Banks versus clients’ best interests
Banks, we just love to hate them – especially in South Africa where banking costs are so high. Despite this hatred banks remain very profitable businesses.
I would like to highlight a few of their questionable business practices. Questionable because I am not convinced that they are in clients’ best interests.
Minimum payments on credit cards
According to research by Dr Neil Stewart of the University of Warwick Psychology minimum payment information entices people to pay back 43% less in monthly payments. The clients therefore pays twice as much interest to the bank over the lifetime of the debt.
Wills
Must be the only legal document you can get drawn up for free – but discounts only apply if you nominate the bank as your executor. The reason for this is of course that executor fees are up to 3,5% plus VAT of the estate.
In many cases moving your assets to Inter Vivos trusts may be the correct thing to do – but then the bank will lose out on executor fees, so testamentary trusts are often suggested instead.
Fixed/Variable interest rates
When interest rates are expected to go down, banks start marketing fixed rate mortgages/bonds. The idea is of course to fix the interest rates you pay at the current rate, so you pay more than you would have paid when rates start moving downwards.
Qualifying criteria for Credit Cards
The more you earn, the “better” the card you can get. Often the only benefits these gold/platinum/titanium cards have is that the holder thinks whipping them out impresses the opposite sex or other shoppers.
