Consumers rely on banks to ensure the safety of their funds. Banks are a crucial part of the economy and operate as for-profit businesses. However, some of their practices are not as transparent as one might think, and many Americans have become aware of this.
A study conducted in 2023 by the Associated Press-National Opinion Research Center (NORC) revealed that only 10% of American adults have “a great deal of confidence” in banks and financial institutions, while 56% believe that the government is not doing enough to regulate the industry.
Banks employ various tactics to make money and protect their interests, some of which are not common knowledge. Moneywise has compiled a list of key banking secrets that consumers should be aware of and how to address them.
One of the primary ways banks make money is through various fees, ranging from maintenance fees to overdraft fees. Even seemingly insignificant charges can add up over time.
For instance, personal finance expert Dave Ramsey once said, “You agreed to these fees when you opened the account, but you might not realize it until six months later when they show up on your statement.”
However, there are ways to avoid paying maintenance fees, such as maintaining a minimum account balance. Nevertheless, fees for significant loans like mortgages are often hidden in the fine print of contracts. Though it may seem tedious, it is crucial to read the terms and conditions before opening any account.
If faced with any fees, consumers generally have the right to dispute them. After all, like any other business, banks do not want to lose customers, especially given the risk of losing them to competitors.
Using a debit card may have advantages over a credit card, as many businesses charge additional fees for credit card transactions. However, credit cards often offer more protection than debit cards.
In cases of fraudulent transactions on a credit card account, users can dispute them without having to pay during the investigation period. Conversely, users have less protection when a debit card is fraudulently used. Typically, there is only a short window to report fraudulent transactions on a debit card, depending on the rules set by the bank.
According to the Federal Deposit Insurance Corporation (FDIC), if a debit card or PIN is stolen, failure to notify the bank within two business days may make you liable for unauthorized transactions of up to $500. With a credit card, fraudulent activities can typically be reported weeks later (around 60 days on average), or even longer in some cases.
Therefore, using a credit card may be more beneficial than a debit card. Additionally, credit cards can earn rewards or cashback on purchases, which debit cards do not offer.
The Consumer Financial Protection Bureau (CFPB) reported that in 2023, consumers paid over $5.8 billion in overdraft fees.
The deposited amount does not always equate to the total cash available. For instance, depositing a check and then using a debit card for a purchase before the funds clear can result in temporary insufficient funds and incur overdraft fees.
In recent years, some banks have eliminated overdraft fees. If this issue occurs frequently, it might be time to switch to a bank that has implemented this policy to avoid financial losses.
Banks make money by charging interest and various fees on loans. Lending money to you is advantageous for them when you meet the criteria. However, it may be challenging to obtain a loan without a borrowing history.
One of the safest ways to establish a credit history is by using a secured credit card. This involves depositing a sum of money as a credit limit and then spending with the secured credit card. Secured credit cards are easier to obtain than other credit cards and can assist in building a credit history, making banks more willing to grant loans in the future.
Banks earn money through loan interests and assorted fees, but these practices are not set in stone. For instance, when applying for a personal loan, you can negotiate with the bank to lower the interest rate by half a percentage point rather than accepting the initial offer.
Similarly, if a bank charges you a fee for falling below the minimum balance requirement, you can request a waiver, especially if it is your first time encountering such a situation.