15 Secrets Banks Don’t Want You to Know
Most Americans have at least one bank account and many also have personal loans and credit cards. That means banks are a near unavoidable part of life.
However, for many of us, banking and finances are confusing. It’s easy to lose confidence when banks confront us with bizarre terms and percentage-based math.
Even if you’re financially literate, though, banks can be tricky. It’s clear there are things financial institutions don’t want you to understand, and we’re on a mission to bring them to light.
1: Free Checking Isn’t Free
Many banks advertise free checking as an incentive for opening an account with them. However, free checking isn’t really free in most cases.
If you look closely at the fine print, you’ll usually see fees attached to “free” checking accounts. Banking regulations don’t allow banks to charge activity fees on accounts advertised as free, but they can still charge fees for certain services like ATM use or check printing. They can also require a high minimum account balance.
2: Credit Unions Might Have Better Rates
Before you apply for a loan with your bank, you might want to research rates at local credit unions. Credit unions are member-owned non-profits, which gives them an edge in certain areas.
Typically, credit unions have lower overhead and more incentive to offer lower rates to members. It’s not always the case, but credit unions often have better rates, fewer fees, and better customer service.
3: Read the Fine Print
Whether you’re opening an account or taking out a loan, you should read every line of text before signing any documents. Terms and conditions on loans and accounts are legal statements, and once you sign, you agree to abide by them.
If you don’t understand something, ask questions. Many people don’t read their loan or account terms and end up surprised by fees or restrictions later on. We don’t want that to be you.
4: Closing Accounts Isn’t Easy
If you’ve ever tried to close a bank account, you might already know that it’s often harder than it should be. You typically can’t pull all your money out and walk away.
Depending on your bank, you may have to fill out and sign forms in person. If your account is relatively new, you may also owe an account closing fee of anywhere from $5 to $50.
5: Keep Your ATM Receipts
No one likes keeping track of little paper scraps, which is probably why so many people choose “no receipt” when they use an ATM. However, it’s a good idea to get a receipt whenever you withdraw or deposit funds.
Banks aren’t perfect, and sometimes internal errors cause the wrong amount of money to appear in your account. For this reason, it’s best to keep a receipt until your transaction posts correctly. And, if you can’t stand little pieces of paper, many banks allow you to email the receipt to yourself instead.
6: Overdraft Protection Isn’t What You Think
You usually don’t have to enroll in overdraft protection, and you might think that’s a good thing. After all, it sounds like your bank is protecting you with this service.
However, overdraft protection services often come with hefty fees. It’s better to disenroll and ask for low-balance notifications instead.
7: You Might Pay For Fraudulent Charges
Banks often advertise fraud protection with your account, but it’s important to understand what that means. Often, the bank isn’t promising to do anything more than what federal law requires.
The federal Electronic Fund Transfer Act states that you aren’t liable for fraudulent charges if you immediately report your lost or stolen card number and no charges have been made yet. However, if you don’t realize your card is being used fraudulently until the thief makes a purchase, you may be on the hook for all or part of it.
8: Savings Rates Shift Fast
If you’re opening a high-yield savings account, you should know that savings rates fluctuate quickly. Researching the interest rates at different banks is a good idea, but the percentage will change as the Fed rate changes.
Banks don’t have to provide notice when your rate fluctuates, either. You can probably check the current rate on your online account, or you can call your bank to find out.
9: Deposits Take Time
Banks and credit unions establish their own terms on how long it takes for a deposit to clear. While most banks clear deposits within a day or two, they can take longer.
Federal law requires them to make deposits available in a “reasonable amount of time.” For local checks, that can mean up to five business days or longer if the bank has a good explanation for the delay.
10: Paying Off a Loan Early Could Cost You
Repaying a loan early seems like a great idea. It could save you money in interest and reduce your debt-to-income ratio, which is important if you’re going to need another loan for a different purpose.
However, paying off a loan early isn’t always a good idea. Sometimes, lenders charge an early repayment fee. The prepayment penalty could be a percentage of your loan balance or a calculation of lost interest.
Laws applying to newer mortgages (those placed after 2013) typically forbid prepayment penalties, However, older mortgages may have clauses that allow banks to charge these fees.
11: Banks Can Pay Themselves From Your Other Accounts
Banks have a legal “right to set off.” This means they can pull money from your account to pay debts you accumulate on another account.
Let’s say you have a mortgage and a checking account from the same bank. If you miss a mortgage payment, the bank can automatically pull from your checking account to cover the debt.
12: Online Banks Are Better For High-Yield Savings
Brick-and-mortar banks are never going to admit it, but online banks are usually better if you want to open a high-yield savings account. They don’t have the overhead of infrastructure costs, which allows them to offer better interest rates to customers.
According to CNET, online banks often offer annual percentage yields (APYs) that are up to ten times higher than those of brick-and-mortar institutions. However, online banks may have other flaws. Sometimes, they charge higher fees, provide minimal customer service, and lack the ATM infrastructure of brick-and-mortar banks.
13: Banks Can Reorder Your Transactions
It’s reasonable to expect your bank to order transactions chronologically, but that’s not always the case. In fact, banks can reorder your transactions to maximize overdraft fees.
For example, let’s say you have $100 in your checking account. You buy a $70 pair of pants, then spend $25 at lunch with friends. Then, your gym happens to charge $50 for your membership the same day, subjecting you to a one-time overdraft fee.
The bank can reorder your transactions from largest to smallest, though. So, the pair of pants and the gym membership led to one overdraft fee. Then, lunch with friends leads to a second overdraft fee.
14: You Can Negotiate
If your bank is charging you multiple overdraft fees, account minimum fees, or other penalties you can’t afford, it’s worth giving them a call or visiting in person. Many Americans don’t realize they can negotiate with their bank.
According to Bankrate, the best way to negotiate fees is to be straightforward about what you want removed. If they refuse to help you, point out how long you’ve been a customer or how many assets you keep with them.
15: Bank Tellers Aren’t Financial Experts
You might not realize it, but bank tellers often have sales quotas they need to hit. That means taking their advice on opening new accounts or investing in bank CDs isn’t usually the best idea.
Bank tellers aren’t bad people (typically), and they may genuinely want to help you, but they also have their own motivations. So, before you say yes to a bank teller’s suggestion, research your options and consider talking to a trusted financial advisor.
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