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Welcome to Money Talk for Real, a podcast where I talk about making money, spending money, and everything in between. I'm Nick, and in this episode, I want to talk about banks, the big, bad, beautiful banks that have all the money in the world, right? You see them and you drool. They have the biggest skyscrapers in the biggest downtown cities and the biggest areas in the world. Let's talk about the banks because whether you think about it or not, they are making money off of you. They're making money off of me. They're making money off of everyone you know every single day. They're not doing it in some kind of shady way, a hidden way. They're just doing it in ways that most people don't pay attention to. So I'm going to break down how banks actually make money, the ways that you're probably contributing to it, and most importantly, how to flip it so that it benefits you instead. Let's simplify this as much as possible. Banks make money in two main ways. They make money in other ways, but these are the two main ways. They lend money, meaning they let people borrow money, and they use your money. They use my money. They use customers' money. Here's what that means. You put your money in the bank, for an example. They don't just let it sit there. They use it. They lend it out. They take your money and you know, let someone else borrow that money and they charge interest on that money. Meanwhile, they pay you almost nothing to keep your money there. So you're, you know, they are borrowing your money essentially for free, for certainly a lot less than what they're charging other people to borrow your money through them. So right away there's a gap. They earn more from your money than you earn from storing it there. That's the business model of a bank. A real life example. If you put $100 in the bank, they lend $100 to me, they're going to charge me 10% interest, but they're only going to pay you 8% interest, whatever it is, right? So uh they keep the 2%. That's the business model of a bank. That's how they make all their money. And this is where the majority, again, they do make money other ways, but this is where the majority of the money is made, is in the interest. If you carry a balance, you're paying 15% on that balance. You're paying 20% on that balance. Interest, I mean. Sometimes more. That's not small money, that's massive profit for them. Think about how much money, if somebody's $100,000 in debt, now that might be extreme, but think about how many customers a bank has. A lot of people. Same idea with an auto loan, personal loans. You borrow the money, you pay interest over time. Mortgages, that's the biggest one. Even a quote unquote low rate of a mortgage over 30 years, you're paying a lot of money in interest. And here's the thing banks love long-term debt, right? The longer you're paying, the more money they make. If you have a long-term loan with a bank and you are in debt for a long time, they love that. You're the ideal customer for them. Now, there's also fees and the small charges that banks make their money from. This is the stuff that a lot of people ignore because it is small. It just feels quote normal and we kind of all just accept it. But it adds up. We're talking about overdraft fees. Overdraft fees are when you withdraw or spend more money than is in your account. You have overdrafted your account. Late fees, meaning you don't make a payment on time, they charge you a fee for that. Account fees, yes, there are credit and debit and loan accounts that charge you a fee just to have an account with the bank. ATM fees, that's another big one. They charge you, if you're not a customer, let's say you bank with Wells Fargo and you go to a Bank of America ATM. If you're not a customer with Bank of America, they're going to charge you $3 at the ATM. Maybe it's $5. I don't know what it is, but they charge you an ATM fee. So those four fees, the overdrafts, the late fees, the account fees, the ATM fees, they make money like that too. And individually, they're freaking annoying. But across millions of people, the banks can make huge money doing that, charging fees, right? Bunch of money. And I will say though, even though I've just maybe gave you a negative depiction of a bank, these are avoidable, but only if you're paying attention. Your behavior as a customer of the bank is their profit. Banks don't just make money from money, they make money from behavior. The behavior that I'm talking about are things like carrying a credit card balance, paying interest over time, not paying it down. That's a behavior. They make money from that. Making minimum payments on those cards that goes hand in hand with the balances, but minimum payments, that interest compounds, and they love that too. That's why they like long-term debt. Overdrafting your account, that's a behavior problem. That it all stems back to controlling your money. Not paying attention, that's a behavior problem. The more reactive you are, the more money they make. The happier they are. The more you the worse off you are bad with money, the better they are. If your money is unorganized, it's unmanaged, it's inconsistent, you're more profitable to a bank. Now, how do you flip this? Here's the part that actually matters to you and I. How do you benefit instead of getting used essentially by a bank? Stop paying interest wherever you can, whenever possible. It's one of the reasons I started this podcast to help you get your finances under control. And part of getting your finances under control is getting rid of debt. Pay off your credit cards, avoid carrying balances if you can. High interest debt works against you. I think that goes without saying. Use interest in your favor. Instead, for example, instead of paying interest on a loan or money owed, earn interest. This can be in the form of a savings account with a high yield, a high yield savings account that will pay you interest on money as it sits in the bank. Investments, another way that you can earn interest. Anything that grows your money is a way that you can earn interest instead of paying interest to the bank. And that typically, I understand that takes money to start with. But once you get your bills and your finances under control, that leftover money every month can go into one of these accounts. The system at this point would be working for you. The next thing on how to flip this is avoid those unnecessary fees. Set things up in a way so that you don't get hit with overdrafts. You don't get hit with late payments. You don't get hit with random charges. This is just awareness and structure. I can't really dive deep into it because I don't know. It's going to depend on the bank. It's going to depend on the account at the bank. I don't know all the ins and outs of every single bank. But there are ways to avoid that. You just have to be aware, do some research, figure out what accounts are good, what accounts are bad. Keep money in your account. Don't spend more than you make. Pretty much all the things that I talk about on this show. Use your credit strategically, not emotionally. Credit isn't bad as far as a credit score. Other big finance gurus online that are very successful, and I have no hate towards him, will tell you that it's you don't have a you don't need a credit score. Well, I'm not going to argue that, but I will say credit scores and having credit isn't bad. Misusing credit is bad. And the average person cannot correctly use credit, which is why the other person that I'm talking about teaches not to have it. Use credit for convenience, I guess, or for rewards if you're disciplined. I got to be very careful saying that. But do not use it as a backup plan. Stay in control of your finances. This is the big one on my list here. When you know your numbers, you manage your money, and you stay consistent, you stop being reactive. And everything starts to flip in your favor instead of the bank's favor. So the big picture, let's zoom out a little bit. Banks are not the enemy. They're not the big bag banks. That was a teaser I said at the beginning of this episode. They're just a business. They're trying to make money. That's their entire goal. Your goal, however, as one person, don't make it easy for them to make money off of you. You're a number to them. You're a customer to them. We're not a family. They say, oh, welcome. Welcome to the Wells Fargo family. No, we're not a family. If we're a family, they can come home with you and help you do your laundry and dishes. We're not a family. Don't make it easy for them to make money off of you. When you understand how that system works, you can start to avoid the traps. You can start to use the tools and actually benefit from it. Because the truth is, most people don't even realize how much they're paying until they stop paying it. Until you wake up one day and you're like, oh crap, this is amazing. I don't have to pay, you know, $20 a month anymore. I don't have to pay that late fee anymore. I don't have to, you know. Banks are going to make money off of you. The question is, are you going to let them make money off of you? Or are you going to flip it? I hope you enjoyed this episode. Please leave it a five star review on whatever listener player that you're listening to. And I will catch you on the next episode. This is Money Talk for Real.