– 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
and drop a like down below. But thank you so much
for watching this video. I hope you enjoyed it and I
will see you in the next one.