Wednesday, January 11, 2017, AM | Leave Comment
Banking can be a great tool to help secure your assets and make it convenient to move your money around.
However, there is an inverse relationship between the size of the bank and the quality of your service.
You might think that the more successful the bank, the better they’ve done at serving people. This will usually not be the case.
First, Who Are the Big Five Banks?
Wells Fargo: $2.42 trillion in assets
Bank of America: $2.185 trillion in assets
Chase: $2.12 trillion in assets
Citibank: $1.36 trillion in assets
U.S. Bank: $415.94 billion in assets
Now, why should you stop doing business with these banks? It turns out that the big five have a lot more in common than most of us think.
They All Engage in Fractional Reserve Banking.
Fractional reserve banking provides a way for banks to profit by producing absolutely nothing from nothing.
Basically, the bank loans out several dollars for every dollar it receives in deposits, then trusts that they will cover this difference in interest and repayments.
This system may work if repayments are dependable, but when economies begin to suffer, repayments become uncertain.
Whose money is at risk in this situation? That’s right: yours. When people become wise to these financial problems, the potential for a bank run exists.
If a bank has been loaning out several dollars for every dollar you deposit, will your money be there when you need it in a bank run situation? Maybe not.
FDIC insurance will cover some of your losses from a bank failure, but not necessarily all of them.
This is like a pyramid scam where a person promises to return your investment tenfold, but then repays you with money borrowed from another person after having never produced a thing.
Eventually the scammer runs out of a fresh source of suckers and someone doesn’t get their money back. It’s happened before in banking and it is guaranteed to happen again.
There’s No Return for Your Risk
Currently, the Federal Reserve loans money to banks at near zero percent interest. The banks in turn take these loans, make risky loans to others at exorbitant rates, and then profit from your deposits as well.
But are they returning these profits to you for taking the risk of depositing your cash into this risky scheme? No.
Current returns on checking accounts at large banks can be as low as .03%, according to a Spanish Fork credit union.
Who would think that investing their money into such a risky scheme for less than 1% return interest would be a smart move? Worse, if your bank charges a “convenience fee,” you are actually losing your investment and would be better off hiding your money in the backyard or under a mattress.
For money above your checking and a small emergency fund, you’re better off putting money in mutual funds and other wise investments.
Most of all, megabanks have lost their soul. Like any publicly-traded organization, the leadership is concerned about pleasing shareholders, not customers.
If you are an account holder with one of these banks, you are just a number to them. They will nickel and dime you to death, fail to perform basic customer service tasks, and sell your debt to the scummiest collectors in the industry.
You are better off banking with small banks and credit unions, and avoiding debt of all kinds.
Chances are high that if you have accounts with a megabank, you’ve had it for most of your life, so you may not realize that you’re being mistreated or overcharged.
But a whole wide world of ethical, friendly, and inexpensive service awaits the customer who is willing to take an hour to move everything over.
If you’ve never had a bad experience, you will. If you have, don’t give them another dime.Facebook.com/doable.finance