3 Lies Bankers Tell In Order To Get Their Hands On Your Money

The basic function of a bank or financial institution is to collect money from those who do not need it right away and lend it to those who need to put it to productive use, while making a profit in the process.

This is usually termed as financial intermediation.

When you deposit money into a bank, you are practically lending the bank your money, which money the bank will lend to somebody else.

In this article, we look at three lies bankers like to tell in order to get their hands on your money and improve their bottom line.

Lie #1 – “You need a personal loan”

Banks make money when they lend you money belonging to someone else at a profit.

It is therefore in their interest to lend you as much money as possible for as long as you have a good credit standing, irrespective of whether you need the money or not.

Most people struggling with debt have a vague idea of how they spent the borrowed money, only to end up with an acute need for more credit.

This is because they jumped into the trap of wasting money they psychologically believed belongs to someone else.

Often they advocate for ‘debt forgiveness’, without realizing the money they borrowed actually belongs to an unsuspecting ‘saver’.

Lie#2 – “We are here to meet your financial needs”

Financial intermediation is a risky business.

Banks usually lend a fraction of the money they have collected from depositors with the hope that they can make a profit from managing the process of lending it out before the depositors can come and collect it.

Save with them and you will get give or take 0% to 3% per annum or slightly higher if it is a fixed deposit. So much for lending the bank your money.

Borrow from them and they will charge you from 10% to 20% or more per annum.

The bank will usually justify the high lending rate by adding the cost of borrowing, processing fees, a risk premium and a profit.

How they meet your financial needs by enjoying such a high margin (or spread) is beyond comprehension.

Lie#3 – “Invest your money with us”

Banks are a good vehicle for helping you develop the habit of saving money but rarely have good investment products.

The starting point for most people looking to turn their financial lives around is opening up a savings account with a bank with the hope that once they meet their savings targets, they will begin to invest.

If you take a close look at your bank statements, you will discover that you earn very little from the money you ‘invest’ in a bank over time.

But don’t get me wrong. Banks do play a very important role in the economy.

They facilitate payments and can be very useful when it comes to money management, and in financing viable commercial ventures.

How to outsmart the Banks

Having a good understanding of interest rates can go a long way in helping you outsmart a bank. This is usually applicable to commercial loans and is only recommended for astute business people.

You should only borrow money from a bank to invest in an undertaking that has the proven potential to return a higher rate of interest than that charged by the bank.

In this way, you will be able to make your loan repayments without the feeling of being overstretched.