Misunderstood Banking Tactics

1.  Cash Back Credit Cards charge the businesses 3% of every transaction whenever you use your credit card. And that is on top of a monthly fee they charge just for the privilege of being able to accept payment from you with a credit card versus cash or cheque.

The bank does not give you the cash back. No money comes out of their pockets.

So really, everyone, including those who do not have cash back cards pay higher prices for the goods and/or services because the cost of the goods we buy have to include that 3% as a business expense and so unless that business increases the cost of goods or services they are selling, they are out of pocket.

This is another way that banks make you think they are being generous and are your friend when really, those who qualify for the cash back are increasing the cost of goods for everyone because the retailer has to cover the cost themselves, not the banks.

Corporate credit cards also charge the retailers 3% on every transaction, which again increases the cost of the goods or services for all, so a few can reap the benefits of cash back in their pockets.

 

2. Zero percent interest rate charges when purchasing a car is another ploy to make you think you are getting a deal.  In reality, you cannot get zero percent financing without a large down payment right? Well, that down payment IS the interest. You are just paying it all up front.

 

3. Many people do not realize that when they take money out of their qualified plan at their retirement, taxes will be due. The taxes have been compounding along with their savings and so that $100,000 they thought they had, is not $100,000 after all.

Deferred taxes do not mean you will save on taxes, it means your taxes are postponed to an unknown rate that the government will decide upon at the time of withdrawal. Historically taxes have increased over time. Most think their income during retirement will be lower which will place them in a lower tax bracket. This is the only way one could win with this strategy however, why plan for failure by expecting to have a lower income while the cost of living is increasing dramatically.

On top of that, usually at the time of retirement, you do not have the numerous deductions you had when you could have actually paid the taxes during your accumulation years. For instance, many have their mortgage paid off so no longer have the mortgage interest deduction. The kids no longer live with you, so no tax deduction there. Just food for thought.

Qualified plans were introduced in the early 1980’s when our tax rates were near record lows. They have increased since then and will probably continue to as more and more people become eligible to begin withdrawing money from their retirement plans,, only to find out too late that they have been duped. Maybe a 10% penalty for withdrawing early will not be such a bad idea as the time between now and when you actually are eligible to withdraw without that penalty could give you a return of more than 10% if you know what to do with your money between now and then.

 

4. Rate of Return. Most people think that if their investment goes down, say 38% they just need it to go back up 38% to break even. However, they do not consider the fact that a loss of 38% means the $100,000 is now 62% of that, so it is $62,000. 38% of 62,000 = $23,650. That  is a total of $85,650. Add with fees and taxes and inflation etc. means you have lost at playing the game. It would take a return of 61.5% to come close to getting back to even, not including taxes on those gains. Where do you know of a low risk or any investment that pays 61.5% or even 20% or even 12%?

 

5. Buy Term insurance and invest the difference. Did you know statistics prove that only about 1% to 2% of Term insurance policies are ever  paid out as a death benefit. Why is that? Could they be orchestrated to have the Term end before statistics show you will be most likely to pass away?  Will the cost of the insurance after your Term ends be prohibitive and so must be dropped leaving you uninsured? These are important questions to ask.

Have you considered the fact that life insurance death benefit is the only legacy you can leave your loved ones that  passes to them with very little hassle and many tax advantages, in fact, in most cases it passes income tax free. Permanent life insurance, life insurance that lasts your entire life, is actually cheaper than Term insurance when designed correctly.

 

6. Dow Jones is an index that shows how 30 large, pub­licly owned com­pa­nies based in the United States have traded dur­ing a stan­dard trad­ing ses­sion in the stock market. These 30 companies can change according to how they are performing.

But the ques­tion is, were the com­pa­nies you’re invested in per­form­ing at this same level or not? The aver­age is price-weighted, and to com­pen­sate for the effects of stock splits and other adjust­ments, it is cur­rently a scaled average.

The value of the Dow is not the actual aver­age of the prices of its com­po­nent stocks, but rather the sum of the com­po­nent prices divided by a divi­sor, which changes when­ever one of the com­po­nent stocks has a stock split or stock div­i­dend, so as to gen­er­ate a con­sis­tent value for the index.

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7. You save money by having a 15 year mortgage versus a 30 year mortgage. Wrong. Ask me to prove this to you.

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December 20, 2011 · Jennifer · No Comments
Tags:  · Posted in: Bank Trickery

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