How Banks Trick You Into Staying Poor (Avoid These Traps)

Your bank is ripping you off. American households can easily pay $1,000 a year in hidden bank fees without even noticing. That's a mini vacation. That's a month's rent for some people. A brand new iPhone. Gone. Straight into your bank's grubby little pockets. And before you start thinking, well, my bank is different. Let me stop you right there. No, it's not. Your bank is a for-profit machine that will squeeze every last dollar out of you in ways you won't even notice every single month. So let's break down what they do to siphon off your money and what you can do to stop the bleeding. The rich get richer. You know, banks love to tell you that they are offering you a service for keeping your money safe in the account. Fair enough. They do keep your money safe. But let's look at how they do it. Let's say you deposit your monthly paycheck into your checking account. These big brick and mortar banks immediately take that money and lend it out at 6%, 8%, 26% interest on mortgage, business loans, and credit cards. And what do they pay you? A pathetic 0.02% in interest. In other words, they're taking your money and using it to get richer. Imagine you lend me $1,000. And a year later, I proudly hand you that $1,000 and a quarter. And I go, aren't I great? Meanwhile, I've made hundreds of dollars from lending it out. Would that feel fair? Probably not. But that's exactly what banks are doing to you. Let me show you how these banks work. Bait and switch interest rates. Okay, so why would anyone sign up for a bank with a really low interest rate? Well, banks use bait and switch rates of high interest savings to lure you in. They'll give you a nice, fat, introductory 4% interest rate that looks amazing unless you read the fine print, which nobody does. If you do, you'll see that that amount is capped and it drops to their normal rate after a few months. Meanwhile, your bank is still lending out that money at high interest rates. And they expect you, once you put your money in there, you're probably not going to switch it. Next, banking fees. Somehow, despite making billions of dollars off the money you just have sitting in your checking account, your bank will charge you a monthly maintenance fee for the privilege of keeping your money there. Look at these f****** fees. Bank of America, up to $25. Chase, up to $25. U.S. Bank, up to $7. Citibank, up to $15. Wells Fargo, f****** Wells Fargo, up to $35. Next, overdraft fees. Now, banks have perfected the art of nickel and diming you in a million creepy little ways. But the worst way they do this is with these obnoxiously overpriced overdraft fees. One of the biggest scams in banking. Let's say you buy groceries the day before you get your paycheck and accidentally overdraw your account by $1.50. Now, instead of silently declining the transaction or giving you a warning, your bank often silently approves it. And then what do they do? Well, they silently charge you a $35 overdraft fee. You buy a coffee after you leave the shop. That's another silent $35 fee. Some people can rack up $100 plus in fees in a single day. This has been subject to tons of litigation, by the way. Remember, one overdraft fee from a brick and mortar bank can wipe out your entire interest for the entire year. Now, in 2023, banks made almost $6 billion from overdraft fees. And that's not an accident. Here's a comment from someone who watched my last video about America's sh**ty banks. Quote, when I was in college, back over a decade ago, I was very tight on money. And one time, I got to single digits in my bank account. Bank of America charged me a maintenance fee because I didn't have a large enough balance in the bank and put my bank account into the negative. Then they charged me an even larger negative bank fee that was pretty significant at the time for me as a working part-time college student. It literally costs money to not have money in this country. Do you understand how ridiculous it is that by not having a certain amount of money, in other words, working class, poor people, you then get charged more and more and more. You're stuck in financial quicksand that is difficult to escape from. And that's just your f***ing bank account. I'm not even talking about healthcare. This is a system that is working as designed to prey on people with low incomes, people who live paycheck to paycheck, people who don't check their balances carefully, and people who assume, oh, I signed up for a bank. I signed some paperwork. They're not going to screw me over. And with more and more regulatory agencies being dismantled, this will happen more and more. You want to know another way that banks quietly steal from you? Discrimination. If you think banks treat everyone equally poorly, wake up. Black and Latino borrowers are charged higher mortgage rates, even with the same credit profile as white or Asian borrowers. Minority-owned businesses are more likely to be denied loans. And banks steer lower-income customers into fee-heavy accounts. And banks will tell you, hey, we're adjusting for risk. Okay, but when you actually dig into the data, when you control for credit score, income, and financial history, that bias does not go away. So let's call it what it is. Discrimination. Dressed up and camouflaged with financial jargon. Next up, I'm going to show you how to escape this banking trap. But first, let's talk about something that is taking money away from the things you actually care about. Forgotten or unwanted subscriptions. You know that photo editing app you signed up for a free trial for and you used once, and four months later, you're still getting charged 20 bucks a month. What the hell? It's hard to stay on top of these subscription charges that you forgot about because it is so easy to sign up for them. Thankfully, this video's sponsor, Rocket Money, can easily find them for you. Rocket Money is a personal finance app that helps find and cancel your unwanted subscriptions, monitors your spending, and helps you lower your bills so you can grow your savings. You'll see all of your subscriptions in one place, and you will know exactly where your money's going. For the subscriptions you don't want anymore, Rocket Money can easily help you cancel them. They have over 5 million users, and they saved a total of $500 million in cancelled subscriptions, saving members up to $740 a year when using all of the app's features. So stop wasting money on things you don't use. Cancel your unwanted subscriptions. It's so easy by going to rocketmoney.com slash Ramit Sethi or clicking the link in the description below. Now let's get to how to escape the banking trap. Now I have a bank account. I have multiple bank accounts. I'm not telling you to live off the land. You think I want to be outside in a tent? No, I want a nice bank account where I can log in and do some stuff. Banks want you to feel stuck. They bet on you being too busy, too stressed, and too overwhelmed to fight back. Let's prove them wrong. Here are three steps to take back control. Step one, get your fees waived. If you get hit with a fee, don't just accept it. Call your bank and use this word-for-word script. Hi, I noticed a $35 overdraft fee on my account. I'd like to have that waived. If the first person you speak to says no, ask for a manager. Hi, I've been a customer for eight years. I'd like to have this fee waived. Right there, this works about 80% of the time. A lot of banks screw people over because most people don't call and raise the concern. So when somebody like me actually pushes back, they're like, okay, fine. As a complimentary courtesy, we will deal with this fee and happily refund your money. They know in their business model 99 plus percent of people will not say a word. And that's why it's so easy for them to make billions in fees. Step two, use banks for what they're actually good at. Big banks are terrible for savings and investing. I want you to think of them like a bus station. Your job is to get your money in there and then get it the hell out. Think of it, nobody's setting up a household in a Greyhound station. So here's what you do instead. Keep your emergency savings in a high yield online bank. Not sitting in your checking account, earning nothing and not even sitting at a brick and mortar savings account, which doesn't pay very much. For your investments, invest in options like a target date fund or index funds, low cost, long term investments, not investments through your bank's overpriced, complicated investment products with garbage returns. Look at some of this bullshit that's online. Look at these fees that will cost you hundreds of thousands of dollars. Bottom line, get your money in and out of the bank as fast as possible. The less you leave sitting there, the better. Step three, switch to a better bank. Now, this is a single biggest move you can make. So switch to a better bank. Now, I know it seems like a headache. What if something goes wrong? I've had this account forever. What is it with so many of you being nostalgic over your bank? Oh, I've had this bank account since I was 13 years old. It really nourishes my soul. What the **** is wrong with you? OK, get a dog. Give your spouse a hug. Who the hell is hugging their Wells Fargo account? Some of you spend 30 minutes reading reviews on Lengua Tacos instead of spending 30 minutes switching your godforsaken bank. Now, before we continue on, I believe that love is shown through threats. And that's why if you don't click subscribe and turn on notifications right now, I'm going to march down to my local supermarket and open up a Wells Fargo checking account. None of us want that. So subscribe and turn on notifications right now. OK, listen, you don't have to switch bank accounts if you don't want. You want to keep your money at this bank? Fine. But let me tell you something. If you switch and you set your money up in a good bank account, you can keep that bank account for years, decades even. Life gets so much easier when you are not constantly in an adversarial relationship with your bank and they're nickel and diming your ass. So let me give you some specific banks that I personally like. They are more convenient, cheaper, and they offer better rewards. And no, none of this is sponsored. The banks that respect you and the ones that rip you off. First of all, let's talk about the banks that actually respect you. These are the banks that I personally recommend. Charles Schwab. This is their checking account I personally use. And I think it's really good. No monthly fees, no minimum balance requirements. Very good customer service. They refund all ATM fees worldwide. That's right. Zero foreign transaction fees, zero ATM fees. Any ATM anywhere in the world refunded. The only trade-off, not many physical branches, but who the hell is going into a physical branch these days? And if you open up this account, they will run your credit. So make sure you read the fine print. Next up, Capital One. Capital One 360s accounts are solid. No monthly maintenance fees, no foreign transaction or overdraft fees. They actually give you really smart options to avoid them. Their 360 performance savings account is usually pretty high rate. Remember, I don't rate chase. I just pick a good account and stick with them. The only downside is no ATM fee reimbursement. So if you're traveling a lot or using out-of-network ATMs, something to consider. Ally, another excellent choice. No monthly fees, no minimum balance requirements. They offer overdraft coverage up to $250 with cover draft. ATM reimbursements worth up to $10 per statement. And the con is that they have a foreign transaction fee of up to 1% for the transaction with no physical branches. Lots of good options. There's so many. There's many more in my book. I will teach you to be rich. Now on the flip side, let's talk about banks that rip you off. These are the ones that love hidden fees, shady practices. They treat you like another number and I would never bank with these places. If you're still banking with these companies, you're not just losing money. You are paying a loyalty tax for staying with a bad bank. Wells Fargo, this isn't just a bad bank. It's one of the most notorious financial institutions in the country. Wells Fargo was caught red-handed in one of the biggest financial scandals in modern history. They literally opened 3.5 million fake accounts in customers' names without their permission to rack up fees. And they hit you with pretty much every fee under the sun. Avoid Wells Fargo. Next, Bank of America, another serial offender. In 2023 alone, they were fined $250 million for repeatedly charging customers the same overdraft fee, opening fake accounts and withholding credit card rewards. They also treat their customers like garbage. Long wait times, unhelpful staff, and policies designed structurally to screw you over. I don't even think of it as a bank. It's a trap dressed up in a shiny logo with the word America in it. If you are still banking at Wells Fargo or Bank of America, you need to ask yourself, why am I rewarding companies that actively hate people like me? Remember that the banks are not here to help you. They exist to make money off of you. Yes, there are good ones out there, but you have to take the initiative and switch over. And the worst thing you can do? Nothing. Fixing your finances doesn't just stop with moving to a better bank, though. For my full guide on how to improve your financial life in just six months, click this video here.