Your Bank Is Not Your Friend

I have a secret to tell you…

Your bank doesn’t care about you.

I know because I was once on the inside. Let me explain…

I worked for a large US bank, both in its private division and its retail division. The people I worked with were nice, but the bank has an incentive for them. The more money they bring into the bank, the larger the reward.

Sure, all banks need to bring in deposits, that’s how they make money. But don’t be fooled by the friendly smile and neighborly attitude. They want one thing: YOUR MONEY.

A PERSONAL TOUCH

Most brick-and-mortar banks (the kind on your local street corner) typically have basic services like checking and savings accounts. Some offer a higher level of service, perhaps a “private” division where they lure you into more exclusive products and services.

My previous role in this “private” division was to get current and prospective clients to transfer any existing investments or bring more of their own money into the bank. I got a bigger paycheck based on the amount my clients brought in.

Clients may feel welcomed by a smile, a personal touch or a friendly nature. But that employee could easily be gone next month, as often is the case. People move on, and your personal banker may be headed toward the exit (or another bank) because they are looking for a better opportunity, despite offering you that warm smile.

Better Investments? Not Really.

Banks try to convince prospective clients that their investments are special, and not available to everyone. That may be true, but those exclusive investments typically charge hefty upfront fees, embedded in the product itself. Of course, all this is disclosed…in very small text at the bottom of a disclosure form.

Did you read all of those disclosures? I didn’t think so.

In order to grow wealth, a simple method is worthwhile for most. But your bank has other ideas. The more they can convince you to invest, the more selective products they offer, the more money you may bring to the bank.

But - you are likely paying more in advisory fees, on top of the investments themselves, than you realize.

That interesting investment product they mentioned? There’s probably a commission built into it.

The Online Route

Online banks surged in the last decade. They offer higher rates of interest, easier ways to apply for an account, and utilize the power of the internet. With no physical bank to worry about, they can operate in cyberspace. Your corner bank urges you to come inside, fill out an application and meet with a banker.

Due to the brick-and-mortar structure, larger banks have more overhead. They have a huge real estate portfolio to pay for, a massive footprint to cover and so many more expenses to consider, like parking lots, working toilets and leak-free windows. (Hint: thousands of these aren’t cheap!)

The graph above is from 2015, and even then, branch visits were on their way down.

But you say, “It’s so easy for me to visit my local branch!” Sure, visit them. Go to the ATM and get your cash. Apply for a checking account. But be warned…the services they offer are nearly indifferent to what you can find online in today’s world.

Due your homework. Research online banks and the rates they offer for your money. Online banks will almost always offer better rates. Check for bank fees. Want to invest? Look for commissions, read the fine print, and don’t ever be afraid to ask, “How much does this service/investment cost? What is my fee for this?”

You’ll save yourself money, headaches, and you certainly won’t lose any friends over it.

Because the bank is not your friend.

Save On,

Chris