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You and the Bank ~ Getting Acquantied

March 5, 2013

At the bank, anyone with the right clearance can find out: 1) where you live, 2) where you work, 3) what you do the pay the bills, 4) who your supervisor is, 5) what your home is worth, 6) what your vehicle(s) is worth, 7) when you were born and where, 8) who your spouse is and much of the same information on them, 9) how many children you have and how old they are, 10) how much is in your savings account, 11) value of your RRSPs, TFSAs, and more. I may have missed a couple, but that is what your bank knows about you.

What do you know about your bank, other than it is the beautiful building on the most expensive real estate in town. You may remember the name of your loans officer that took your application, if she/he is still at this location. You probably know the first name of your favorite teller, but you probably don’t know the name of the manager or his/her assistant. I am sure you have never stopped to think about how the bank corporation can afford the most expensive property in town, so I will fill you in on some of the ways.

As with any other business, banks tie the managers’ bonus to production. Since their production comes out of our pockets, this is not always good for your or my financial health. The size of the bonus depends on how many new credit cards, investments, mortgages and accounts the staff puts on the books. This leads to a trickle-down effect on all supervisory people to keep the numbers up in their department.

They also do a lot of training to teach loans officers how to make you think you are getting a good deal when that is not the case. One way they do this is with posted rates. The posted rate may be 5.21%. You bring up your long term history with the bank and the loans officer drops it to 4.65%. You think you are getting a deal.
However, the next client who has done their homework asks what kind of an introductory rate they can get. This is the third bank they have gone to and this time they get a rate of 3.25%. The bank fools a lot of people who think they are getting a better deal than they are because of the posted rates. The one major exception to this rule is ING. They practice naked banking which means their posted rate is their rate, no fooling with numbers.

Posted rates can also cause a much larger payout if you want or need to sell your home. Many banks will use the “posted rate” to calculate your penalty rather than the lower rate you actually got. Always check the contract for this kind of changeup. After you sign the contract it is too late to get the best terms for your financial health.
Have you ever been sent a “NEW” updated credit card with all the bells and whistles with a slightly lower rate and a larger limit. That is called an “upsell” in the sales world. It just meant that someone in the credit card department looked at existing clients, ran their spending habits and extended the limits on those who they thought could handle it or afford it. It also meant a “NEW” account with the “OLD” one being closed down not counted against their total.
Another very profitable product the banks love to sell is life insurance on credit cards, mortgages, lines of credit. etc. It is known as “creditor insurance” and is usually not in your best interest to get it from the bank. A friend of mine who is an investment counsellor has on her business cards and her website “Ask me about creditor insurance” because she very strongly feels it is about bank profits rather than protecting clients.
Creditor insurance is about the bank making sure it is covered while you probably will not be happy with the outcome should you need the coverage. This type of insurance is called “post-claim underwriting”. The insurance company does not actually approve your application until you you make a claim. Since the policy was not investigated as in any normal insurance policy, you may not be eligible even though you have been making payments.
Creditor insurance only covers the balance of the debt ensuring that the bank is paid. However the payments on this kind of insurance is based on the original loan. You are always paying the same monthly amount with an ever decreasing balance on the loan. If you need it toward the end of your loan payments, a normal life insurance would have been a better choice.

Use the coverage from the bank for short term until you can talk to a knowledgeable insurance agent. With a normal life insurance policy, the terms are much more flexible for your needs and not geared toward the banks profits. You are also not tied to a particular bank should your needs change for any reason. Having to re-qualify 10 or 15 years down the road can be more challenging. Also, making payments on a $1 million insurance policy that you have control over is much better than being broke while the bank gets paid at a time of your desperate need.
If you feel compelled to stay with a particular bank, talk to the mortgage specialist at the bank. They can give you better advice than someone who is a generalist. The bank manager may be a great person, but in this case , you want a specialist. They can find the best fit for you and your circumstances within the limitations of that particular bank.
Always remember when you are getting acquainted with a bank ~ THE BANK CONSIDERS PROFITS MORE IMPORTANT THAN YOUR NEEDS. The individuals at the bank must go along with this program or find another place to work. You must do your homework when dealing with any bank. The bank is in the BUSINESS of lending money, so make sure your assets are covered before you sign that contract.
You will never know as much about the bank as it knows about you, but I hope I have helped with how it makes its living. The individuals within the bank, no matter how nice, are still working within the structure the bank set up and can only give you the breaks and rates management allows.

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