Rookie Series Article 1: Big Banks Are Bad For Your Wealth, Part 1
As promised in my BHAG post, I want to give rookie advice to those who are just starting in their financial freedom goal. In this series of articles, I will show how banks use your money to make themselves wealthy, while leaving you in the dust. I briefly explain compounding, inflation, and other economic topics that go into a banks offering. I then break down how you can get the most bang for your buck while using banks to store your money
Big Banks Charge You to Allow You to Invest With Them
Now this may seem a little confusing. I know what you’re thinking “I’m not investing with them. I’m just putting my money in a safe location, aka a bank.” But, what you dont know, is what the bank does with your money while it sits safely in your bank account. The banks use that money to do numerous things. They use your money to provide loans to people and companies. They use your money to fund investment accounts. However they use it, the point is they are leveraging your funds to increase their pockets, all thanks to you! The crazy thing is they have also set up money making schemes to charge you to make even more money.
In the above photo from a Big Bank, you can clearly see the $12 fee for storing your money, UNLESS you meet one of the few qualifications. Those with enough money in the account or have a job that allows for a direct deposit over the minimum don’t have to worry. This is actually miniscule compared to their biggest money maker, Overdraft Protection. With this “protection” they claim they will allow you to overdraft your account because “we don’t want you to be denied while trying to buy your children food” or blah blah blah. What is not too clear is how they charge you $40+ each time you overdraft.
Story Time!
When I was in college, one of my roommates stole another roommate’s debit card to play a prank. They purchased adult toys on the debit card, so when it arrived, the roommate would be surprised and embarrassed. That toy was $40 and the card was cleverly returned. Now, what was unknown was there was only $45 in the account. The unsuspecting roommate used the debit card to fill his gas tank, $30, and purchased lunch, $10. He should be good, right? Well he really had only $5 in his account, so he ended up overdrafting twice. At $40 an overdraft, this toy ended up costing him $120 ($40 for the purchase and $80 in overdraft charges). This is a common way banks take advantage of the poor.
