The Secrets That Banks Don’t Want You To Know About
ATM fees, tricks to increase your credit card APR, and monthly account maintenance costs are just a few of the ploys that banks use to make money. While having access to a checking account may be one of the most secure ways to store your money, it can also end up costing you thousands of dollars over your lifetime. Let's examine the secrets banks don't want you to know about how they operate.
Late Credit Card Payments Can Affect Other Accounts
In 2010, the CARD act was supposed to do away with universal default clauses but many of those provisions are still in use. This clause essentially allows a bank to monitor ALL of your open credit card and personal credit accounts. Default more than 60 days on even one account and they can raise the APR on your bank-issued credit card.
There is some good news, though. You can look for this clause in your credit card issuer's terms of service. Some cards feature the clause while others don't rope you into accountability across various accounts.
Incentives Are Given To Limit Human Interaction
Have you ever noticed that banks are offering an increasing number of incentives to open an account with stipulations? For example, you might receive a new toaster or a $150 bonus for opening an account that features online bill pay, direct deposit, or other options.
Banks want you to sign up for services, such as paperless billing, that reduce overhead by limiting human interactions. The more you fall in love with online banking and the fewer steps a bank needs to take in getting you a bill, the less they pay to maintain your account.
Closed Accounts Can Cost You Money
This secret is becoming less likely as more banks close out accounts and restrict transactions, however, it does still causes issues with some banks depending on transactions still coming through on an account.
Some banks will accept autopay transactions you forgot to turn off, leading to a negative balance, non-sufficient funds fees, and even monthly operating expenses. If you close a bank account, be sure all outgoing debits have been canceled.
You Can Avoid Monthly Fees With PPD Transactions
Many checking accounts that require a monthly operating fee will waive that expense if direct deposit is added for your paycheck. These payments typically arrive in the form of an Automated Clearing House (ACH) payment.
If you are a freelancer or run your own business, you can find a bank that accepts other bank transfers in place of an ACH. For example, PPD (prearranged payment and deposits) may qualify and you can satisfy those payments with monthly Paypal transfers, online saving transfers, and various other alternatives.
They Make Money When You Swipe Your Credit Or Debit Card
We know banks make obscene amounts of money when you use an ATM but what about purchase transactions? If you're using a bank-sponsored debit or credit card, they'll make money off each transaction you post to your account.
Banks earn a debit card fee that is typically under $.50 per transaction, and for credit cards they clawback money from an interchange fee (a percentage of the card swipe). Visa, Mastercard, and Discover get most of that fee but the bank earns from the swipe as well.
They Can Stack Your Purchases To Create Overdraft Fees
If you make several purchases in a single day and the final purchase causes an overdraft fee, your bank may rearrange your purchases from largest to smallest. Why would they do this? To cause additional overdraft fees by withdrawing your biggest purchase first.
This practice is becoming less common and many banks will limit the number of overdraft fees they will charge in a single day. However, it can still easily cost customers anywhere from $25 to $100 in a single day.
A 'Deposit Last' Approach Can Overdraft Your Account
Banks will often run your deposit after running debits made on the same day. This practice allows banks to hit your account with overdraft fees even though you just deposited your paycheck.
The trick to solving this problem is to deposit cash whenever possible. Cold hard cash goes directly into your account the moment you deposit it. Since overdraft fees won't post until the following day, cash helps you avoid those additional costs.
They Might Penalize You For Paying Extra Money On Your Loans
Don't sign a loan if there are prepay or prepayment penalties attached to it. These penalties are assessed if you pay additional principal on your loans in an attempt to pay them down more quickly.
Imagine paying $1,000 extra on your car loan only to discover you are being hit with a penalty for being a responsible borrower? Thankfully, prepayment penalties are becoming less common and they are easy to spot if you read the fine print carefully. In fact, many loans will now clearly state that there are no prepay penalties.
They May Penalize You For Closed Credit Accounts
In general, a bank doesn't want to lend money to borrowers if they don't know how to utilize their credit lines properly. If you have a $5,000 credit card and a $10,000 credit card and you close the card with the lower credit line it could actually hurt your credit score and a bank's willingness to give you future loans.
Banks look at your overall credit utilization. If you have $15,000 available and use $3,000 your utilization is considered low. If you close the $5,000 card you are suddenly utilizing 30% of your overall credit, a bad sign for lending.
They Might Sneak Extra Fees Into Your Mortgage
If you take out a mortgage directly from your bank, be on the lookout for additional fees outside of your standard monthly payment. Banks will sometimes use these fees to earn additional income.
These fees might be listed as an administration fee or an exit charge that is paid should you pay off your mortgage early. Prepayment fees may also be assessed. A simple solution? Read the fine print and evaluate the fees of several lenders to find the best deal.
They Will Charge You For Using Another Bank's ATM
Many bank customers don't realize that they're being charged not only by the ATM they use but also by their own bank. These fees typically range from $2 to $3 per transaction. If you do the math on a $20 transaction that could mean you're paying upwards of 25% to 30% of the overall cost of the money you just took out to several different banks or payment transaction companies.
You can avoid those fees by taking out money directly from your bank-owned ATM or through any partner networks your bank works with.
Savings Rates Change All The Time
Introductory rates on your savings account might lure you in but that doesn't mean they're guaranteed for the rest of your life. Banks base introductory rates on current federal reserve rates and they are under no obligation to lock in your rates.
If your goal is to earn money from a savings account you should constantly look for the best deals and move accounts as necessary. We have regularly noticed better saving rates from online banks because they have fewer operating expenses.
Exchanging Foreign Currency At The Bank? Don't Do It
It's easy to swing by your bank after a vacation and ask your teller to turn your foreign currency back into U.S. dollars. Don't do it! Your bank often won't give you the best foreign exchange rate on the money you bring into the branch.
Instead, go to an actual currency exchange. They tend to have the most up-to-date exchange rates and they charge a smaller fee to exchange that cash on your behalf.
They Want You To Miss A Payment With 0% Introductory Credit Card Offers
Read the fine print on your credit card contract and you'll notice that the 0% APR introductory rate you've signed up for comes with stipulations. Banks are hoping you'll miss your monthly payment date because they can drop the 0% APR rate and start charging you for previous transactions.
Remember, banks are in the business of making money and they will use whatever means necessary to target their own customers.
Banks Can Change Your Credit Card Terms Whenever They Want
Have you recently noticed that your 17% APR credit card shot to above 20% or maybe even higher? Banks are under no obligation to maintain a certain rate. In fact, many will feature incredibly high "default" rates that can reach as high as 30%.
If your bank wants to increase your APR or add other changes such as higher late payment fees, they only need to alert you, as their customer, to any upcoming changes. If you opt-out of those changes you won't be charged additional fees on older purchases but you'll have to stop using your card for future transactions.
Universities Make Money By Luring In Students
More than 120 universities throughout the United States have formed relationships with banks to offer university-themed credit cards and debit accounts. Students, eager to have some extra spending cash, after often lured in by introductory offers.
Universities, in many cases, earn money for each student who signs up and then they collect a smaller percentage of purchase transactions, netting them millions of dollars per year. In many cases, banks purchase student details from universities so they can target new potential customers.
Want To Sue Your Bank? It Can Be Nearly Impossible
Are you being treated unfairly by your bank? Perhaps your credit card terms were changed without notification or you've run into problems with your auto loan. If you want to sue your bank you might find that a court won't hear your case.
Starting in the 1990s, many banks started adding strongly-worded arbitration agreements into contracts for all kinds of accounts. The terms often allow an arbitration company named in the bank's contract to choose who will hear your dispute and issue an outcome.
Your Online Account Isn't Always Accurate
Banks rely on customers not realizing when they're about to overdraft their account, as they make millions from non-sufficient funds (NSF) fees. What they often fail to tell new customers is that their online banking portal isn't always up-to-date.
Some smaller merchants may not batch out payments made until the end of the day or even days after the transaction is complete. In other cases, a charge may be placed in a "pending" status for days. Keeping your own ledger is important since a bank doesn't take any responsibility for the data shown in your online banking portal.
Smaller Banks Will Probably Save You Money
A study in 2006 found that the 10 largest banks in America generated 54% of all revenue from fees and service charges. That's where monthly account maintenance fees, ATM fees, and NSF feeds come into play.
In contrast, that same study found that the 10 smallest banks in the United States generated just 28% of all their fees from the same type of charges. Plus, at a smaller bank, you are more likely to develop a stronger relationship with your tellers and branch manager.
They Fail To Disclose A Lot Of Terms
A study by the Government Accountability Office (GAO) found that one-third of banks don't disclose all of their required terms when signing customers up for new accounts.
If you've ever signed up for a new bank account, credit card, car loan, or other product from a bank, you are probably aware of all the small print associated with a bank's contracts. By law, banks are supposed to disclose all of those terms verbally and have customers sign off on those terms. In at least 33% of cases, they have been caught glazing over large parts of those contracts.