Bank On It

DOLLAR$ and $EN$E, February 2010, by Brian Bogaert

BANK ON IT


The Bank. You are all familiar with the term ‘bank’ and probably have been from a very young age (maybe it had the word ‘Piggy’ in front of it but it was still a bank). I’d also be willing to bet that most of you either have your own bank ‘account’ or will soon be getting one! Well, you know by now ladies that if something is this common about Money, we’re going to talk about it in this section.

Lots of Bank Choices
The typical bank is where people keep their money. For the record that’s called a retail bank (vs. a commercial bank or an investment bank). Depending on where you live, there are a few major banks which you are probably familiar with just by their colours – Canadian girls would recognize bright green (TD), red (Scotia), dark blue (Royal), burgundy (CIBC), to name a few. Then there are some really big international banks (like HSBC and ING, the orange one).  As well there are some smaller, more local financial institutions that do things slightly differently, like Credit Unions, for example. If you live in the U.S. or another country, your banking system is probably quite different from ours but it functions in much the same way. For example, there are a LOT more smaller banks in the U.S. which gives people a lot more choice about where to do their banking.

How do you feel about banks?
Hang on to that question for a minute and first ask yourself this one: how do you think banks WANT you to think and feel about them?? Things like safe, dependable, give you more, right? Basically, banks want you to trust them and believe that they have your best ‘interests’ in mind (pun intended – banks pay you interest - get it?). They want you to keep your money with them, get a mortgage for your house with them, invest with them, get insurance and credit cards from them, and so on. Banks want you to be customers for life, for a good reason!

So back to my original question: How do you feel about banks? Well, I can’t answer that for you but here are some questions to get you thinking… What should a bank do so that you believe your money is safe with them? What should a bank do so that you feel they have your best interests in mind when it comes to your money?

For the record, I use banks and they do lots of good stuff for me. I also know that it is good to ask questions! What I want to do in this article is make you aware of how you might be thinking/feeling about banks without even knowing it. I want you to start asking some questions – and keep asking those questions - when it comes to your money, for the REST of your life!

Bank Stats
The average Canadian Bank made around 1 Billion Dollars EVERY 3 MONTHS last year (that’s Billion, not Million). Yeah that’s right... last year... in what was supposed to be one of the worst economies in 80 years. So if the economy was so bad, how did the banks make all that money? Well a lot of it came from us, their customers. But they gave us interest on our accounts, didn’t they? Go ask your parents or look on the statements from your own account.  How much interest did your bank pay you and your family last year? My guess is it will not be very much, and will most times be less (much less) than what they charge you in fees.

How do Banks make money?
Banks make their money in two ways. First, they charge us fees. Fees to keep our money with them, fees to take our money out and fees to transfer our money from place to place. Banks make the majority of their BIG money from charging fees so you can’t blame them. We pay it so they charge it. Sounds like a good system so why would they change it if we don’t refuse to pay it?

What are our options?
Other than stuffing your cash under your mattress, there are more and more banks out there now that are offering an alternative: either no fee banking or major reductions in the fees you pay. This is good news for us (and bad news for the banks who charge big fees) so be sure and shop around before you commit to a bank. Just because your parents have always banked with a certain bank and they set up an account for you there doesn’t mean you have to stay. Exercise your power of choice so you can take control of your money.

Another way banks make money is by paying you a lower interest rate than what they get when they loan out your money. “What?” you ask. “What do you mean the bank is loaning out my money?” An example is in order...

Let’s say you put $1000 in your bank account and you leave it there for a while. The bank agrees to pay you 1% interest (which means you’ll receive a measly $10 for the whole year – whoopee!). Well guess what? The bank loans out your money to someone else. I know, it sounds crazy but they do. Only who they lend it to doesn’t pay the bank 1% to borrow it, they pay a LOT more, like up to 20%. So after a year, the bank has collected $200 from your thousand bucks and they only had to pay you $10 for the use of your money. That’s $190 they get to keep for themselves. Good deal, eh? I know, that’s why I’d like to be a bank one day!! And just stop and think... they do this over and over millions of times in one year for millions of customers! That’s how they get Billions in profit. Don’t worry, whenever you need to take some of your money out, it will be available… for a fee! If this doesn’t make sense to you, read my article “Free or Fee?” where I explain it a little better. Oh, and keep in mind that a lot of banks will offer no fee accounts to kids so they can earn your business from a young age. Take advantage of those accounts as long as you can! When you pass the no-fee age, shop around. Don’t feel obliged to stay when they add fees.

One More Question
So I want to ask one last question and it’s one I asked before – Do you think that banks have your best interests in mind? Are they mostly worried about you and your money?

Yes, they are in a way, but most of all they are concerned with keeping you as a loyal customer so that they can continue to make money from your money. This gives YOU some serious power!! Like I said before, look for banks with lower fees or no fees and take advantage of them. If you think your bank is overcharging you for fees, go and tell them and request that they do something about it or you will take your money elsewhere. Look for banks that pay higher interest on savings accounts and offer higher investments so your money can grow at a faster rate. DON’T get involved in bad loans with high interest like credit card debt where you are paying WAY more than you are getting paid. Look for alternatives and pay off your credit card every month if you have one. (Read my article on credit cards). You have the right to choose and this takes us to our Money Tip for this issue which I’ve already stated but will repeat because it is so important:

Money Tip #14: Exercise your power of choice so you can take control of your money!

No one but you has only your best interests in mind when it comes to money or anything else. YOU have to be in control because other people and other institutions like banks are looking after themselves. It’s not wrong; it’s just the way it is.

~ Brian

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