6 Ways Your Bank is Ripping You Off

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Last updated on July 25, 2019 Comments: 5

Banks not very popular institutions. Fairly or unfairly, the prevailing impression many folks have is that bankers are fat cats who make their fortunes at the expense of ordinary people. So here is how to choose a bank while avoiding being ripped off.

However, instead of being mad at bankers, perhaps consumers should be mad at themselves. Time and time again, people let banks get the better of them through careless banking habits.

Here are six ways people willingly give up money to their banks when they don’t have to:

1. Savings account rates

Whether you use an online savings account or traditional brick-and-mortar one, savings account rates have dropped to nearly nothing. According to the FDIC, the average U.S. savings account pays a rate of 0.06 percent. That means a $10,000 savings account would earn just $6 a year in interest. That’s hardly worth the trouble it takes to open an account.

Why are deposit rates so low? Part of it has to do with the Federal Reserve’s monetary policy of lowering interest rates to stimulate growth. Some of the blame has to go to consumer behavior. Banks generally have more deposits than they know what to do with these days, so most do not feel compelled to offer a higher interest rate to attract deposits. What exacerbates that problem is that consumers are all too willing to settle for mediocre rates.

While the average savings account pays just 0.06 percent in interest, some of the top savings accounts pay over ten times that. If consumer behavior were a little more rational, deposits would flow toward the top-paying banks and away from the low-paying ones. This would force those low-paying banks to raise their interest rates or risk a severe drop in deposits.

Unfortunately, too many bank customers fail to take an active approach to shopping for rates. Which means they settle for less than a tenth of the interest they could be getting.

2. CD rollovers

Let’s give consumers the benefit of the doubt and say that they actually compare rates for certificates of deposit when they first open a CD. After that, though, too many people just let their CDs roll over automatically at the same bank. Without even comparing to see if they could get a better rate somewhere else.

If the bank knows a CD is going to roll over passively, do you think they will go out of their way to give it their best rate? Different banks have specials on CD rates that come and go. There is always a good chance of finding a better offer when your CD is due to mature. The nice thing about a CD is that, if you make the effort to shop for the best rate, you can then lock that rate in for the term of the CD.

Besides missing out on the best CD rates, people who let their CDs roll over passively are also missing an opportunity to reevaluate the length of their CD terms. The right term depends partly on interest rate conditions and partly on your financial situation. Both of which are likely to have changed since the last time you chose a CD.

3. Mortgage refinancing

This is another situation where banks are more than happy to benefit from a home-court advantage. If they already have your business, they may feel less compelled to offer a better rate when you do additional business with them.

Certainly, it is worth including your current bank in any refinancing comparison you make. If they still own your loan (which is far from a sure thing), they have already approved of you as a credit risk and so may be more likely to approve you for refinancing.

At the same time, though, understand that mortgage rates can vary significantly from one lender to another. Also, risk assessment is a subjective thing. Some banks will feel more comfortable with you than others and thus offer you a lower mortgage rate. Don’t let the convenience of refinancing with the same bank cause you to be locked into paying more mortgage interest than you need to for years to come.

An easy way to compare mortgage rates is to use LendingTree.

4. Checking account fees

Free checking used to be quite commonplace. Now it is the exception rather than the rule. Still, free checking is there for those who are willing to look for it. There are even interest-bearing checking accounts or high yield checking accounts.

Monthly maintenance fees on bank accounts run to over $150 a year on average. Avoiding them can be a big win. Your best bet is to try online checking since online accounts are more likely to offer free checking than traditional, branch-based accounts.

5. Overdraft protection

Protection sounds nice, doesn’t it? Who wouldn’t want to be protected? Well, when you look at the cost of overdraft protection, you may feel a little less safe and warm.

Overdraft fees typically exceed $30 per occurrence. Stories abound of people who bought a $3 cup of coffee and ended up paying a $30 fee. What’s worse is that you might make several transactions before realizing that you’ve overdrafted your account. That means you’ll pay multiple $30 charges.

By law, all banks, including FDIC insured banks, are supposed to leave people out of overdraft protection unless they actively sign up for it. But banks actively encourage people to opt into overdraft protection when starting an account. It sounds like a benefit, but the inconvenience of having a transaction denied is less damaging than racking up multiple $30 overdraft fees.

6. Credit card rates

You know how interest rates generally have come way down in recent years? Well, apparently credit card companies didn’t get the memo. The average rate paid on a credit card is about the same today as it was seven years ago. This means that, relative to other interest rates, credit cards have become a more expensive form of debt.

Rates can be especially high if your credit history is less than perfect. Remember that when you shop for a credit card, they are probably going to advertise their very best rate. That is not the rate you are going to get unless you have excellent credit. So before signing up for a card, find out what rate they would offer someone with your credit history.

Overall, it is a mistake to think of banks as if they were all pretty much the same. There are over 6,000 FDIC-insured banks in the US, which means you have plenty of choices. How you exercise those choices makes the difference between enriching yourself or enriching your bank.

Article comments

Herman J Scott says:

Were most ATMs limits at $200 for use your free of $3 per ATM usage is too high

Randy Myatt says:

I have a business and a line of credit plus a credit card. with two accounts and no one is explaining why I need them both.the only thing is that the one side of the card will show how much I spend a month so I pay it.then it is put on a different card number they say that is the business side of the card with a different card number and website that I have to go in to.i feel that I’m paying twice for everything.can I get some clarity on this.or help.

Dusty Merrill says:

Forgot to mention Cash Cards . Backed by fraud Banks. I pray soon PayPal and their sisters. Walmart Money Card Netspend Cash App Venmo Universal all steal deposits holds incidentals if you happen to have two cards on a merchant file guarantee you got hit twice.

Sara Razak says:

SAMMMMEEEE! I have literally thousands of dollars I am currently in the process of either trying to dispute with my bank or with Paypal/uber because they are sneaky sons of B****es who will charge you multiple times by never dropping a preauth hold, or by charging all of your payment methods for each transaction they attempted to get the funds from (look at declined transactions on your applepay/applecash wallet, every one of those declined will attempt to go through again if you provide them the payment method… I am a solutions architect lol, my entire job is to take existing systems, sets of data, processes, etc and to find errors or potential errors/weaknesses so that I can fix them before they become an issue. Oh and good luck trying to reach uber, paypal, or any of these bot controlled support centers… I currently am having my credit score wrecked because the wait time for paypal is 4HOURS to talk to one of them via phone since the person I spoke to in the chat (before my account was made unavailable) and they told me that the transactions don’t show that they have been paid on my end when I literally got charged on each one of my payment methods they have and apple wallet has since I paid using paypal through that wallet smh… The banks are no better, I am soooo effing sick of this. Uber is BS to… Idk how these corporations get away with people complaining about this for years on end with no resolve? I am seriously considering hiring a lawyer to do this for me because it is exhausting trying to get back months work of reauthorization holds via disputing the transactions with multiple banks 🙁

Anonymous says:

It blows my mind how may people still pay fees just for having an account. There are a number of banks and credit unions that offer free accounts. Some people probably don’t even realize how much they are paying.