Eco is not a bank

“Banks are evil.”

You’ve probably heard something like that many times. But has anyone ever told you why it always feels like banks are working against you instead of for you? Or, even better: has anyone offered you a real solution?

We bet nobody has. While banks are by no means perfect, it’s not because they’re malicious. Their behavior is actually the fault of a financial system that was never designed for the ways we use money today. The foundations are shaky, and as a result, banks have no choice but to take from you to survive.

And because nobody has built a solution to those problems, they don’t want to tell you about what’s really going on.

How banks make money: winning when you lose

Most every service that holds or moves your money has a business model revolving around skimming as much money as they can from you. They do this in two ways: earning interest on your money, and by charging you fees.

Interest on your money

We’ll start with something you already know: when you give your money to a bank, they lend that money out to other people for mortgages and other loans. In early 2020, banks were making 4% off mortgages and paying you somewhere between 0.01% and 0.08% back in interest. The bank that issues you your credit card is in a similar situation, but at a much heftier interest rate — usually 15-20% or more.

The more your money sits in a bank, the more the bank is making off of your money.

You might point out that the pandemic has lowered how much interest banks can make by loaning out deposits. And you’d be right. In fact, the profits banks make off deposits (called “net interest margin”) has been falling for awhile now.

So, where have banks turned for revenue?

Fees fees fees

Realizing that net interest margins are falling — and that people are storing less money in their bank accounts — banks have responded by charging a longer and longer list of fees and surcharges. Here are a few:

• overdraft fees
• early account closure fees
• foreign transaction fees
• ATM fees
• account maintenance fees
• minimum balance fees
• service fees
• transfer fees
  

We weren’t joking earlier when we told you you’re losing almost every time you do anything. Not only are you only getting 1/100th of the interest on your money, but the average American now pays more than $20 per month in fees — $250 per year! And more staggering: Americans pay more than 30 billion dollars in overdraft fees each year.

Credit cards fees are similarly on the rise. In addition to charging merchants an average of 3% per transaction (which often gets passed back to you one way or another), they now also charge:

• annual fees
• balance transfer fees
• cash advance fees
• foreign transaction fees
• late payment fees
• returned payment fees
• over-the-limit fees
  

You know this: banks win when you lose. But why? Like we said up top: they're stuck in a system that doesn’t afford them a more aligned business model. Let’s take a look at the state of that system (or, as always, feel free to sign up now).