Which institution makes the most profit each year? Who has the most money in the bank? Bankers of course! Why? Because they’re making a fortune from all the interest you’re paying.
You could be saving more than R4,000 a year!
Some of us have an entire portfolio ranging from vehicle finance, a home loan, a cheque account etc. And these accounts do one of two things: either force us to pay interest or pay us interest. But what if one bank’s interest rate differs from another by 0.5 or 1%? Not a huge amount, agreed? Wrong! This small percentage could cost you thousands. Don’t believe me? Take a look at this example:
Let’s say you want to take out a R1,000,000 home loan – and you have three banks to choose from:
Home loan: R1,000,000 (assuming no deposit, prime rate at 15%, payable over 20 years).
• Bank 1: Rate 15%. Thus the monthly repayment would amount to approx. R13,167.90.
• Bank 2: Rate 14%. Thus the monthly repayment would amount to approx. R12,435.21.
• Bank 3: Rate 13%. Thus the monthly repayment would amount to approx. R11,715.76.
Assuming you currently bank at Bank 1 and move to Bank 3 this means you will save at least R17,425.68 a year. That comes to R348,513.60 over 20 years not even taking into account the interest paid on the R348,513.60 which, over the 20 year period, amounts to over R418,216.40! See what I’m taking about?
What to look out for in a bank
Look out for account charges and interest rates as you shop for a bank: How much will you earn in your savings (assuming you keep a large amount there, how much will you pay for loans, and what transaction and maintenance fees do they have?
For cheque and savings, it’s important to look for low fees. A slightly different interest rate on savings isn’t going to make or break you financially, so don’t be lured by such tactics unless you’re among the wealthy. However, monthly maintenance fees and strict overdraft penalties can seriously dent in your account, costing hundreds of rands annually.
When you borrow money, remember that you don’t have to borrow from your bank. You can get a loan from any other credit institution like when you buy a car. Online lenders are also worth a look, as they may charge less than local banks and credit institutions. If you borrow to buy a house, a mortgage broker can (and should) shop among numerous lenders for you, and you don’t have to be a customer with every potential bank.
Most of us just sit back and accept what the bank and other organisations tell us. We never stop to question if there’s a better way – and there is!