You have had a savings account with your local bank for quite some time. The interest rate that increases your wealth every year, the feasibility of withdrawing them any time, and the ability to move funds around anywhere you desire, has always satisfied you. But it might come to a surprise that there are some very real and much hidden costs that you are paying, as of this moment, by using a savings account. Now, let us take a look at all of them.
Opportunity loss cost
The biggest and most valuable hidden cost of using a savings account is the fact that you are actually losing the potential money that you could have gained through other means of money safe-keeping.
Savings accounts work on the premises of keeping your money in their account, and pay you with an interest that steadily keeps stacking up as the time goes. But this interest that most banks provide is a measly 0.50%. Which, in itself may sound interesting and rewarding, but if you compare the same interest rates with online banks, mutual funds, or credit unions, it falls short.
In today’s world, when the money is becoming exponentially digital, using banks for safekeeping of money has become quite obsolete. Since, even if the money gets lost, you still do not lose a dime because of the governmental insurances. And the same insurances apply to mostly all mutual funds, online banks, and credit unions. Here’s one of the best mutual fund opportunity that will yield high interest.
On the other hand, many of the banking institutions use compound interest on monthly and even quarterly basis, which in turn lowers your already low interest. While many online banks, mutual funds, and even credit unions compound the interest on a daily and pay out monthly.
Teaser rates of interest
While you might find that some banks offer high interest (2.25%<) at the time of opening a savings account, but this sometimes just turn into a tease rate. This tease rate seems really high and might even pay you high interest during the first couple of months, and so it allures a lot of potential customers.
But soon only after a few months, this rate may drop down to <0.75%. And all of this is mentioned in the fine print of the signing forms, which people miss out on while the banking professional explains you everything. This might be a huge loss, and even though not technically a fraud, might still sting you like one.
So, before signing up for savings account in any bank, make sure that you read the fine print and query specifically of falling interest rates in the future.
The biggest problem with today’s banking system and of opening a savings account is that fact that they charge a minimum balance charge. This means that you must have a minimum balance in your account, and if it falls below that set amount, you have to pay a minimum charge every month, until your balance rises above that minimum amount.
This clause is completely against the public interest. As there are many people who struggle to keep that minimum balance and then to rob them off their own savings just because they cannot afford to increase that balance is inhuman. This amount can stack up and can dent in your savings, instead of increasing them.
Penalties for withdrawal
So, it was not enough for banks to charge you with a minimum balance charge, but now you also have to pay more every time you withdraw your own money. The government prescribes to have at least six free withdrawals per month, but it is still the responsibility of the banks to have their own rules and regulations.
And they do so by limiting the free withdrawal limit. The limits can go as low as four or two free withdrawals per month. And everything after that is liable to penalties that can drain your account faster than you even realize. You also have the danger of falling below the minimum amount and pay the extra minimum balance charge on top of that.
So, before opting for a savings account from a bank and trusting your money in the old system of money safekeeping, please be vary of all the points and extra charges. These charges can insidiously creep up to you, and drain you of your money, if you do not read the fine print. But on the other hand you should also be open to the possibilities of working with an online bank, mutual fund, or credit union.