In times past, one of the best ways to take a well-defended city was with a good old fashioned siege, essentially, starving the city of either food or water. Now many people want to lay siege to the big-boy bailout banks but to do so, you’ll have to starve them of cash … something the “Occupy” protestors obviously don’t understand.
To starve the big banks, it’s essential to understand how a bank makes money. Banks primarily make money through:
- Fees
- Interest charged to borrowers
Banks make money with FEES
Some fees I understand like overdraft fees, or out-of-network ATM fees. Most other fees are beyond ridiculous. For example, some banks (like Chase) charge a fee if you cash a check drawn on a Chase account if YOU don’t have an account there. Then there’s monthly “service” fees, minimum balance fees, and the infamous “debit card usage fee” that most banks had to rescind once the outrage bubbled to the surface.
Most online banks don’t have these ridiculous fees. One of the best banks for avoiding fees AND getting credit card type rewards is PerkStreet.
Two other banks you could consider are Ally Bank and the ING Electric Orange checking account.
So, if you want to stick it to the big banks, your first step is to STOP depositing money and allowing them to charge those you those fees (ridiculous or otherwise). Instead set up an account at PerkStreet and start getting rewarded when you spend your own money rather than get penalized!
Sign up for a PerkStreet REWARDS checking account here!
Banks make money charging interest to borrowers
Interest is the most common way most people believe a bank makes money. It’s true, the majority of their money comes from interest earned on the loans they make. But if you want to lay siege to the big-boy bailout banks, consider turning to peer-to-peer lending companies such as Prosper or Lending Club.
But did you know a bank can “create” money out of thin air?
Let’s say you deposit $1,000 into a bank. According to banking regulations, that bank only has to keep 10% of that money in reserve. Statistically speaking, people don’t withdraw more than 10% of their balance on any given day. So what happens to the other $900? The bank lends it. Then, when the borrower buys a product, the merchant deposits that $900 and the bank then lends out $810. Repeating this operation over and over means that the bank has loans outstanding of $8,852.50! At 10% interest, the bank makes almost $900 on your $1,000 deposit verses just $100. That’s how a bank makes lots money (the same principle applies to taxes).
To starve the big banks of cash, don’t borrow from them! Your rates are MUCH better at Prosper anyway!
Rates for Prosper borrowers are LOWER than banks! Check out Prosper HERE!
Banks make money in many ways
Fees and interest are just two of the many ways a bank makes money but they are the cornerstone of their financial lifeline. If your bank’s fees or high interest charges have ticked you off for the last time, consider making a move. Changing banks isn’t difficult! And it’s extremely easy to borrow money from Prosper.
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I would like to see peer-to-peer lenders like Prosper (I happen to invest in Lending Club) take a large slice out of the big banks’ portfolios. Between peer-to-peers and other alternative lending sources, credit unions (which I’ve used for nearly a decade), and online banks – it’s a wonder that so many people are so upset with “big banks”. It should be the other way around: “big banks” should be quaking in their boots as more alternatives to their dated business models proliferate. For those who still use big banks: get your money out of the big bank you do business with – if you still have an account with one. When they continue to devise new fees (and they will), you’ll have only yourself to blame when they hit you with new and larger fees.