How do the banks work and make money? Let me break it down in today’s financial lesson.
My name is Ben Y. Thomasian Y. Thomasian Y. Thomasian and I offer in the wealth modules the financial education not shared anywhere. I will break down for you how banks make money, yes I’m talking about Bank of America, Wells Fargo, Chase, Citi, or any other bank.
I learned from a colleague of mine who worked in the banking industry for almost 20 years and who had his license to work in the wealth management division of his bank to offer the products that 95% of the typical bank customers don’t get offered to them. You had to have a 7 figure annual income to even qualify for a sit-down with him and he was great to offer us personal training in which I will share some of what I learned here.
I want to be clear that this lesson isn’t intended to be an attack on those who work at banks, the banks play an important role in helping move money from one place to another, helps keep money safe in an FDIC insured account if it’s under the $250,000. To learn more about FDIC insurance, check out their YouTube video link in the description below. Banks also help us identify liquidity and historical income when trying to acquire a mortgage loan. You can also use banks or credit unions to get a HELOC or Home Equity Line of Credit that allows you to pull the equity from your home for things like a remodel or a fix and flip. Please, refer to my real estate YouTube playlist videos for more on HELOC loans or check for a link in the description below.
It helps to understand how banks work for you as I mentioned previously, but the real reason for this video is to bring to light how banks work against you. Traditionally, banks are where the majority of American’s get their Financial information. How long have you had a bank account? Wasn’t it the first time you opened an account, most likely your first exposure to finances when you cashed that first check from your first job and deposited it into a savings or checking account? How much did you know about money prior to that? How much have you really learned about money since? Did you know that banks have started to change their locations titles from branches to stores? The reason why they are calling them a store now is that it’s not accurate to say you park money in the bank for saving, it’s now for selling goods and services to Joe and Jane bank customers. When’s the last time you went to the store to save something? The traditional bank products being sold are Checking, Savings, Certificate of Deposit accounts. Bankers are not trained in helping you understand how money works, they are trained to sell and build consumer debt which makes the bank money by selling a product with benefits that are tied with fees if the account goes under a certain dollar amount, or to convince you to apply for a credit card or open a new line of credit.
The goal of the bank employee, from the teller on up to the store manager, is set on the sheer number of loans, lines of credit, and credit cards they sell. Every metric was set by those goals and bonuses based on those as well. Most entry-level tellers and bankers are not licensed to talk about investing. The fact of the matter is, it doesn’t take a license to talk about liabilities and getting into credit card debt. I’m a financial professional so I can have these conversations with you, talk about building real savings for retirement, build a family bank, a legacy for the next generation, and with options that are also safe and will not lose money. The point being made here is that you need a license to do what I do, where you don’t need one to be the bank teller to sell the products at the bank. Ninety percent of the tellers that see the ninety-five percent of the population do not have a license to do what I do. They will not talk to you about the best strategies to save money, invest it, preserve it, compound it, and beat the annual cost of living increases. They are good at congratulating you on a new rewards card with a zero percent six-month interest rate that will balloon twenty-plus percent after you have run up a balance on it. Please watch my video on the power of compounding interest in the description below, because if you don’t understand this concept of compounding interest, chances are you’re paying it instead of earning it.
So you can feel free to look this information up yourself on your banks’ website to see what you are earning, and these are the options the bank offers to their clients. It’s so discouraging to open bank statements and see the lack of performance of our money sitting in there uselessly. Banks give these products really powerful names but how do they perform? Like this “Elite Money Market” account, with half a million dollars or more earning 0.01%? Well, that means you can wait 7,200 years before your money will double at that rate as we learned from my video on the Power of Compounding Interest. The last time the banks had a respectable interest rate was back in 2006. I hope you aren’t keeping your money in an account at the bank because you are losing money if you are, and you consider the rate of inflation alone is about 2% a year. And if you want to lock up your money for two years, they will give you 0.04% and that’s with the bonus rate added. I would call this a joke but it’s just sad and frankly sickening considering how much the bank makes off of your money. The bankers don’t have a license to talk to you about options outside of these, but I do. Reach out to me to learn more.
By the way, while you’re looking up how much interest you are making on your money at the bank, grab your credit card statement for that card your bank offered you and that you accepted, to see what you’re paying in interest on that balance in there? The video on the Power of Compounding Interest comes into play here, because you aren’t making the interest, chances are you’re paying it. Banks will also offer you Personal Loans from 5.74% on up to 20.24%, ouch! Again, banks are not here to help you save money, they are here to sell products to you, every client that walks in, the banks asks what can I sell them? Reminds me of my first job when I worked at McDonald’s and my manager would push us to up-sell on the menu items. Oh, you want a Quarter Pounder with cheese? Can I make that a meal? Can I super-size it? The banker buddy of mine said they had something similar, the teller needed to get eight products in the hands of the customer walking in and that was the metric set for them to meet.
After learning this information that you probably already knew, how does it feel to have it broken down like this? I had people ask me, “wait, how is this possible, is this legal?” Yes, and it’s legal. It’s completely legal for the banks to give you absolutely nothing for your money in their accounts and charge you double digits in interest rates on the money they offered you to borrow in one form or another. In a future video I will cover how the bank invests its money.
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Thanks for watching and have a great day!