E51: Three Concealed Bank Myths Costing You Money

Nate: In this episode we will discuss the three most common myths about banks, and how by changing the way you think about banking can put thousands of dollars in your pocket. She’s Holly and she helps people find financial freedom.

Holly: He’s Nate, he makes sense outta money. This is Dollars and Nonsense, if you follow the herd, you will be slaughtered.

Nate: Alright Holly, it’s good to be back and talking about a topic that is close to home with us, cause we do get into banking concepts, teaching people how to become their own bankers and because of that we end up talking about banks a lot with people. We’re talking about how to build your own, and some of the issues with banking, the way that most of us treat it.

We’ve probably come up with three of the most common myths that most people believe. If you change the way you think I really believe you can make a lot more money, because banking itself is probably rather inefficient for most people. So Holly, what is the first myth that most of us grew up believing about banks?

Holly: If it’s free, that it actually doesn’t cost you anything. I mean, I hear, “hey where can I get a free checking account,” “where’s the cheapest place to open a bank account,” “oh go online and start an online banking account because then it doesn’t cost you any money,” or when you finally wanna upgrade you can do a premium and pay something but initially, most of the time, you can find a bank out there where you can open an account and it’s free–

Nate: Yeah.

Holly: But immediately because we associate free with it doesn’t cost us anything, we don’t realize actually that it is costing you something.

Nate: It surprises people whenever I say that I think that bank accounts are one of the most expensive places to put your money. Most of us work hard to try to find a place that doesn’t have a fee to it, and I think you should. I don’t think you should ever pay a bank a fee just for them to hold the money, with the way its set up these days. But whenever Holly and I say that it’s “free” we have this mentality that it doesn’t cost me anything to put my money there. Well in reality there’s always this thing called opportunity cost, and every dollar that you have in a bank is costing you money because it could be somewhere else actually doing something of value and right now bank accounts just aren’t making us very much money. So every dollar that we have deposited there, they may not charge you money to hold it but its certainly costing you a lot of money to have it there as opposed to having it somewhere else. Is it free? Sure, there’s a free checking but just because it’s free does it mean it doesn’t cost you anything? No. It costs you a lot of money.

Holly: The key that Nate said there is that we are leaving our money somewhere else, we’re parking it instead of keeping it in motion or using it. And it’s not that the checking account isn’t free, but the opportunity to use that money or we leave that balance in there because maybe there’s a requirement that you have to have a minimum balance–

Nate: Yeah.

Holly: Not all of them are that way, but you leave X amount of dollars in there just in case. And it’s really not earning you anything at all, instead of maybe putting it somewhere where it actually could be earning you some [crosstalk 00:03:30] type of interest or tax free growth, and if you’re doing a savings account in a bank, often those are free. You’re not even getting much return on your money even in the savings account, and at the end of the year you might get a 1099 and get taxed on the growth so [crosstalk 00:03:45] it really wasn’t free.

Nate: All in all, it costs you money, yeah. That was a good point that you said, with the minimum balances. I mean even if you left just five thousand dollars minimum in a bank account just so you wouldn’t have to pay a fee, you’re thinking its saving you the fee but no, it’s actually costing you whatever amount you could’ve earned on that five thousand dollars. So just because you’re avoiding a fee does not necessarily mean it’s a good idea.

What we’re trying to say is, just because there’s no fee doesn’t mean it doesn’t cost you anything. In fact, as I’ve said already I think it’s one of the most expensive places to hold your money. They may not take money out of your account, but they’re certainly taking money out of your life. Because it’s money you should be profiting on that you’re not, and they kinda hold a monopoly on that type of money.

Ya know one of the things, before I move on, that I say to people is I’ll ask them, how can bank accounts offer you free banking? They have all these employees, they got this big building, how can they survive if they’re not charging you money to hold it there? And it really is because of the amount of money they’re making off of you that if you were to focus, you could probably do something similar.

Holly: Yeah, and I think another myth along that is that I think in our minds, when we think of a bank, we think that they don’t need our money to live, survive, and grow, and that they use some of their own money, and that is a complete myth. Because really banks are only operating with the money that you’re depositing in there as well as the money they can say they [crosstalk 00:05:19] don’t have – multiply, ya know I put ten dollars in and they can loan out a hundred or whatever the number is today. We believe that, hey the bank has its own money, but in reality the bank’s not using its own money. It’s using your money to lend money.

So really the banks do actually need your deposits in order to make money. I think that part of the problem with banks is they so much need our money just to keep employees paid, and benefits and this and that, so they convince you to pay. You’re doing that deposit into your checking account, but maybe it’s a larger sum than normal. Oh, why don’t you just put it in a savings account, it’ll just take a few minutes. They’re doing anything they can to keep your money coming into their bank.

Nate: Absolutely, and as you just kinda mentioned, costs a lot of money to run a bank and they make a ton of money. How do they do that? It’s off of its customers, and so that’s how they offer free banking, is cause they’re just trying to find ways to entice you to leave your money there.

That’s myth number two right there, is that they don’t need our money, that they have their own money. No, they don’t. They have the money we leave there and then what they multiply, but part of that myth is, I think a lot of people believe that banks only make money off me when I borrow the money. No, they make money whether you borrow or not. They make money when you borrow money, from what they make money on every deposit you make. Because that’s the money that they need to lend.

So in other words, if you deposit money and they can lend it out on a mortgage, or a car loan or a credit card at five to twenty percent, and they’re paying you point one percent or a half a percent or something like that on it, they’re making a ton of money off of your deposit. So banks make money in two ways: they make money by lending money, that’s how they make money off you, if you’ve got mortgages, car loans, we all understand that we’re paying them interest, they’re making money.

What we don’t see is all the money they make on the deposit side. Essentially what we find is that banks make money off of almost every dollar that you make, cause all your money gets put into bank accounts. They’re lending it out and they’re making money, and then not only from your bank account you make payments every month on the loans you have with them. So they get a hundred percent of your income in a deposit, and then they also get that same money in a payment form back to them from that account anyway. So a hundred percent of you’re money they’re working with and making money on, that’s how they’re so profitable and why it’s such a good business to get into and why you have to understand that money that you put in the bank is not free, there may be no fees but it costs you money, and they’re not just out making money when you borrow. They’re making money when you deposit.

Holly: Well and I think that’s why we even teach the infinite banking concept of how to be your own banker and to provide for yourself. Because if you thought like a bank thought, you wouldn’t keep putting your money and giving it to them when you saw how much they make off you. And that’s the biggest myth out there, is that it’s free and banks aren’t making any money off of me unless I have a loan with them, which isn’t true at all.

Nate: And a lot of people who, that same mentality, where they go out and they pay cash for everything cause they don’t want the banks to make money off of them. And they’re letting the nickel [inaudible 00:08:40] they don’t realize that the fact that they have all this cash at the bank, which is of course cash that they’re using to make all their purchases, it’s good, yeah, pay cash for everything. I’m a big fan of that, go for it. However, don’t pretend like the bank stopped making money off you and don’t pretend like it’s not costing you anything to pay cash. Cause it really is costing you a lot of money to have cash at the bank earning practically nothing, just so you won’t have to pay interest to them.

In other words, they’re not taking money out of your account to hold it there, so you may feel good about that, but if you look at your life the amount of money that its actually costing you because of what that money could be doing, amounts to huge amounts of money. Hundreds of thousands of dollars over a lifetime.

Holly: The point that you made, even if you’re paying cash. Let’s say you go buy a thirty thousand dollar car, well you had to have saved that money in some way, shape, or form and most of us either put it from our checking account into a savings account typically is what we do. And then we clean out the savings account or we leave a couple dollars in there, maybe a couple hundred, and we go and buy the car. What we don’t realize is how long is it gonna take us to replace the thirty thousand dollars we just spent? It might take you five years, it might take you six years, maybe it takes you three years, it doesn’t really matter; but there’s really not a systematic way of how you’re saving for the next thirty thousand. You’re just trying to replenish it and take it out again.

Nate: And at any given point in time you just have a ton of money doing nothing for you.

Holly: Yeah.

Nate: Essentially, that’s really what happens. And I applaud you, I think it’s great to pay cash. There’s a sense of accomplishment that you’re in control and different things, so that’s great. But all in all, don’t confuse the fact that the banks aren’t making money off of–by lending, by the fact that they’re not making any money off you and that it’s not costing you anything to do business the way you’re doing it. Because in reality, the cash method costs a lot of money just like the financing method does.

And real money, money that should be coming to you. It may not be money out of the account, as I said, but its certainly costing you money overall, financially, to use bank accounts because of all the money they’re making off you that you’re not getting to make on that money cause they don’t pay you well.

Holly: Yeah, and then you’re gonna get taxed if you’re saving it. They’re gonna send you a 1099 so you make [crosstalk 00:10:59] —

Nate: I made a hundred bucks and the IRS takes thirty dollars.

Holly: Thirty dollars of it, ya know. Its crazy but we truly believe, hey I’m saving that money and I’m doing a really good thing and I think savings is great. But on the same hand, there’s always that hidden uncle Sam of your money’s gonna get taken one way or the other.

Nate: And if we would think about banking the way we think about other financial institutions, I think we would change, and we do this in some of our discussions. If I was to deposit money at a bank for one percent, and they were to go lend that money at five percent, let’s just keep it real easy; lets say I had a hundred thousand dollars and that means that they’d pay me a thousand dollars of interest and they’d earn five thousand on my money. That’s great, okay, but what I’m trying to say is, its a five hundred percent rate of return for them they invested a thousand and turned it into five thousand. That’s really what they did, cause it was all your money.

If we were to compare that to, lets say, a 401K where we did the same thing, or an IRA or a mutual fund or investment, or I go in and I put a hundred thousand dollars. And they go out and earn five thousand dollars with my money, and yet they only give me one thousand dollars of it? I would think that’s a scam. How on earth would I ever be treated that way, where I put in a hundred thousand dollars, they made five grand with my money and paid me a thousand dollars to do it. Why would I ever agree to those terms? But that’s what we’ve all agreed to, is they’re making five hundred percent off my money and it’s my money and they’re not paying me anything close to what they’re actually earning off me.

And for whatever reason, in banking we think that’s fine. If that was anywhere else at any other financial institution we’d all be all up in arms and say what the heck’s going on here guys? You can’t make five times what I’m making off my own money, its ridiculous. But banking is what it is, that’s just the way it is and I gotta keep doing it.

Holly: We aren’t thinking like a bank, we aren’t really seeing that picture like Nate said. And if you had put a hundred thousand dollars in just to get that thousand dollars you’ve gotta leave that entire hundred thousand dollars in there. You can’t take it out. Where you have, really, no control, at that point of the money if you want to earn the thousand.

My dad always says its like going and buying a house; would you ever buy a house and never move into it, and live in it? You’d never do that, but if money is a house, because that’s what buys a house, then why are we doing that with our money? We’re leaving it in the bank account saying, “okay give me my thousand dollars on a hundred, and I’m okay.”

Nate: Did they charge you any fees on the hundred thousand? No. Did it cost you money to leave it there? Absolutely. I don’t care if the number is a hundred thousand, ten thousand, anywhere in between, the money that is sitting in a bank account does have a cost associated with it. It may not have a fee, but it certainly is a cost. We’ll go on to our third myth right here after this break.

Announcer: Have you ever wondered how to stop worrying and just make and keep more of your money? We believe in challenging the status quo. We believe in divine, conventional wealth tools while maintaining traditional values. After all, most of those conventional tools only ever seem to make someone else on the inner circle rich. You can become debt free, in control, secure, and achieve financial significance. Private family financing can be used in your life, and even your business. Let us help set you free from worry. Visit livingwealth.com/freedom to receive your free copy of the Tree of Wealth. You’ll learn about tools banks themselves use and rarely speak about openly. These are the strategies to launch Disney, JC Penny’s, and countless successful families. For more than 46 years, Living Wealth has focused on treating clients with respect and honesty, while helping them achieve financial freedom.

Learn how to turn your hard work into significance. Visit livingwealth.com/freedom to instantly receive your free copy of the Tree of Wealth. You’ll be enabled to have cash today and in the future. It’s more than mere infinite banking; its private family financing. Don’t let banks and Wall Street dictate your financial future. Go to livingwealth.com/freedom to instantly receive your free copy of the Tree of Wealth. Now, back to Nate and Holly.

Holly: Welcome back to Dollars and Nonsense. Today we’re talking about three myths in regards to banks and your money and we’re gonna go into the third myth. And the third myth really is that banks are the only, or the safest, place to keep our liquid cash.

Nate: Right, and on top of that the only way I can be secure is if I got money in the bank. The only place that we can really operate with safe money that can be liquid and be used is in a bank. That’s why they have that monopoly.

Things are changing these days, they really are. And one of the places, as you know if you’re listening to our podcast at all, is that you can do very similar things with a whole life policy as you can at a bank account. Very similar design, very similar structure, just one difference. Who’s gonna be making all the profits from the bank account, you could say, or from the tool. There’s more and more tools coming out cause people are becoming aware of how expensive it is to have money in the bank. They’re seeing all the money that’s being made and they’re realizing there’s gotta be a better way to do this. And that’s why Nelson Nash wrote the book Becoming Your Own Banker saying, hey a life insurance policy-if designed correctly, if focused on the cash side of things-operates a lot more like a bank than it does insurance. And if all you were to do is to see how you could work with the money in the same way you can make a lot more money over your lifetime without making any serious changes. Just change where your money’s going.

Holly: When we think about the safest place for the bank, we have a false sense of security that because it’s backed by the federal reserve or almost we view it as our money’s insured, when in reality its not. It’s not the total amount.

Nate: Yeah, the FDIC has one percent on reserve of all the deposits, or two percent. So they can make the promise all they want but whether it’s – if a financial crisis actually hits, they have anywhere close to enough money to resolve it, I don’t know. Seems like no to me.

Holly: And I think with that safeness we also feel like when our money is being deposited, we’re controlling it. When in reality, I would say that that’s a complete myth, because I believe you have more control with your money in a whole life insurance policy than you do with your money in a bank. I have never been told, when I went to the life insurance company, to take a loan out; that the money wasn’t there, it needed to be ordered. To where when I’ve deposited money in the bank, I’ve been told I can’t even access it for three days, sometimes five days cause it’s such a large sum of money, they don’t have that much cash on hand so they’ve gotta order it. We believe that it’s this safe controllable environment that we control when instead we have really no control over what the banks do, because we’re not a shareholder in that bank.

Nate: Yeah, look at Cypress, and Greece, and Argentina, the people who have these big crises and think of all the control they had. Very limited on what they could do with their bank accounts, everything was frozen for a while. In other words, things can happen in the banks that the control we thought we had, we probably don’t.

I think that the way you think determines a lot of how successful you’re gonna be financially, and if we think about banking the wrong way we could leave a lot of money on the table. And that’s what Nelson Nash wrote in his book Becoming Your Own Banker, when he built the infinite banking concept, the majority of IBC is simply just about how you think. If you start thinking differently about banking and trying to be creative in a way to do it differently that makes you a lot more money, and puts you in the driver’s seat, then you can do that. But if you’re stuck in the herd mentality, as we talk about on our podcast, just doing what everyone else is doing, you’ll get the same results as everyone else. Which, in banking, is pretty poor. I don’t know a single person who makes more money in interest on their bank accounts than they pay in interest on their loans. Banking costs us a lot of money.

Holly: We’re letting the bank dictate when and how much we can take out, and the bank is the one making the rules, really. Its our money that they’re using, but they’re telling us what we have to keep in there as a minimum, or what our interest rate is, or what they’re gonna give us to use our money but we have to leave it there. Once that money’s deposited in a bank most of the time, and if you just let the bank be in charge, which most of us do its direct deposited, and we don’t really think much about it after that other than when we need to get some money out and we let the bank tell us when we can take it out, how much we can take it out, and what we’re gonna pay them in interest. And we agree to those terms as long as we’re just putting our money in the bank. You’re never gonna get ahead in life if you don’t change something. And really one of the biggest keys is changing your money and making sure that you’re the one using your money as a banker, vs letting the bank use the money and make all the interest.

Nate: Right, that’s why I mentioned kind of at the very start is that, we need to stop thinking of our bank account as the primary source of security. I speak to a lot clients who, when I’m talking to them about banking, they give lip service to the fact that they understand it but in reality they still love to see their bank accounts flushed with cash. In other words, they go buy a policy, they start putting money into it. I’ve had some people where they pay a premium into their policy, and it gives them anxiety because money just left their bank, that’s the way they see it. And they think, I’m doing good if I’ve got money in my bank.

And so for those of you listening to this, if you’ve been doing IBC for a while and you’re still thinking in that way that I need to keep a lot of money in my bank, that’s where my security is: that is the essence of what IBC is sharing to us. Is that, no, keep your money in your bank, in your policy.

The only place that allows us to have liquid money, that only profits us doesn’t profit any shareholders of the bank, and that we have total control and no taxation, is the only place like it and you want as much money as possible there and just keep enough to pay the bills for a short period of time in the bank account. That’s how you can make a ton of money, cause remember there might not be a fee to your bank account, but every dollar in there is really costing you money. You’ve gotta put it in a place that’s gonna work and the only place we know of that can work in a way that profits us and makes us money, the only way that really allows us to bank for ourselves, that we know of is a policy. If you have a different idea, great. But the best route that we’ve seen is to use the policy as the bank, that way you can stop losing money by having the money in the bank. I know it’s kind of counterintuitive but that’s really what’s happening.

If you look over a lifetime of someone who has a bank account for 65 years, they may have never paid a single fee in their life, but man that was a very expensive ride for 65 years at a bank.

Holly: The three points, really quick, is that just because it might be “free” doesn’t mean it’s not costing you anything or just because there’s no fee associated with your bank account, doesn’t mean it’s not costing you some type of money. The second one is the belief that the banks have their own money; they’re using your money.

Nate: And that they only make money off of you whenever you borrow.

Holly: Yes.

Nate: They make money off of you whether you borrow or deposit.

Holly: And then the last one was just that the safest place to keep your liquid cash is in the bank.

Nate: Yeah, or the only place.

Holly: Or the only place, really, yeah. [crosstalk 00:23:31] That’s really what we’ve been taught.

Nate: Yeah, and there’s other ways to do it. And always remember guys, if you follow the herd you will be slaughtered.

Holly: For free transcripts and resources, please visit livingwealth.com/e51.