You might want to think twice the next time you leave money in your bank account.
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Ramit Sethi, entrepreneur and bestselling author of “I Will Teach You to Be Rich,” explains four ways that your bank is ripping you off and what you can do to protect yourself.
Banks may introduce you to a high 4% interest savings to lure you in, Sethi said, but you need to read the fine print. That rate is often capped and drops to their normal rate after a few months, while your bank is still lending out that money at high interest rates.
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Sethi reminds customers that banks make billions of dollars but still charge you a monthly maintenance fee for the privilege of keeping your money with them. You can face thousands of dollars of hidden bank fees in a year without even noticing.
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Sethi calls large overdraft fees “one of the biggest scams in banking.” Banks silently approve your overdraft and then silently charge you say, a $35 overdraft fee and so forth. One overdraft fee can wipe out your entire interest for the entire year.
In 2023, banks made almost $6 billion from overdraft fees, said Sethi, preying on people with low-incomes, living paycheck by paycheck, not checking their account balances or assuming banks protect them.
Banks don’t treat everyone equally poorly, said Sethi. Black and Latino borrowers are charged higher mortgage rates even with the same credit profile as white or Asian borrowers. Furthermore, minority-owned businesses are more likely to be denied loans.
Sethi says when you control for credit score, income and financial history, that bias does not go away.
If you get hit with a fee, call your bank and ask for a waive. Banks know that the vast majority of people don’t call and raise the concern, Sethi says, and as complimentary courtesy they will deal with you.
Think of big banks as a bus station: “Your job is to get your money in there and then get it the hell out,” said Sethi. “The less you leave sitting there, the better.”
Instead, keep your emergency savings in a high-yield online bank. For your investments, invest in a target date fund or index funds (low cost, long-term investments).
Sethi says switching to a better bank is the single biggest move that you can make. Don’t be “nostalgic” over your old history with your bank, he said.
