- Okay, so I wanna start
off this video here
by asking you a question,
and it's probably a question
you've never been asked before
but that is why do you
have a bank account,
why do you use a bank?
And a lot of us don't
really have a good answer
for this question
because the reason why
a lot of us use a bank
is because everybody else is using a bank,
our parents have a bank account,
our grandparents have a bank account,
and when we became a certain age
we also got our own bank accounts.
Now there's absolutely nothing wrong
with having a bank account.
I have multiple different ones
and I'm still going to use a bank
but what I wanna show
you guys in this video
are a couple of things that the banks
don't necessarily tell
you or want you to know
about their business.
And banks do provide a
very important service.
We have money that we
don't wanna leave out,
we don't wanna be putting
it under our mattress.
We wanna put it in a safe place
and to be honest with you guys,
cash is not the most
user friendly currency.
In my opinion
and obviously some older
people will argue with this,
I find using a card, debit
card way more convenient
or a credit card than paying in cash
and carrying around change.
So banks do provide us
with a very useful service
but there are a few things that
you're going to want to know
about using a bank account.
And number one the first one
is that you are actually
losing money in most cases
every single year with your bank account.
Now I'm not talking about fees,
we'll get to that later on.
I'm not talking about
them stealing your money,
I'm talking about something
else entirely called inflation.
Now we've all been told that
the bank is a safe place,
it's the best place for your money,
it's the safest place for your money
but the bank is also in most
cases a guaranteed place
to lose your money because of
our friend there inflation.
And inflation is very simply
an increase in the prices
of goods and services over time.
Meaning that $100 today
will buy slightly less
in a year and even less in five years.
And so what you want to do as an investor
is try to keep up with inflation
and that just can't be
accomplished in most bank accounts.
So on average inflation
sits at around 2% per year
and we know that the average bank account
in the United States
pays about a 0.05% yield
meaning that every single year most of us
are losing about 1.95% of the buying power
of that money we're holding in cash.
Now there are definitely
some alternatives to this.
There are online bank accounts like Ally,
there's Betterment Smart Saver,
there's short term bonds.
There are ways we can get
a return on our investment
without having all kinds of crazy risk
and there are FDIC insured
investments like CDs
that will allow you to at
least keep up with inflation.
But we've talked about
that a lot on my channel
in the past.
That's not the topic of this video.
I'm gonna link up to another one
that talks about how you
can protect the buying power
of your money and outpace inflation.
Okay, so the second thing that
a lot of people don't know
about banks is that they earn
money as you spend money,
and that is through bank processing fees.
So every time you go out there
and you use your debit card,
every time you swipe that debit card
that merchant is paying a fee to the bank.
And so a lot of people think of the bank
as just a place to store your money
but they're making money
off of you in the process
in a couple of different ways.
That is why bank stocks
are some of the most sought
after investments out there.
People, ya know a lot of people
love investing in the banks
because of all the different
ways they make money
and how they've become an
everyday essential part
of our lives.
So every time you're at the
store swiping your debit card,
a small amount of money
is going to your bank
and that is typically
being paid by the merchant.
Okay number three, the third thing
that is usually the most
surprising thing for people
is that the bank doesn't
actually hold onto your money.
I remember when I was a kid,
I had a $2 bill that I found
and actually someone gave it to me
and I really wanted to hold onto it
and I went to my dad and I said,
I wanna put this in the bank
that way I know it's going to be safe.
And he said, that's the
worst thing you wanna do
because you're not gonna
get that same $2 bill back.
The way I imagined a bank
was a box where they put my cash,
but that's not how banks work at all
because of something called
fractional reserve banking.
And this simply allows
banks to loan out your money
to other people.
Now there are many good reasons for this.
It frees up capital and
it stimulates the economy
but this fractional reserve banking
resulted in a lot of the issues we had
during the 2008 financial crisis
when banks were overextended.
So if for example
ya know the bank had
$100,000 of your money,
they may not have your exact $100,000.
Now they will have that
amount of liquidity,
assuming there is not
something called a bank run
and that's exactly what happened
during the Great Depression.
Everyone ran to the banks
to withdraw their money
at the same time out of fear
and the banks simply did not
have all that money on hand
because of fractional reserve banking.
Now is this something you
have to lose sleep over?
Not really, because we have FDIC insurance
and you are protected with that money.
If they were to go insolvent
the US government would step in
and they would protect people
who had money with that bank
but it is something that
is worth understanding.
Is that the bank takes your money
and they loan it out to other people.
They loan it out in the form
of auto loans and mortgages
and they collect interest on that
and then they turn around
and they pay you .05% yield
on your checking or savings account.
Number four, this is one of
the dirtiest secrets of banking
and I was just a victim of
this a couple of months ago.
And this is the fact that
the banks typically wait
until the perfect time
to strike and that time
is when you are traveling
out of the country.
What I'm getting at here
is something called the
foreign transaction fee.
So most banks don't go
crazy with the fees,
otherwise you would leave
them and you would say,
ya know this is ridiculous.
I'm not paying all these fees.
I'm gonna switch to a different bank.
But there are certain
situations when banks
have an absolute hay day and one of these
is when you are traveling overseas,
using your United States
credit card or debit card.
Now some credit cards to have programs
where they do have coverage in
different countries for free.
I'm not a part of any of those,
I probably should be after
my learning experience here.
But they will literally
make a ton of money
when you go overseas or
you just leave the country
and still use your US debit card.
So back in January I went
down to Mexico for 10 days.
I was in Todos Santos and I
used my debit card down there
because they accepted it
and I really didn't think anything of it.
And then when I got home I
opened up my bank statement
and I could not believe what I saw.
All of these different
foreign transaction fees
from every single swipe that I did
while I was down in Mexico.
And in total during
the 10 days I was there
that was $75.63 in
foreign transaction fees
that went into the pocket of my bank.
Meanwhile, they're also making
money from that merchant,
they're making money from these fees,
they had an absolute hay day with me.
And obviously most banks
are gonna charge us
foreign transaction fee.
If you're going to be traveling
for an extended period of
time or traveling a lot
you're gonna want to find
a way to spend your money
without paying these
fees but this is one area
where banks absolutely capitalize on you
is when you are traveling
out of the country.
And in the fifth and final thing
that a lot of people
don't know about banks
is that they are watching you.
Banks keep track of
your financial activity
and they are required by
the US Treasury Department
to report certain suspicious
activity to the IRS.
And now this is obviously in place
because of a lot of shady
stuff that was going on
back in the day.
It had to do with money laundering
and back in 1970 they
passed this Bank Secrecy Act
which essentially strong armed the bank
and forced them to report activity
over a certain dollar amount to the IRS
that way they could look into it
when it came to the time of year
when you're reporting your taxes.
So if you withdraw or
deposit more than $10,000
into your bank account
in the United States
that activity is being
reported to the IRS.
And if you were to be audited,
they're gonna be bringing that up
and they're gonna say
okay, large sums of money
went into your account or
went out of your account.
We wanna ask you why exactly that was?
What were you doing with this money
and are you paying taxes on it?
Do you have any kind of
illegal stuff going on
in the background?
And so that is something
you have to understand
as someone who uses a bank,
your activity is being
watched and in some cases
it is being shared with the IRS.
So anyways guys,
I thought this was kind
of an interesting video.
We all take bank accounts for granted.
I would say 99.9% of us have
them but this is five things
that a lot of people
don't know about banks
and I hope you guys found
this to be interesting.
So if you did,
make sure you share this
with one other person
who might be interested in this as well,
learning about how banks make money
and some of the stuff that
happens on the backend.
And if you guys are not
subscribed to my channel already
make sure you subscribe.
Hit that bell for notifications
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But thank you so much
for watching this video.
I hope you enjoyed it and I
will see you in the next one.
