Your Bank Loves You - Make it Stop

Do you know how banks make money? Loans and fees.

We've all been hit with the $30 overdraft fee on that $5 squirt of gas we just knew we had enough to cover. I've said before and I'll say again; track your spending to avoid sending your bank managers kids through college. Fees aren't the topic today though. Lets talk about bank loans and how you can get in on your banks action.

A Quick Lesson on Loans and All that Money Banks Don't have.

A bank in the US can loan $10 for every $1 it has on its books. Thats your $1, and it gives the bank legal right to loan out $10; $9 of which it technically doesn't even have. So, you get paid - and your check is directly deposited into your 'free' checking account to the tune of $2000. The bank, with your deposit can now make $20,000 worth of loans. What does $20,000 sound like? A new car you say? Yeah - a new car.

So the bank loans $20,000 ($18,000 of which it doesn't have) to some guy who wants to buy an Altima, or a Hyundai or whatever - and charges him an interest rate that ranges from from zero to 24% depending on his credit. Good credit means he'll get the loan at around 7%, which means by the time the car is payed off he will have paid ~$23,761. $20,000 went to the seller of the car leaving the bank $3,761* in profits... for loaning out your money. What did you get in return? A free checking account (with direct deposit)? Congrats.

High Yield Online Bank Accounts 
You should be in on that hot interest-rate action. Its your money, they're loaning it to anyone with a decent FICO score and making kazillions of dollars. <a href="http://pagead2.googlesyndication.com/pagead/iclk?sa=l&ai=BgFLtNAeFR_2ZCJ7mrAOb9tmbBvL5qTuq4bXSBcCNtwGw1YUBEAEYBiCzqu8NKAI4AFDSj9T8-f____8BYMnG5YbIo-gZsgERaXN0YWNrZG9sbGFycy5jb226AQk0Njh4NjBfYXPIAQHaAUBodHRwOi8vaXN0YWNrZG9sbGFycy5jb20vYWR2aWNlL3lvdXItYmFuay1sb3Zlcy15b3UtbWFrZS1pdC1zdG9w4AECyALS8MIBqAMByAMH6AMl6APSA-gDlwI&num=6&adurl=http://www.hsbcdirect.com/1/2/1/offer%3Fcode%3DPGC0000090%26WT.srch%3D1%26WT.mc_id%3DHBUS_PGC0000090&client=ca-pub-1505340721637274&nm=12" title="Yes, I'm getting paid for linking you here. Don't be hatin'." target="_blank" id="fwyq">HSBC Direct</a> has an online 'Payment' account (no checks, but you get a check card) with a decent 2.50% APY, and an online savings account with a massive 4.50% APY. <a href="http://www.wamu.com/personal/savings_account/online_savings_account/default.asp" title="No, I don't get paid for linking you here." target="_blank">Washington Mutual</a> has a savings account you can get online but not in an actual branch. Its got a staggering 4.75% APY and they, like HSBC, will approve damn near anyone for an account. No minimum balance, and none of that "you can't take your money out without a fee" stuff associated with a CD. Both of the savings accounts have rates high enough to keep pace with inflation, and more importantly - relieve that "I'm freek<strike></strike>in' stupid for letting them loan out my money like that" feeling you got just a few minutes ago.

Now Go Use This Info, No Really - Now

I imagine you don't want to change banks. Maybe you have a crush on the teller at your Bank of America, or the manager at Wells Fargo gives you candy. Whatever your reasons - they're yours and you have to live with them. I'd suggest opening an online account to keep a nice stash in. It'll just sit there and grow and you can keep your 'free' account open. Approaching an account manager at your bank is another idea. Ask about what sort of options they can give you in the interest rate department. Feel free to use the info here as ammo. Its all valid - trust me.

*I made up all of these numbers. Sike! All of it was calculated on a five year loan at 7% interest, no down payment and no bank fees included.