How Banks are Screwing You

It’s the 21st century and banks and credit cards are a fact of life; they manage our economies, set our credit ratings, hold our money, and back our mortgages. If you’re a start-up, you may even get funding from the banks! But just because you can’t get away from them, doesn’t mean you have to like them. Banks and credit card companies are financial institutions and their number one prerogative is to make money, often at your expense. Sure, we know that the interest they charge us is way higher than the interest we get from them, but there a lot of things that these businesses do to make a profit from us that we just don’t notice.

Foreign transaction fees

So you’re going on a vacation. Chances are you’re not going to take a giant wad of cash with you. And while travellers cheques are an option, the majority of people will just bring their trusty rectangle of plastic with them. You don’t have to worry about converting money or going somewhere that doesn’t accept travellers cheques. With one swipe and a few pressed buttons you can (almost) instantly get a fat pad of that country’s currency…for a price. Not only do credit card companies charge five per cent of the cost of purchase to any store you may buy from, but for a good long time whether you’re using a bank machine or an ATM in a foreign country the user of the card, either a credit card or a U.S. debit card, has been charged between one to three per cent (on top of the transaction fees you already pay). But that’s not even the worst bit. Until 2006 this tacked on charge was intentionally hidden. The credit card companies counted on most people being ignorant of the exchange rate at the time they made their purchase and not noticing. On July 20, 2006 a class action law suit was settled that required the financial institutions to pay out $336 million and hence forth show these fees on your statement. But does knowing make it better?

Overdrafts

So you’ve forgotten that your rent just went out of your account and you’ve written someone a check. Or maybe you just didn’t have the cash to cover it. Your bank is going to charge you an overdraft fee. These economic times aren’t easy for anyone, but for the country’s poorest, they can be especially bad. In an effort to make more money financial institutions like The Bank of America has upped the number of times it can charge someone an overdraft fee from five times a day to 10 times a day (the average overdraft fee is approximately $25). They’ve also instituted a one-time charge of $35 if the account stays in overdraft for over five days. In such troubled times the banks have set out to make a buck off of the most vulnerable population, those who can’t afford to pay.

Bail out profits

In 2008, under the threat of global financial collapse, governments all over the world took the drastic step of pouring cash into their financial institutions. In the United States alone poured trillions of dollars into their banks. Citigroup alone got $280 billion. But instead of seeing these debts as a toxic asset that should be flushed as soon as possible, some financial institutions have been speculatively buying up the bad debt of these banks on the chance that it will appreciate. Banks, instead of taking the bailout as a cue to be financially cautious, have used the opportunity to load up on volatile investments in the effort to make a profit. The banks have left themselves open to another possible slump should the artificial confidence the banks are experiencing due to the bailouts disappear.

Account maintenance charges

Storing all of your money in a mattress just isn’t going to fly these days, and banks are pretty much your only option. But despite the fact that banks use the money you deposit to make loans to other people and make a pretty profit, you still have to pay for your accounts. Banks have begun to push packaged deals on customers with perks like travel insurance and breakdown coverage that are rarely cashed in on in exchange for service fees to the tune of $15 and up each month. That may not sound like a lot, but multiply $120 , 12 months of fees, by the number of clients the bank services and you get a tidy sum. All for the privilege of letting them use your money to make themselves more money.

ATM transaction fees

It seems like every time you put your card into a bank machine, it’s asking you for money back. ATM fees have become a fact of life for most of us, and a lot of people don’t give a second thought to just accepting the surcharge. But avoid those second thoughts for too long, and you’re looking at a lot of cash. ATM fees get you coming and going. There’s the fee that you’re asked to accept. This is called the foreign fee and goes to the institution or company that runs the bank machine you’re using. In both the U.S. and Canada this fee will usually run you around $2. In places like casinos that charge can be as high as $6. But there’s also the surcharge. This is charged by your own bank (depending on what kind of account you have, your bank may even charge you this fee even when you use your own bank’s machine). The average surcharge is $1.32. So, every time you want to access your own money you’re being double teamed by both sides.

Early payment penalties

You have to take out a loan. You don’t like it, but that’s life. And as soon as you can, you want to pay that loan off. It seems like the responsible to do, right? But if you pay your loan off too quickly, the bank won’t get all of that sweet interest it was hoping to make off of you. So what do they do? The hit you with early payment penalties to make up the difference. If you pay that loan off too fast (say you come into some unexpected money) the penalty which usually sit in the range of 5 per cent of the amount you’ve borrowed. That’s what you get for being responsible.

Those are just a few of the things these institutions do to make a buck off of you and you can bet it’s not all. The important things to do are to pay attention to your financial statements and always read the fine print before signing anything when money’s involved.