Monday, October 4, 2010

Don’t Forget: Your Bank Controls The Rates!

In most finance or investment tutorials, the interest rates and percentages typically used for scenario calculations are always a bit on the high side when it comes to the stated investing returns. Particularly in the current economic environment with record low interest rates, some of the assumptions for investment returns have to be looked at with a grain of salt.  But the main purpose of the seemingly high rates of return is to make the comparisons and examples easy to grasp.

When you examine the rates of loans, foremost the credit card financing rates, you will notice that those rates are always a lot higher than savings rates for example.  That difference is even more evident when the general interest rates are as low as they are now.  At present, you might get only as much as 1% interest on your savings whereas credit cards usually have financing rates of 20% or more.  Quite a difference...

This leads us to an important concept in the world of finance.  Without exception, the financial institutions that hold "YOUR MONEY", i.e. your bank, credit card provider or broker, create terms that work in their favor rather than in yours. Therefore, the interest you receive on your savings will never be anywhere as high as the rates charged for a loan. The difference between receiving and paying interest from the bank's point of view is easy profit. Sadly, that is not is something the banks are willing to give up for your sake.

It is therefore immensely important that you always read and understand the terms and conditions your bank is offering for their services. You too do not want to give up part of your money so that banks can make even bigger profits.



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