Wake up people!
Banks are not your friends and it is time that consumers wise up to that fact. They are not a “safe place to save money” with “great rates”. They are businesses with shareholders and they are there to make as much money from their clients as is possible…they are there to make as much money as possible from you and me. Here are 4 recent examples that highlight this yet again.
Fees: banks may be actively marketing their fantastic (reduced) bank fees but my experience is that unless you ask them, they don’t usually offer you the lower rate. I chatted with an 80 year old client who is desperate for more money. Turns out she banks with ABSA (but could have been any of the other 3) and they are currently charging her more than R300 per month in bank fees. This is despicable! A quick search of their website shows that they have many greatly reduced options available, including “free” banking for pensioners (subject to a minimum investment of R15000 with them). Doing the maths, R15000 @5% (money market rates) equates to around R63pm…so this is an attractive option, especially when compared to her current situation. Some of the other banks offer current accounts at R40 pm for pensioners. It is time to wake up with respect to bank fees – if you are paying more than R100pm in bank fees then you are paying too much – either get your fees reduced or move banks.
Interest rates: I have come across a few cases recently where clients have been sitting with large amounts in bank “money market” accounts. R3.5m sitting in a money market account earning 3.4% is not ok (from FNB but the others are no better). Firstly, it is around 2.5% below (official) inflation which effectively means that even though you think you are not taking any risk, you are in reality, losing at least 2.5% of your capital each year. Banks are not a safe place to save or invest money! The best place to “park” money (even for a month) is in a money market unit trust account – no fee in or out, access to (all) your funds within 48 hours and the rate is currently around 5%pa – regardless of how much you invest (there are minimum amounts but you should be able to access one for around R1000 pm). Just one up from a money market in terms of risk and return are (enhanced) income funds. Risk of capital loss over periods of 12 months or more is very small and we expect around 7% pa from these kinds of funds currently. I use one of these as my “emergency fund” which includes the money for school fees and provisional tax payments.
Great rates: this is similar to the rant above but Capitec are aggressively marketing their “Global One” account with its very low monthly fee of R4.50. Yes it is low, but not that low and not that great – there are transaction fees on top of that so you could very quickly ramp that fee up substantially. Added to this, they also advertise attractive interest rates on their accounts – if you have less than R10000 in one of their accounts you will currently earn 5% interest per annum. Not bad you say, but do the maths. 5% on R10000 equates to around R500 per year but you still have to take off the (minimum) monthly fee of R4.50 so you then end up with around R446 per year. This gives you a net interest rate of 4.46% pa maximum.
Forex transactions: we helped a client transfer his R4million annual allowance to New Zealand. At the time of the transaction, the spot rate in the market was R7.33 (not really a true indication of the rate as it is not available to smaller users like you and me). At the time, Standard Bank was offering a rate of R7.69/NZ – that’s 5% higher than the spot rate and a difference of more than R25500 on the R4m transaction. With a bit of intervention on our part by using a different forex dealer we were able to secure a rate of just under R7.36 – still R23000 better than the “bank rate”.
So remember, banks are there to make money from you and me – we need to make sure that in the process we are getting maximum value for minimum buck. If not, it’s time to change bank.
