How the banks make money as Loan Sharks
Ever hear of a Loan Shark? Well now our famouse financial institutions have become loan sharks. This happens to me every two weeks. I get paid, my debts that I owe the bank are paid off, then I go into debt.
Just in the past few days I have withdrawn $134.40 after my balance went below zero. The bank has charged me $288.00 for doing this. Instead of calling it interest, they call them fees and penalties.
I know people who don’t even make $500 in a month. I’m paying for someones yearly sallery at this rate.
Tags: Bank, Loan Shark, Shark, Loan, Fees, Penalties, Debt, Finances, Cash, Broke, Poor House, Unfair, Upset, NSF, Interest, Interest Rates
June 22nd, 2005 at 8:46 pm
I feel your pain… They got me for a few hundred bucks last year.. Almost as bad as the phone company when it comes to making up names for all kinds of fees.. And good luck trying to get issues resolved.. I think I will just stop right now, before I fill up your comment space with my rants about banks and phone companies and how out of control those industries are…
June 23rd, 2005 at 5:16 am
While I understand your pain, I can hardly consider our financial institutions loansharks. - At worst some may have predatory lending practices, particular for high ticket items such as houses and cars, but they definately aren’t sharks.
You dip into negative territory, get hit with fees, it sucks. It’s you that has control over that though.
What is saddening is that this is the way alot of people work their finances. I blame this on our decaying educational and family values system over the past 100 years. Thats not to say it isn’t your fault that its happened, but outside forces had a helping hand in bringing you to this point.
Luckily, finances are one of the few things in life that are a 99% exact science, something you can have complete control over. It’s also something that once you do have control over, can greatly improve your emotional outlook on life. Most peoples woes boil down to 2 things: Money and Companionship. Master one enough so that it isnt a problem, and you can focus more efforts on the other.
What’s my advice for fixing this dilema? Primarily, you should focus on building a buffer. When you get paid, have a fixed amount, say $100, goto a savings account, the rest put in your checkng account. Link your savings as a backup to your checking account. If your bank doesnt offer this, get a real bank. Most banks will charge a fee for moving money as needed in an automated fashion, usually $5 - $10 for a $100 tranfer. Its alot cheaper then getting hit for $32 or $35 just because you went to McDonalds for lunch and spent $5, then Subway for dinner, etc. At the same time as you build your savings, buckle down as hard as you can on expenditures. These two combined can usually ‘fix’ a situation such as yours in 1-2 months. Once you get passed paying the OD/NSF Fees, and have your savings built up to say $1000, then setup a savings account thats more harder to tap.
Here is my rule of thumb for targets..
1. Your buffer account (that is either the savings account linked to your checking, or the amount in your checking you’ll swear never to dip below) should be at least 1/2 of one paycheck. Ideally, you’ll want enough in your basic checking account to cover one month of living expenses (thats the mortgage, car, insurance, utilities, food, and miscellaneous expenditures that you typically make)
2. The external, more harder to access savings, can either be a true savings account (A good one is the Orange account through ING, currently paying 3.00%), or a Money Market Account (MMA). I have one with NetBank, other good ones with nice APYs are ING, Countrywide, and Capital One. Your local bank will offer MMAs, but it would be abnormal if they offered competitive rates. Large banks like Bank of America, Sun Trust, Citibank, etc, tend to offer below average (as in 1% or less, even now), so stay away from them for real savings. Keep socking money into this account until it is enough to cover 6 months of expenses.
Once you’ve reached that point, your decision making will dramatically change. You will definatley notice an increase in your freedom and quality of life as you wont feel “stuck” to a job or situation.
Beyond that point, move into other investment vehicles.
Now you might be asking .. what about the 401k at work. - here are my thoughts on that. Put money in it, but only if you can do so without it being at the expense of incurring fees. In other words, it makes no sense to be socking money away for retirement, if it ends up increasing your costs now (Thats like robbing Peter to pay Paul). Once you have your buffer in place, and you start building your external savings in an MMA or something, start putting money into your 401k or whatever investment plan your employer offers. The amount I recommend is the minimum to reach the maximum contribution from your employer until you have 6 months saved up in your MMA, then max your 401k. Finally, when you’re maxing your 401k and you have your 6 months MMA, that is when you go after other investment vehicles.
Anyways, this sort of turned into a financial blah blah blah. Hopefully I didnt bore you. Give me a hollar if you need any advice on how to tackle something.