Currently browsing Banks and You

June 8, 2017, 10:26 am

Business Owners: Is it Time to Ditch Your Bank?

by: The Financial Blogger    Category: Banks and You

‘My name’s Mark, and I’m a small business owner. I’d like to tell you about some of the challenges I’ve faced as a self-employed person. My local bank was siphoning more out of my revenue stream than I cared for. So, I went in search of cost-effective alternatives, and this is what I’ve found.’

I run a CMS enterprise where I produce aggregated content for a wide range of industries, including gaming, fashion, and technical operations. My clients are based all over the world, and I subcontract to freelancers and industry experts whenever required. As you can imagine, international transactions factor into my daily business operations. I’ve been engaged in this line of work for the past 15 years, and for the most part I am happy. My client base is steadily growing, and the efficiency of my business has improved.

There was one worrying aspect of my small business that troubled me: fees, commissions, and bank charges. As a sole proprietor or small business, you know that the buck stops with you. You are the first and last line of defense for your own well-being, and you have to take responsibility for all decision-making. Once my business was operating at maximum capacity, I was clearing $150,000 per annum, but I was a veritable workaholic. I never saw a day of rest, even on my wedding day which was interrupted with a morning session of work. Nonetheless, I accepted the challenges because I enjoyed the independence of being able to work from a virtual office.

Boom or Bust – Banks Are Not on Your Side

Being a home-based business has its merits. You don’t have to answer to a boss, other than your clients, and you don’t have to deal with the employees, since you’re dealing with freelancers. The flipside of the coin is that all complaints are yours to deal with and you cannot shift responsibility to anyone else.

Marketing, invoicing, collections, social media, content management, quality control and all other aspects of the business are my responsibility. When it came time to invoice my clients at the end of the month I realized that my cost structure was being hampered by the extortionary fees, charges, and commissions I was paying to banks, PayPal, and other payments processing companies.

As a small business, you often get clients with small work orders. When these clients are based overseas, the only way you can get the money transferred to you is via a payment system that your client is willing to use, and one which you are willing to use. Unfortunately, many of my clients used banks and PayPal. These are two of the most expensive ways to transfer money. Consider one client that owed me £100 for a work order that I’d completed.

This client had a bank in Cyprus which then had to convert euros into pounds sterling. There were fees associated from the originating bank to my bank, and additional fees were tacked on by the receiving bank. Add currency cross exchange rates into the mix and you can imagine my displeasure when I received the final payment. Many similar examples occurred over the years. At the time, I simply accepted this as part of the process.

Originating banks and receiving banks

I invoiced my clients, accepted that banks were going to fleece me along the way and came out with a lot less than I’d charged them. My overinflated gross income always looked much more attractive than my net income. It didn’t much matter whether I used banks or PayPal – they were equally bad. The problem is that anytime money is transferred across international borders, you have originating banks and receiving banks, fees, margins and all sorts of unfriendly exchange rates to contend with.

It can cost as much as £25 for a UK bank to receive an international wire, and as much is $50 for a US bank. These fees simply don’t make sense. PayPal may not charge the high upfront fee, but their commissions are about as user unfriendly as you can imagine. I guess I had gotten stuck in a rut, accepting that those fees were never going to change and that I should simply charge clients more to come out a little bit ahead.

However, I didn’t want to price myself out of the market.

Then I started searching for options other than banks and PayPal for money transfers. I realize that enemy #1 are the actual currency transfers between my business and my suppliers, or between my clients and myself. The unfavorable rates offered by banks are the problem. Banks will always buy for less than what they sell at. They also tack on many extra charges to make any international currency transfer as unfavourable to the client as possible. I have heard horror stories of two-way money transfers eating up as much is 13% of the value of the currency transfer.

Imagine selling your home in the UK for £100,000, transferring that money to the US and then transferring it back to the UK again and paying £13,000? Some banks will do that to you. That’s why I quickly ran a search on best international money transfer options and I came up with multiple alternatives to High Street banks. The wire fees are significantly lower, if at all, and transfers are far easier and quicker than with banks. I initially had qualms about credibility of non-bank money transfer services, but those are quickly allayed when I realized that the top money transfer companies are reliable, and the latest FinTech disruptors.

Banks are now playing catch-up with these companies because they’re losing sole traders and small business owners like myself by the truckload. I highly recommended cutting costs by switching to non-bank money transfer companies. There are many benefits in this, and you can use those cost savings towards your 401(k) retirement plan.

If you liked this articles, you might want to sign for my FULL RSS FEEDS. Then, you will get my daily post to your email and can read it at any time. To subscribe CLICK HERE

Comments: 0 Read More

Related Post

May 29, 2017, 1:23 pm

10 Most Common Hidden Costs and Fees at Banks

by: The Financial Blogger    Category: Banks and You

It’s no secret that traditional brick-and-mortar banks are notorious for hidden and not-so-hidden costs and fees associated with their accounts and services. As a consumer, the best thing you can do is to remain knowledgeable about what these fees are and how you can avoid them. Here, we’ve collected a brief list of some of the most common costs and fees that account holders are faced with. Keep it handy the next time you’re looking to open a bank account or navigate the current fees you may be dealing with.

  1. Foreign Exchange Fees

While people are aware that there are fees associated with international wire transfers, they are seldom aware that most banks charge a fee or markup with every foreign exchange you make. These fees may be hidden under terminology like “service fees,” but ultimately, they’re just a markup that the bank is passing along to their customers.

  1. Foreign Transaction Fees

Often, credit and debit cards through traditional banking institutions have foreign transaction fees built into their setup. This fee applies every time you use your card, which makes a small foreign transaction fee, traditionally around 3%, really add up.

  1. Account Closure Fees

A lot of traditional banks require that you keep your account with them open for a certain period before closing it down. If you should choose to close your account early, you may be subject to an account closure fee. For example, Citibank charges $25 for an early account closure within 90 days of opening a new account with their institution.

  1. Maintenance Fees

Some banks have a monthly or annual maintenance fee that they charge depending on your account balance. In some cases, this fee is waived if a certain amount of direct deposits has been made into that account over a given time. Otherwise, this fee exists solely for the purpose of keeping your account open. This may seem unreasonable, especially when there are many banking options, both traditional and online-only, that don’t charge you for merely having an account with them.

  1. Returned Deposit Fees

In some cases, when you receive a check that bounces, your bank will charge you a fee. This can be frustrating, especially since you’re already dealing with receiving a bounced check. The most common returned deposit fees usually range between $12-$19, depending on the institution.

  1. Paper Statement Fees

Many banks, to save money and switch to a more environmentally-friendly format, have been encouraging their account-holders to change their statements to be received in an online only platform or portal. Some institutions charge around $2/month for account-holders who prefer to continue receiving paper statements (or those who just have forgotten to log in to their account and make the online-only statement selection).

  1. Human Teller Fees

In an effort to keep up with online-only banks, some traditional banks are now offering “virtual only” bank accounts with better benefits and more money-saving services for their account holders. However, these accounts often come with a catch. Should the bank’s website or mobile app be down, they charge the account holder for performing a transaction in-person at the bank with a teller.

  1. Wire Transfer Fees

People often associate wire transfer fees with international transfers, but few realize that the cost of transferring money domestically is still very high. In fact, in many cases, banks charge upwards of $30/transfer for domestic wire transfers. If you use wire transfers for bill pay or to transfer money between accounts, this is hardly an effective use of your funds.

These fees can be even higher when talking about international money transfers. You can avoid it by using a currency provider instead of a bank. Currency transfer companies have:

  • No wire fees
  • Lower rate and margins than a traditional bank
  • Foreign exchange hedging tools
  • Online system with access to a professional trader
  1. Stop Payment Fees

Should you need to stop a payment, either made by wire transfer or check, the bank will charge you an additional fee for cancelling the payment. This fee is usually approximately $30.

  1. ATM Fees

Finally, we would be remiss if we didn’t mention ATM fees. In many cases, if you don’t use an ATM that is associated with your specific bank, there is an ATM fee that your bank charges you (usually a few dollars) and there’s a fee that the ATM charges you, as well. It may not seem fair that you’re getting hit twice with fees just for needing to access your funds quickly, but that tends to be the case.

Closing Remarks

You may have heard of some of these fees, but likely you were surprised by others. Being aware of them is often the first step in protecting yourself against them. Additionally, if you happen to be shopping around for a new bank, you can keep an eye out for these fees in their contracts and choose the account that offers the best options as far as fees go. In many cases, you may find that non-traditional banks, such as pure-online banks (ex: Tangerine or Ally), offer the best options.

 

Image source

If you liked this articles, you might want to sign for my FULL RSS FEEDS. Then, you will get my daily post to your email and can read it at any time. To subscribe CLICK HERE

Comments: 0 Read More

Related Post

December 27, 2016, 2:03 pm

Factors To Consider Before Taking A Guarantor Loan

by: The Financial Blogger    Category: Banks and You

As the best alternative to other loan types, a Guarantor loan may help you achieve your financial goals or get out of a financial mess whenever you want. It has been used by many people to achieve either of these purposes.

However, there are some important factors you must consider before you fill out a Guarantor Loan application form. Consider these few factors:

  • Do you have a justifiable reason for taking the loan? While this may seem needless, taking a loan for what you want rather than what you need is a good recipe for a financial mess. If what you want to take the loan for is not a necessity, you should consider other alternatives. For instance, do you want to take the loan for something important like buying a house or for a luxury such as going on vacation?
  • What effect will it have on your monthly expenses? This is a pertinent question of a good importance if the purpose of taking the loan is for frivolities such as taking an expensive cruise around the world. If what is left after paying your monthly bills is insufficient to take care of your monthly repayment, you should consider a better alternative.
  • How will it affect your credit score? The status of your credit score is of significant meaning to you. It will determine your eligibility for future loans or otherwise. That emphasizes the importance of considering the possible impact of taking this loan on your credit score. If you can pay without hitches, your credit score will be impacted positively. If you fail in your repayment for some reasons, your credit score will take the hit.
  • Are there any hidden charges? If there are hidden charges you are unaware of while taking the loan, you may have to spend more than you actually plan for. The extra hidden charge may stretch your budget beyond your ability to keep up with your monthly repayment. If you want to prevent ignorantly taking a loan with hidden charges, carry out a good background check on the lender.
  • Check the APR. Different lenders implement different Annual Percentage Rate. The APR is sometimes considered by some people to be very high. Since you want to take a loan without collateral, you should expect this high APR. Think about it. Can you really afford the high APR without impacting your budget and domestic expenses negatively?
  • How will it affect your relationship with your guarantor? Remember, your guarantor is either a member of your family or a close associate with mutual trust. Think of the possible consequences of failure to make your repayment as at when due on that cherished relationship.

Many people went into taking a Guarantor Loan without enough information to help them make the right decision. Here are the possible questions and useful tips that will play an influential role in deciding whether to go for this type of loan or not. Whatever you decide, work towards prompt payment to save your guarantor the embarrassment of making involuntary loan repayment for you.

If you liked this articles, you might want to sign for my FULL RSS FEEDS. Then, you will get my daily post to your email and can read it at any time. To subscribe CLICK HERE

Comments: 0 Read More

Related Post

October 28, 2016, 10:39 am

Payday vs installment loan: Knowing the difference

by: The Financial Blogger    Category: Banks and You

If you’re in need of extra funds, you may consider taking out a payday or installment loan – but what’s the difference? Financial jargon can seem complicated but this article will explain in simple terms what each of these borrowing options entails and how the differ from one another.

Installment loans:

Installment loans are a great option for many, making it straightforward to borrow small or large sums of money and paying the owed amount back via regular installments over a set period of time – this is usually from six-months to a couple of years.

Installment loans for bad credit scores are particularly important, as the borrower is given an opportunity to show they can make repayments on time and stick to a pre-organised payment schedule.

The money available via this type of loan can also be used to pay back debt that’s been consolidated in one swoop rather than having to deal with multiple creditors at the same time – which is, of course, an attractive option for those being hounded by various companies.

In short, loans of this kind are a handy solution for long-term cash needs and a good option for those looking to pay money back in increments. While interest rates vary, all costs are transparent and those entering a contractual agreement know what’s expected of them in advance. There are no secrets and reputable companies will also try to keep interest rates down to ensure your finances are as healthy as possible.

Payday loans:

Like installment loans, payday loans give people access to cash when they most need it – the difference is that smaller sums are usually available and the money has to be paid back usually within a 30-day period, either via a predated cheque or automatically via Direct Debit.

Due to the convenient nature of such a loan, interest rates tend to be sky high and borrowers are recommended to ensure they can pay the full amount back in time, to avoid incurring additional fees. This type of loan is also usually unsecured, with lenders assessing the borrower’s ability to repay by viewing recent paycheques. In contrast, installment loans tend to be secured by assets such as personal property, excluding real estate.

Of course there are pros and cons to both options and all aspects of taking out a loan should be considered in full before any action is taken. Installment loans tend to be the much more obvious solution for those who require a larger sum of money with a longer repayment plan, whereas payday loans are perhaps best for those looking for an instant cash injection who are not particularly worried about high interest rates – because they know they can pay the money back in time.

There are many reasons why people apply for a loan, but if you decide to contact a lender be sure to do your homework and avoid many of the common pitfalls, such as borrowing more than you can afford.

 

If you liked this articles, you might want to sign for my FULL RSS FEEDS. Then, you will get my daily post to your email and can read it at any time. To subscribe CLICK HERE

Comments: 0 Read More

Related Post

August 4, 2016, 12:04 am

A Banker’s perspective on your loan application

by: The Financial Blogger    Category: Banks and You

I’m sure you already heard that from a friend or from a family member: “the bank declined my loan, they don’t know what their doing!”. Banks and other financial institutions are often seen as the bad guy who doesn’t understand. This situation often occurs because most people don’t know how loans workout. I have a Norwegian friend who works in a bank and told me how it works. Here are they look at Norwegian consumer loan application:

#1 Who are you?

The first question is related to the person who applies for a loan. The banker wants to know where you work, for how long, if you are married, have children, etc. This helps him drafting a portrait of the kind of person you are. The point is to know if you are in a situation that you will need more credit later on or if you are relatively stable. Loan officers love when someone is stable, it makes credit behaviours predictable.

#2 What have you done so far?

Then, the banker will look at your balance sheet. If you have been working for the past 20 years, he will expect to see some assets. If you ask for more credit and you show a negative balance sheet (more liabilities than assets), your chances of getting the loan are not very good. Usually, cars, furnitures and jewels are not accepted as asset in the eye of a financial institution. They will most likely look at your bank account, investments and real estate properties.

The financial institution will also pull out a credit bureau to see which kind of payer you are. A bad credit is a direct breach of confidence in your relation with the bank.

#3 How will you pay your loan?

Finally, the banker wants to know who you will pay off your debt. This is often a misconception from the population who has assets, but little revenue. If your house is free of debt but you don’t work anymore, it will be harder to convince the lending firm to give you a new mortgage. In the end, the banker doesn’t want to take back your house. He is not in the housing business, he is in the lending business. He wants to make sure you have an income stream that is sufficient to pay for your living and reimburse your debts.

A quick tip to get approved

My friend finished his explanation with a great tip to put all your chances on your side to get approved for you loan: tell the truth! A good explanation of the worst situation is better than a good lie. Most bankers will read you and find out about your lie instantly. Then again, lying to a financial institution will definitely not get your loan approved!

If you liked this articles, you might want to sign for my FULL RSS FEEDS. Then, you will get my daily post to your email and can read it at any time. To subscribe CLICK HERE

Comments: 0 Read More

Related Post