No Bank Would Do That! (or the Ideal Bank Customer)

Found this classic post about what a Bank might think is an ideal bank customer .

It has been pointed out that my post yesterday about a Real Service for Chronic Over Spenders is at best naive at worst unlikely to ever happen. Why wouldn’t a bank run a service like this? The answer is simple, it does not make them any money.

The Ideal Bank Customer

Banks make money on:

  • Customers who carry balances on their credit cards.
  • Customers that use the over-draft service available to them.
  • Folks with bad credit that don’t get preferential interest rates.
  • Consumers who do not carry the minimum balances in their bank accounts to get free banking (and thus pay $25 a month in service fees)
  • Debtors who do not pay back their loans quickly (i.e. they do not make over payments)

This is an interesting paradigm for the Banks.

Banks must portray themselves as being helpful, trustworthy and someone who wants you to succeed in your financial journey, when in fact anyone who does succeed, does not make the bank a lot of money. I have friends who have paid off their mortgages in 5 years instead of 25 years, saving themselves tens of thousands of dollars (but in turn costing the bank tens of thousands of dollars in lost interest earnings), yet the bank must publicly say that this is a good customer, even though they are bad for their business.

An ideal bank customer makes minimum payments on their debts (especially their credit cards), incurs many service fees (or penalties) and rarely if ever talks to anyone in the bank about their issues. Reading that sentence it seems to be an oxymoron, in that it seems to be a description for a bad client, but if all you look at is the bottom line banks will fight over getting these customers.

How do they fight over them? They offer interest free credit cards (for the first six months), and lower interest rates on loans (for the first year), and other interesting marketing gimmicks (free iPods even). These customers make banks much more money than someone who is careful about their debt load, and that keep meticulous records of every purchase and pay things off quickly.

Conclusions

This week I have let my imagination run a little wild, on the problem of how to help people who spend too much or that are chronically in debt, but at the end of it the answers are evident:

God helps those that helps themselvesAnonymous

The banks will help you, but be careful of the help you get Big Cajun Man

It is kind of like the guns don’t kill people, people kill people argument the NRA uses, in an obtuse way of thinking. People get into debt trouble because they can’t control their spending, and try to fix their spending issues with more debt, which the bank gladly obliges, and the financial death spiral (TM) begins.

Final conclusion:Getting out of debt is hard work, choose your tools to get out of debt carefully (unless you would like to try out a prototype Financial Shock Collar, then contact me).

{ 2 comments }

White ATM Machines Same as Pay Day Loans

If you are going to pay $1.50 (or more) for the privilege of using a “White” ATM, you are actually paying worse rates than you would at a Pay Day Loan place.

Don’t believe me? So if I borrow $100 from a Pay Day Loan shop, the fee for this joyful thing is about $21 that has to be paid in 14 days (elapsed not business days). Just typing that makes my stomach turn, but I did actually look it up on one of the handy on-line pay-day loan sites (yes, that is sarcasm).

ATM Machine

White ATM Machine
Image courtesy of cooldesign, at FreeDigitalPhotos.net

If over the month  you take $100 out $20 at a time from these White Shylocks (I use that term as a derogatory term for a money-lender and not in any other way), you’d pay $7.50 in fees (oh and your bank might nail you for more fees), so that actually looks much less than the $21 the Money Vampires want to charge you, however, indulge me on this.

  • In strict mathematical terms, given the $1.50 service fee is applied the second you get it, your interest rate is really effectively infinite (if the Time elapsed is Zero, math goes berserk).
  • Let’s assume you are paying $1.50 because you are too lazy to find an actual bank (your bank), and there was most likely a bank within 1 hour of you, so you are paying effectively $1.50 for an hour (or 7.5% interest for an hour). That translates to about  657 times your $20 withdrawal or 65700% ?

What is This?

Yes, this is more fun with numbers, but think about it, next time you use a White ATM machine.

{ 2 comments }

Best of: Free Banking?

Last year about this time, I wrote about one of my favorite fights that I have most every year, and that is my fight to not pay banking fees. Some years I win the fight, some years I am forced to pay the exorbitant fees the banks wish I pay, can you guess what happened last year?

Free Banking?

Last night, my wife and I went for our yearly meeting with our current bank to move some money around, update our kids’ RESPs and to attempt to receive Free Banking. My wife was sure that this was not going to happen, and that we were going to walk out of their empty handed, and I would be ranting about how we have to change banks. I guessed I might get something, given I had some compelling arguments, so we had a friendly wager(my wife taking the “We are going to continue paying bank fees” side of the bet) for a sweet treat at a local food establishment.

Now if you don’t remember my compelling arguments were outlined in yesterday’s posting: Changings Banks? but I thought of 1 or 2 other arguments just in case.

My extra arguments that I thought of on the spot during the discussions were:

  • If I walked into the Bank of Montreal down the road, and say, I’d like to transfer all of my banking to this branch today, if you give me free banking for a year, I am sure they would comply with my request (and if they didn’t I could simply go to the Scotiabank in the same mall and ask them for the same deal).
  • Why if I was a new client, you would give me a free iPod which retails for about $130, yet as a customer in good standing, you expect me to pay $156 a year to use your bank?

Very High Bank Fees

Very High Bank Fees

The meeting was quite cordial, and we got the banking we needed done, and we were very happy with the service that we received, but when we were left alone, my wife was still adamant that we would not get any concessions (and I was starting to wonder if she was right).

The counter points made by my bank representative were:

  • PC Financial and ING (now Tangerine) have no service charges because they are virtual banks and have much lower overhead, due to them not really having “branches”. This is an interesting argument, except that PC Financial isn’t even really a bank, it is a FRONT to CIBC right now.
  • There is a policy not to give free banking services to anyone, since this is a business. As a share holder in TD I am glad to hear that, since I like seeing companies I invest in profit, however as a customer I am not happy to hear that.
  • An implied argument, but never stated directly was, “If I give YOU free banking, everybody will want it”, which is very true.
  • If I carried the minimum balance in my checking account (I think it is $1000) I would get free banking (i.e. no bank fees would be charged), so why wasn’t I doing that? I pointed out $1000 in my bank account does me little good, but $1000 paid on my debts, does a great deal of good. My guess is if I ever get out of debt, I will carry a balance and get free banking (of course by then I will get the Senior Citizen discount).

What was the final resolution of this discussion? Well, I promised the bank representative that I would not say, and I will abide by that agreement.

Later in the evening I did enjoy the Dairy Queen Blizzard that my wife bought for me, and I will enjoy it for the entire year.

{ 5 comments }

Services and Fees


As a follow-up to my post yesterday about CRA Child Disability Benefit Mrs. C8j pointed out that a lot of folks that she has chatted with feel intimidated by this process and have paid an accountants to get everything set up (Mrs. C8j has met a lot of parents with disabilities and is active in a few forums).

While I don’t have the visceral hatred of accountants that some might have, in this case I really must stress that you shouldn’t be paying to get this work done other than the fees you might get charged by your Doctor to fill in the necessary forms and letters. While I know my amigo the BBC might say that an accountant could be very helpful here (and well they might) paying a lot of money to set this up is not necessary (in my opinion).

My Son Many Years Ago (nice rocking plane his sister made)

My Son Many Years Ago (nice rocking airplane his sister made)

There are many folks who have accountants already working for them do their taxes and such, and good on you if you don’t trust your own skills in this area, but filing these forms is something that you can do quite easily (as I showed yesterday). If you don’t feel confident that you can do it, I guess your accountant is a good choice to help you, but they shouldn’t be charging you much (if any) fees to do it.

As for other services and other important credits to claim, I will be covering those in posts in the next few weeks. I am trying to be careful with these posts to make sure I reflect our experiences, and remember with all of these types of posts from me, it may or may not work for you, I am writing them to show that you might be able to do this (but as with all things in life there are very few guarantees).

Another note, since I view yesterday’s post as being important I have changed one paragraph a little:

In a great many cases, a child’s disability is obvious, and there should be no issue with getting this disability benefit, however, in the case of the Autism Spectrum and other mental incapacities, whether you get this benefit relies heavily on the documentation supplied by the diagnosing professional….

Mrs. BCM pointed out that the term in bold is not politically correct so I have updated it to:

In a great many cases, a child’s disability is obvious, and there should be no issue with getting this disability benefit, however, in the case of the Autism Spectrum and other developmental disabilities, whether you get this benefit relies heavily on the documentation supplied by the diagnosing professional….

I also have included a picture of my son to show that even though he may have a disability he is and was (the photo was when he was much younger) a handsome devil.

{ 5 comments }

Why Complain? Why NOT Complain?

More than once I have touched on the subject of whether it is better to suffer in silence or to complain about bad service or when you feel you have been treated badly. This past weekend reinforced my belief that the only people who suffer in silence are martyrs-in-waiting, but then again Martyrs typically end up being burned at the stake (OK that was Joan of Arc, but you see my point).

We were staying at a hotel in Toronto, because my daughter was playing in a basketball tournament. The first night there, we learned that the room we were given had a big noise problem (it faced into the atrium area of the hotel, and the sliding glass door did not close properly). My wife (not a shrinking violet) called and complained, thus we ended up with a new room (the next day) and free breakfast. Was this suitable compensation for my son not sleeping enough? Not really, but it was better than nothing.

We then had another incident on the next night with a drunken woman kicking a door on our floor (luckily not our door) at 2:30 AM, I complained to the manager, and from that I seem to have received a discount on our rooms for the weekend.

I would have thought this was the least complaining most people would do, but I have had more than one person comment to me that they would have never complained about these incidents, and all I can think is, really? You would sit there and suffer in silence in a noisy room or when a drunken woman is keeping you awake?

If you complain the worst answer you can get is, “I am sorry, we can’t do anything for you“, rarely will the person you are complaining to threaten your life (note I say rarely, and once that did happen to me), so why not say something?

Remember I have said before with Free Banking if you do not complain or at least question things, you are going to have to live with your situation (and I question whether you are allowed to complain about it either). Am I out of line with this point of view?

{ 5 comments }

%d bloggers like this: