks, there are special offers on CDs, this means you stand a chance of getting a better offer when your CD is about to mature. One good feature of a CD is this: If you make the move and scout for the best rates and find one, then you can lock that rate in for the duration of the CD.
Missing out on the best CD rate isn’t going to be all you lose, if you allow your CD to roll-over passively. You would also be missing out on the chance to re-evaluate the length of their CD terms. There are two determinants of the right term. One is your interest rate conditions, while the other is your current financial situation. Both these determinants would have changed since the last time you chose a CD.
Number 3: Mortgage Refinancing
If you’re already in business with your bank, they will be less willing to offer you preferential rates when you decide to do more business with them. Now, logically, you would include your bank in any comparisons you make concerning refinancing your mortgage. If they already hold your loan, it means they have already approved of you as a credit risk, and would be more likely to approve you for refinancing.
Keep in mind, mortgage rates among lenders can vary. At the same time, the risk assessments they perform are also subjective. This means that there are still banks out there that may feel comfortable with you, and proceed to offer you lower rates on your mortgage. It is common to see individuals allow the convenience of being refinanced by the same bank stick to paying more in mortgage interest to them, hence, facilitating the “rip-off”.
Number 4: Checking Account Fees
In the past, free checking account transactions were very common, but, in most circumstances, this is no longer the case, that is, unless you are motivated to eliminate these annoying monthly fees. There exist thousands of different options for day to day bank accounts yet people continue to subject themselves to these charges which can be as high as $150 annually. Think of how much you would have saved if you would have avoided these high fees since you began banking. Most traditional checking accounts carry these fees, however, online checking could be the more favorable option, which is what I recommend if you want to stop getting ripped off!
Number 5: Overdraft Protection
Protection is always a good thing, isn’t it? I mean, who wouldn’t want to sleep well at night knowing their interests are being looked after? This is great until you consider how much overdraft protection would cost you. When you do, and realize how high these costs can be, you may not feel as good about the situation.
Typically, overdraft fees can surpass $30 per occurrence, and this is too much if you ask me. What’s worse is that you may have made several transactions before you realize that you have over-drafted your account. This would mean that you have paid the $30 charge multiple times!
Going by law, every bank, small or big, are mandated to exclude customers from overdraft protection, unless they consciously consent to it. Sadly, banks intentionally encourage customers to go for overdraft protection when they open accounts. It’s hard for a novice to look at overdraft protection as a bad thing since the word “protection” is very enticing, but it’s less heartbreaking to have a transaction declined, rather than piling up several $30 overdraft charges!
Number 6: Credit Card Rates
Remember how I mentioned that interest rates on savings accounts have taken a nosedive over the years, well the credit card companies did not follow suit, as the average rates paid on credit cards today are pretty much the same as they were 8 years ago.
What this implies is this: Relative to other interest rates, credit card rates have automatically become a very expensive form of debt. What makes it worse is if you have a less-than-perfect credit history. Keep in mind that when you search and apply for a credit card, you will be acquainted with only their very best rates. This does not mean you will get those rates unless of course, you have an outstanding credit history.
A quick piece of advice, before you apply for a credit card, be sure to find out what rate you are being offered, according to your credit history. The good news is that, all credit card issuers are not the same, some offer better rates than others, so go for the most favorable option. In America, there are more than 6,000 FDIC-insured banks, so you have so many options to browse through. The choices you make could be the difference between saving some extra bucks for yourself or unnecessarily adding a few more dollars to the bank’s wallet.
Number 7: ATM Card Maintenance Charges
Having a bank-issued ATM card (or debit card) helps you get cash-in-hand when you are in need of it. There are ATMs on almost every corner but with this convenience comes a cost, some of which are ridiculously high.
Most banks will charge you a fee for debit card replacement, even before it is expired. The Bank of America for instance, charges as much as $5 to replace a debit card, but it doesn’t stop there. Customers are charged an extra $15 if they opt for express delivery. Another example is PNC. They charge their customers up to $7.50 for ATM card replacements and $25 for expedited shipping.
There’s really not much you can do if you lose your ATM card, other than getting another one. The good news (if you want to call it that), is that you can avoid the shipping fee if you have a back-up debit card in hand.
Besides ATM card replacement charges, there are other fees associated with using your ATM card. Bank fees can range from $2.50 to $5 on a single transaction. These charges are determined by varying factors. It could depend on whether the ATM card you’re using is out-of-network, or whether you are using an international card. The worst part is, when you use an automatic teller machine that isn’t operated by the card issuer, you will be charged even higher fees. It doesn’t matter if you’re making a withdrawal, deposit, or even a simple balance inquiry!
Annoyingly, sometimes these fees are not charged by solely the bank that operates the ATM you use, even your bank may charge you for it. Another aspect you should consider to be a rip-off is SMS alert fees. These are fees that are usually charged monthly for transaction notifications made with your ATM card. These include debit alerts, credit alerts, monthly bank statements, system upgrade notifications, and even a happy birthday SMS (which you didn’t even ask for). SMS alert fees are charged based on the number of notifications via SMS that you receive on your mobile phone.
It gets worse with International transactions. Cash withdrawals usually have a flat fee of $2, and it can also be as high as $7, with a conversion rate that is calculated as a percentage of the amount you withdraw. This is usually around 3%.
Yes I know, these charges can be annoying, especially for one who uses their ATM card regularly. There are a few things you can do to reduce the expenses you incur on your card. These tactics will of course require you to plan ahead and re-consider your ATM usage.
Here’s what you can do:
Install your bank’s mobile app on your phone and use it to search for free ATMs around you
Select the cash-back option when you make purchases at grocery stores or from other merchants
You should develop a habit of reducing the number of times you use the ATM, but withdraw larger amounts
Always remember, you have a chance of using free ATMs if you’re aware of where your card issuer operates their ATMs and branches. Also find local stores that offer a cash-back option. It’s also true that withdrawing large amounts of cash (which you don’t need at the moment) can put you at risk of losing it, so you may want to avoid doing this altogether.
So there you have it, 7 ways your bank is ripping you off and how to make the most out of your banking experience!