6 Financial Secrets Financial Secrets Banks Don’t Want You to Know– Banking, Financial Services, and Insurance is one of the fastest growing and most profitable industries of the world. They drive the economic activity of a nation and provide credit to the people. They are a cornerstone of the financial system.
In recent years banks have started providing low rate loans so that credit becomes more affordable to the masses and the poor. Some banks have even collaborated with the government to provide interest free loans to the farmers and low scale businesses.
They may seem a good alternative to quick formal credit but one has to remember that banks still are a profit making machine. Their strategies may involve hidden details and practices unknown to the customers. Today you’ll get to know about these hidden secrets that were told to me by my banker friends.
These secrets will empower you to make better decisions with money. Now let’s read about the 10 Financial Secrets Banks Don’t Want You to Know.
Table of Contents
1. High Interest Rates on Loans vs Low Deposit Rates
The primary method of earning money by banks is the difference between the interest rates. Everyone knows that banks keep an interest rate over the disbursed loan amount. This is how they earn money on personal loans. For customers the method of earning money is to keep their money in the savings account.
Usually the bank charges 7-10% interest rate for loans but offers 3-4% on savings accounts. This difference is called net interest margin. One should always try look for different alternatives for best loan rates like credit unions or peer to peer lending.
2. Hidden Fees and Charges
Banks often charge fees like “processing fees,” “maintenance charges” or “minimum balance penalties” which are terms usually ambiguous to the people. These fees may seem little initially but may build up over time.
Example, a savings account with a monthly maintenance fee of ₹200 will cost you ₹2400 annually. You can look at the fine print or consider no fees or low fees options.
3. Credit Cards Are a Profit Engine
Credit cards are a great way to earn money by the banks as they are designed to keep you in debt, banks earn through credit cards in these ways-
They earn through the interest on unpaid balances which the customers have to pay, then there are late payment fees and interchange fees from merchants also.
4. Pre-approved Loan Offers Are a Trap
Pre-approved loans might sound like an attractive and convenient option, but they often come with higher interest rates and rigid terms. Banks use these offers as a strategy to tempt customers into borrowing money, even when they might not necessarily need it. These loans usually have hidden clauses that could include steep penalties for early repayment or mandatory insurance coverage that adds to the overall cost. Before accepting such offers, it’s crucial to carefully evaluate the terms and compare them with other loan options.
5. Compounding Interest Works Against You
While compounding interest is great for savings accounts, it can be disastrous when it comes to debt. Credit card balances, personal loans, and even some home loans are structured in a way that interest compounds over time.
This means you end up paying interest on the interest, making your debt grow exponentially if not managed carefully. To avoid this trap, always aim to pay more than the minimum amount due and, if possible, clear your debts at the earliest opportunity.
6. Banks Sell You Products You Don’t Need
Banks often push financial products like insurance plans, extended warranties, or investment schemes that you might not actually need. These products usually have high commissions for the bank and limited benefits for the customer.
For example, bundled insurance with loans or credit cards might not be the best deal available in the market. Always do your research, compare alternatives, and ensure you truly need a product before signing up.
