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Ten ways lenders pinch your cash without stealing

By Noel Wandera
Tuesday, September 15th, 2020
Loan. Photo/Courtesy
In summary

As Kenyans look for ways to save a buck during these tough economic times, we may not think of banks as places where to spend money, however, truth is that once you deposit your money lenders plan how to spend it. If not immediately, they will. Below are ways banks eye your cash.

Incentive trap

Let us start by making it clear that tellers are trained to make sales. In this current low-rate ecosystem, profit by interest alone is not enough.

Special and limited time offers are marketing tools used to get you hooked. However, the tellers “forget” to tell you how promotional rates will eventually change.

Low opening rates, reward point systems and extended payment periods are just a few of the incentives they use.

Everything a bank offers you needs to be looked at more closely to determine whether or not you are getting ahead.

All too often, incentives are well-planned gimmicks.

Watch the easy cash options

Since bankers and tellers have to make certain numbers to keep their jobs, losing clients and business is out of the question, therefore, they are pressured to be aggressive in selling loans and investment vehicles to meet quotas.

No disrespect to these licensed bankers and tellers however, as the services they sell can be helpful to individuals and businesses.

But credit cards are too accessible these days. For young people and those in low income brackets, credit and loans are an easy out.

They fail to realise how expensive this is, and inability to keep up results in poor credit down the line.

And it doesn’t just disappear by tapping the staples “easy” button.

Negative payment hierarchy

You may not be paying off debt as fast as you think. This is usually where people begin to really listen up.

On credit cards, you pay high rates of interest on large purchases, and when it comes to paying that debt off, you start from the bottom up.

The smallest debts carrying the lowest rates will be erased first. This principle is called negative order of payment.

Furthermore, the bank will issue you credit cards no matter the amount of cash in your checking account.

These values represent a liquid asset that could be there today and gone tomorrow. Providers know if there’s a card in your pocket you will use it, and they will take their liberties in optimizing the interest you pay.

Some bankers have even admitted their interest rates frequently fluctuate, despite what a card agreement may state.

Bill payment charges

Not all banks charge for the service of online bill paying and/or money transfers.

However, it is advisable to ask your bank, it could be another contributor to the cannibalisation of your checking account.

Convenient online bill payment is one of the many great features provided by banks.

If you’ve been paying bills online, be sure to check your transaction history or call your bank.

Payments can lead to a significant commission downside. If you are being charged for this, try negotiating it or ask if there is a limit issue.

Keep in mind you will be charged for wire transfers to different accounts as well.

Hidden fine print charges

If your bank ever informs you of an account upgrade, promotion or offering, always read to the end of the paperwork.

For example, if offered a “free” overdraft protection limit, make sure there is no initial fee.

As well, every time you close an account there will be a charge. If you use debit cards a lot, but neglect paying attention to your statements, you might be in for some service charge surprises.

Some banks are good about this and will promote you to a higher transaction limit.

For this there will be a nominal fee, but you will no longer pay for each additional card use.

The best solution of all is to carry cash and only use debit or credit in a pinch.

Banks always get creative

Always shop around and ask the right questions before selecting a new deposit account, credit card, line of credit, mortgage or loan.

For basic accounts, you could be looking at charges for general maintenance, minimum account balance, online banking, large cash deposits, and teller fees.

With recent new regulations on banks and lenders, some charges are now illegal.

This forces banks to stretch their imagination a little, raising other fees or implementing new ones.

All good companies innovate, as you will often hear in the news surrounding markets leaders. Why would your bank be any different?

Meagre savings rate

Most traditional bank accounts offer extremely low interest rates. Commonly, people leave money in accounts for years, which funds may depreciate as a result of inflation.

In this, we learn a valuable concept called stagnation. Inflation is hardly unperceived and yet it impacts everyone year after year.

This is a classic example of capital decay, an intrinsic downfall of stagnant cash.

Letting your money sit in a bank account is like driving your first car 10 years later. At first it seems cool, but soon loses its appeal and value.

Banks prey on complacency

Lenders act like any traditional business in the sense of profitability, sales and client base.

These considerations are put first before your best interests as a customer. Secret fees, unannounced interest hikes and manipulated credit rates should make you suspicious enough to do your due diligence.

Good news is that online banking has made keeping an eye on account activity a lot easier.

If you ever encounter suspicious costs, go to the bank and ask for full disclosure.

Never stand between the bank and a sack of money. You won’t realise it slowly shrinking.

Time and market sector capitalisation

If you are a college student reading this, be careful about the next generation push.

Many universities are working with banks to incorporate ATM-compatible student ID cards.

Students are now set up for the double-barrel effect of both high credit and loan debt.

While Universities will negotiate for the most favorable setup, they offer little accountability for students’ spending patterns.

Students are coming out of post-secondary in so much debt because banks know a percentage of students will be long-term customers, and will provide many years of high-interest debt repayment.

There’s no alternative here; avoid the credit grab. The same goes for those with current long-term debt.

Making a relative premium

Most online brokerages offer much lower fees for trading stocks, bonds, mutual funds and ETFs than any bank would dream of.

Along with this, new and improved investment possibilities are starting to appear.

By limiting what you stash in the bank, you can make your money work harder while dealing with the institution less.

For any kind of trading or long term investment, the going rates will cost you a fortune.

Luckily with the rise of discount brokerages, we can smile a little more when it’s time to take profit.

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