Banks and Brokers are not the biggest losers

Once again the Federal Reserve has decided against raising interest rates. I don’t blame them. The US economy is not strong enough and every hint at raising rates has lead to stock market volatility. The same stock market the Fed single handedly turned into another bubble by pumping $85 Billion dollars a month into, versus putting that money into job creation and US citizens.

There was an article in USA TODAY about just such news. There was a line in the article that ignited a fury in me. The line stated, “There’s no mystery about who lost by the Fed’s decision to leave rates untouched: banks and brokers.” Really? Banks and Brokers are the biggest loser? I don’t think so.

Has the media, The Federal Reserve and our own Government completely forgotten about us? Americans are the biggest losers here. Americans funded the bailout money for banks and brokers. Americans had their taxes raised. Americans received no TARP funds or bail out money to survive the Great Recession. And Americans are still hurting and being bled dry from low interest rates.

I don’t completely blame the banks as they have become dependent upon The Federal Reserve. They’re no longer autonomous to find creative ways to grow bank customer funds. Articles and the media make banks out to be low profit, barely scraping by institutions. Banks are making a killing right now because of the margins they earn through lending. Low rates from the bank are hurting Americans in these 4 ways:

  1. By not paying interest rates that keep up with inflation, Americans are not earning enough to keep up with the rising cost of living. However, banks are earning phenomenal rates. For example if your banks pays you .10% and charges you 5% for a car loan, they are making a 4.90% marginal spread. Imagine being able to buy any product at $.10 cost and selling it at $5.00. This is the real scenario. They are outpacing inflation, but their customers are not.
  2. Banks are essentially getting the cheapest loan rates in history. If you have money parked at the bank, you are giving the bank a cheap, low-rate loan. They can pay customers between .1 to 1% on their money for a day to 1 year of borrowing rights, but they lend it back out at an incredible profit to you and other bank customers.
  3. By offering low rates, inflation conscious customers are being forced into risky investments on Wall Street. This is bad for the customer, but good for the brokers. With more money flowing away from banks to brokers, remind me how brokers are the biggest losers?
  4. Brokers charge anywhere from 1–3% for managing your money. This doesn’t sound like a lot, but over time it can eat 23–63% of your needed retirement funds up in fees.

I cringe and worry for our country when I look at who is really winning and who is really losing. Americans are the biggest loser in this game, but they don’t have to be. One of the best remedies for anemic interest rates or the high risk of Wall Street is to think like a bank. How do banks earn money? Where do banks place their money? The answers are bread crumb trails to how to think and earn like a bank.

Most banks avoid Wall Street like the plaque. Too risky! They make their money on lending and wise investment. Banks have huge portions of their portfolio in lending on real estate-homes, buildings, farms, etc. They also lend on cars, RV’s and recreational toys. Why do they do this? Because they can make an incredible spread on what they pay their customer compared to what they can charge them.

Banks place a large amount of money in insurance companies, too. Most banks have a huge portion of their tier-one capital in life insurance because of their guarantees and superb earning track record. They also use life settlements and other institutional products only available to institutions and accredited investors.

If the bank can’t help you beat inflation and grow your money, then you must walk away from a dysfunctional relationship and do it on your own. The days of 5% savings accounts are gone and don’t seem to be anywhere on the horizon. There are better earning opportunities, you just have to look for them.

Stephen Gardner

To learn more about my thoughts and philosophies, check out my books and websites. All books can be found on

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