Monday, July 6, 2009

Ways That Banks Take Your Money

One of the ways in which you start to create wealth is to make your money work for you and not against you. Currently I have a 3 different types of banking accounts. 

I have my regular checking account that only has monthly expenses and enough in saving so that I am not charged a monthly fee. (This is one of the mega banks, I keep just the minimum in there because I have connivence with them such as bill pay, ATM locations, etc..) I make no interest from having my money with this bank, if anything, I loss money for not using their ATM's. They charge me $2-4 along with the other bank for taking my money out(so silly). I would consider this bank to be working against me, but having some connivence is worth it to me even though I make no money from it. I can also say that I am really conscious about not getting charged ATM or any other fees with this Bank.

My second savings account is with ING Direct where I make 1.40% interest monthly on my balance for having my money with them. That has dropped from 2.40% at the beginning of the year. I still make a little each month, so overall I can say that my money is working for me in this scenario.

My third type of savings account is a money market account that has an interest rate of 2.35%(down from 4.25%) which I make on my balance every month. In this account I have the bulk of my emergency fund and housing fund. I have around 12-13k and make around $125.00 a month just for having my money sitting with them. This clearly shows how you fully take advantage and start making your money work for you. With my money market I can write a check at any moment as well, so it is fully accessible(I have to write a check larger than $250.00 though). Again, I feel like this is making my money work for me and not the opposite.

These are just some of the ways that bank accounts can work in your favor. There also seem to be a lot of banks that want and can work against you. I came across this article in the WSJ by Jennifer Waters about the 10 Ways Banks Take Your Money. Most of these seem to happen with the mega banks like Bank of America, Citi, etc...

One stat that jumps out at me was how banks generated some of their income:
Late fees, loan-origination fees, over-the-limit and overdraft charges helped generate 53% of banking-industry income in 2008, according to R.K. Hammer, up from 35% of income in 1995.
Seems to me banks have figured out a way to make their money work for them and that we the customers are allowing them to do it right in-front of our eyes. You cannot blame them right? If you do not care about your money enough to know or to change banks, would you expect anything different? Here are a few of ways Banks Take Your Money: (see this article for the all 10)
Checking account: Consumers shouldn't assume their checking accounts are fee-free or, if they are, that they will always continue to be so. Charges vary from a flat monthly fee to one that is dependent on how many transactions you have or on a minimum account balance.

ATM:If you use an ATM that doesn't belong to your bank or doesn't have an agreement with your bank, you could get whacked twice -- once by your bank and once by the bank whose ATM you're using. Fees typically range between $2 and $4. (This has got to be the money maker, esp. in Vegas)

Overdraft: Charges can add up when you unknowingly bounce a check or go over your account balance. Many consumers argue that banks should deny them cash at the ATM if the withdrawal is going to overdraw the account. But most banks don't do so because allowing the transaction to go through and charging the subsequent penalty brings in money.

Tellers: Banks drew fire from consumers in the 1990s when they tried charging a fee if human interaction occurred when depositing or withdrawing money. There are scattered reports of these fees popping up again, mostly for "excessive" use of tellers. Some banks give you two free teller visits per month, but charge you after that -- say, $2 or $4 for each extra visit. (This one is crazy, I have never come across this one?)

Closing accounts: Many banks will charge you a fee if you close an account within 90 days -- and sometimes within six months -- of opening it. Bankrate has seen fees between $5 and $25.

Credit cards: Legislation going into effect next year will put caps on some credit-card late and over-limit fees and on how they're charged against old and new balances. Until then, expect to see them grow. Grace periods also are expected to end or be severely restricted.
By avoiding these types of fees, I believe it is just one more way that you can start creating more wealth for yourself, it starts with the little things, saving $25-$100 a year in fees. It also is about caring enough about your money that you don't waste money. I have to admit I used to not care about this stuff when I was in my early twenties and it was, by far, one of the dumbest thought processes that I have ever had. Once you start cutting cost/fees in every area of your life and reinvesting them, the more your money starts working for you. In the long run 20-30 years from now it all piles up and you will eventually have yourself a nice little nest egg.

Any other tips? or Comments? Let me know...and remember let your money start working for you!

1 comment:

  1. I definitely agree with you there, "it starts with the little things". I also have been using ING Direct for a while, and have some money market cash in ShareBuilder as well. I suppose I should really check and see which is delivering a higher interest rate.

    It doesn't seem quite as obvious in ShareBuilder as it is in ING Direct, the orange accounts have their interest rate plastered everywhere.