Money expert Ramit Sethi is the author of the bestseller “I Will Teach You To Be Rich” and host of the YouTube channel of the same name. He recently published a video on four common ways banks take advantage of consumers, keeping them in a cycle of financial insecurity.
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Take a look at what to be aware of and how to avoid these issues.
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Bait-and-Switch Interest Rates
As Sethi noted in his video, many banks advertise a high interest rate on savings accounts to attract new customers. Unfortunately, this can sometimes be a time-limited introductory rate. After that period, the high interest rate drops to the company’s normal amount. Meanwhile, the bank is still lending money out at higher interest rates, securing the profit for itself.
Sethi recommended choosing a bank with attractive terms that align with your goals and sticking with it. Keeping your money there over the long term will save you time and protect you from the bait-and-switch.
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Banking Fees
Monthly maintenance fees may be “normal,” but Sethi finds them to be both unfair and unnecessary. Consumers pay up to $25 to bank with institutions such as Bank of America and Wells Fargo, but these banks already make much more when they lend their money out. According to U.S. Bank, a monthly mortgage payment of $1,264 can include more than $1,000 a month in interest in the first five years.
Overdraft Fees
Sethi believes that overdraft fees are predatory and keep people in poverty. He explained that instead of declining a transaction that would bring your account below $0, many banks approve that transaction and then charge an overdraft fee. If you keep spending from that account, you could pay hundreds, possibly enough to erase your interest earnings for the entire year.
Despite the Consumer Financial Protection Bureau’s effort to control these fees, banks charged $5.8 billion worth of overdrafts in 2023.
Discriminatory Practices
Unfortunately, as Sethi pointed out, banks don’t treat all customers equally. Borrowers from minority backgrounds tend to receive less favorable terms.
In one study, for example, Black homebuyers received mortgage quotes that were 31 basis points higher than their white counterparts. Banks also denied Black applicants twice as often.
Sethi can’t fix these unfair lending practices, but he believes in taking control. By listing all of your debts and planning out how you’ll pay them off, you can escape the banks’ control faster.
How To Avoid Fees
“Banks want you to feel stuck,” Sethi said. “They bet on you being too busy, too stressed and too overwhelmed to fight back.”
Ask Banks To Waive Fees
Sethi encouraged customers to call their banks each time they notice a fee and politely ask the bank to waive it.
“If the first person you speak to says no, ask for a manager,” he advised. Sethi estimated that this works about four out of five times for one simple reason: Most people accept the fee instead of standing up for themselves.
Keep Most of Your Money Elsewhere
Sethi encouraged consumers to treat banks like bus stations — not as permanent destinations, but as way stations for their money. He recommended that you find a good high-yield savings account for your emergency fund and invest the rest in high-quality, long-term financial instruments.
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Sources
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“I Will Teach You To Be Rich,” The Bank Fees Costing You Thousands (And How to Escape)
This article originally appeared on GOBankingRates.com: 4 Banking Traps Keeping You From Wealth, According to Ramit Sethi
