Why I No Longer Use Banks (as a millionaire)

Hey there, real quick before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience. Live it is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. What if building real wealth didn't mean massive sacrifices or huge changes in your life? If you've ever felt overwhelmed by the idea of managing money or the thought that wealth was only for the few that could make the big moves, the swing for the fence kind of moves, well, this episode's for you. Because the truth is, wealth is built through small, common, consistent actions, tiny little habits that anyone can apply. Starting today, and in this episode, I'm going to share with you the exact habits that not only create wealth, but they create real wealth and do so in a way that feels manageable, practical and attainable.

All right, in this episode, I want to make sure that you have your money in the proper places to do the right work for you, to be safe, to grow, and to help you find your path to financial freedom. And, and frankly, I don't think banks are the proper place for you. Here's why. Let's just break it down because I think when we understand how banks operate, why they operate the way they do, what their focus and their priorities are, you'll get the same kind of message. But I'll give you the solution in the end also. So the first things first, we need to understand banks are in the business of making a profit. They are for profit entities, meaning that they operate themselves to make sure that the shareholders are happy, not necessarily the depositors. You. Okay, now granted, if you're not happy, you take your money elsewhere and that impacts their bottom line. But their primary focus is to maximize profits for shareholders more than anything else, not optimizing the financial well being of their customers. Okay. And they, and to me, that creates a little bit of a conflict of interest if I'm going to put money into a bank for purposes of safekeeping and safety and to make sure that it is properly utilized and properly used for my own wealth building. But there's a conflict of interest relative to what they're trying to to use as their primary objective, which is make a profit. That might drive their advisors, their management and their folks to, to make decisions or recommendations that carry bad high fees, commissions and other things that cost us that we don't really need to do. So when we start to look at banks in general, you look at the big ones, Wells Fargo, Chase, B of A, all the big ones. And I have not, truth be told, I have not had a dollar in a bank for decades. Okay. I just don't use them because of some of these things. And frankly, I don't need their services. We, I don't have the complexity of like letters of credit and those kinds of complex financial instruments. And most likely you don't either. And if you do, great, we have to go to an institution that gives those to us and we expect to pay fees for that. But by and large, if all I'm trying to do is manage my money, pay my bills and build wealth, banks are not the place to do it because their products, the products that they offer, they have high fees. And they will offer things like mutual funds that have high fees. I'm going to give you an illustration of that. They're going to make an offer of insurance that have high fees. They're going to give you savings accounts, lock the money up and have fees if you fall below minimums. And so the products they offer have high fees, which I understand because their primary goal is maximizing profits for shareholders. So they have to do that. Now on the other side of that, they typically give lower interest rates on savings accounts, CDs and, and things like that because that's the money they pay out. So the money they bring in is from, from people that are borrowing from them and paying loans and loan interest, people that are using services and paying account fees or service fees or commissions or things like that. So that's the money that' in the money that's going out is the interest they pay on savings accounts, the cost for their infrastructure, their labor and that kind of thing. So what they'll do is they'll push the, the interest they pay on the savings accounts down as low as possible. So they give you very little for you putting money into their bank. That's, that's what gave rise to such a proliferation of these.

High yield savings accounts in other online institutions that don't have the infrastructure to and cost infrastructure that major banks have. It's why they're giving you 0.2% on a savings account where you back in the day you can still get 2% in a high yield savings account. Now you can get 4 and a half or 5% in a high yield savings account and you have fully liquid, fully insured funds. There are things that you can do that maximize the returns to you without costing you or locking your money up. Here's the thing. If you look at the, the U.S. average savings account, typically it's below half a percent, okay? Whereas inflation on a long term basis, not, not what we did a little while ago on a long term basis is somewhere around 2 or 3%. So if I'm putting money in a savings account at half a percent on a long term basis and inflation is at 2 to 3%, I'm going backwards, okay? So these are the kinds of statistics that I think that we don't realize if we're not aware of it or we're not intentional about it, because that's the way it's always done. Where could we put our money other than banks? That's what we knew. So there's nothing. It's not your fault. It's just the way the system was. But here's some other things I want you to understand how banks make their money and why this might be a poor place to put your money. JPMorgan Chase in 2023 made $21 billion with a B, $21 billion just in fees alone. That was earned from overdrafts. It was earned from account maintenance fees. It was earned from investment product fees and commissions. $21 billion they made in fees. They're in the fee game, they're not in the financial game. And when you start to understand that, you start to look at and say, wow, what, what else is happening with banks that I need to be thinking about? Well, the other thing that I think happens is that they have these pods of people in the banks. They have their wealth management teams, they have advisors and, and typically when you get investment advice from a bank, it's not really good. It's frankly poor. And the primary reason for this is that the advice they give you is typically generic. When I'm sitting with a client, when I'm acting as a family CFO or I'm doing one of my, my money machine master plans, where I'm creating the financial plan for someone and really building it out, it's not generic. It's not me taking a box and saying, how do I stuff you in the box? It's specific, it's bespoke to your life. It's tailored specifically to what you need. It's about understanding your life vision and how we make that a reality. Okay, but typically the Banks have a one size fits all investment portfolio perspective. And there's very, they have some customization that gives you the feeling of customization, but really isn't custom. It isn't specific to your needs. Because their hands are tied. This is all they have to work with. And so they've got to fit you into that box. And so what they're going to do is stuff you into a generic one size fits all investment portfolio to make them, and they're going to charge fees to do it. Because here's the other side of it. The bank advisors are sales focused, not service focused. They're not fiduciaries in most cases. Okay, Remember, there's two standards. There is the suitability standard of an investment, meaning is this suitable for you based upon your age, stage or circumstances.

Which a lot of investments might be suitable for you? The question that we're really looking at is is it the best for you? That's a fiduciary standard. What is, what is the best investment for you? Where's the best thing for you? And if they don't have it to offer, then they offer something that's suitable but not the best. And so I think it's important for us to look at it and say, are you getting biased advice in a bank? Because they're prioritized by the limitations.

The limitations of what they can offer, the limitations that are put on them from the head office, the commissions that drive their compensation and things like that. So I look at banks and go, they're high fee.

Their primary goal is to maximize profits for shareholders, not not wealth growth for their depositors. They typically have a one size fits all portfolio perspective. Their advisors are typically sales focused and not fiduciary focused. They push higher fee, higher commission types of investments. And so what ends up happening is they don't have that long term wealth building view that someone else might have to give you specific advice to do this. It's one of the reasons for me, I don't sell investments, I don't sell insurance, I don't want to, I want to sell you in the dreams. I want to give you the plan. I want to help you take control of your financial destiny, to know what you need to do, how you need to do it, so you're equipped, you're educated, you're empowered to take control and now you go execute it. I'm not beholden to commissions and things like that. I want to tell you the truth. That's why this episode is the way it is. So if you look at this. The other side of it is to look at, okay, let's say that they put. Put you in a portfolio. How good are the portfolios that they put you in? Are you really making money? Are you getting good returns? And there was a study done by the Financial Planning association, and they looked at the returns that customers of banks got on their portfolios. And bank advisors recommended products that had an average annual fee of 1.44%. Now, you might look at it and say, eh, doesn't sound like a lot. It's 1.4%. Oh, trust me, it's a lot. It's significantly higher than the industry averages. And you couple that 1.44% with a substandard or subpar portfolio performance. So you got high fees, you've got lack of tailored advice, and, and you put it into a recipe, you end up with a lackluster portfolio. Here's what happens. I want to. I'm going to walk you through the impact of what you think a 1.44% fee would do to your portfolio, because it doesn't sound like a lot, but trust me, it is. And then I'm going to tell you what you should do instead. Okay? So I'm. I'm gonna. I created a chart that, that y' all can see if you're on YouTube and everything. But let's just show this to you. I'm gonna assume that we get an 8% return. 8% return, which is average for the S&P 500, their average fee. Let's call it 1.444%. And now let's just say that I make one investment of $10,000 every single year. So I'm going to do annual investment of $10,000 a year. How much would I have after 20 years, 30 years, or 40 years? That $10,000 investment with the fees. With the fees. Let's put this in red because that works. $390,000. So it's not bad. Okay, 390,000 is not. Not bad in 20 years. Okay, but investment growth value without the fees is $457,000. It's a $66,000 difference. I have almost $70,000 more in 20 years without that fee. Okay, let's take it out to 30 or 40 years. Now that difference is a quarter million dollars to $800,000. It becomes dramatic over time. And all we're talking about is a 1.4% fee. Now, you're not going to have zero fees. So these differences, or these differences may be a little less, but the Point is, is I want you to realize that 1.4% where it sounds like not a lot, it actually is. What happens if you do a one time investment? Let's say you just put $100,000 in and it just sat there. What does that look like? Well, in 20 years, 100,000 is 356,000 with the fees, without the fees it's 466,000. So it's $100,000 difference. In 20 years, 30 years, it's $300,000 difference. And look at this, after 40 years, $900,000 different. Okay, bottom line is, is that.

Substandard portfolio push you into a box. Additional fees.

That you don't need to pay all will lead to putting money into the bank's pocket and not into your wealth. Okay, so what do you need to do instead? I think that's really the crux of the question. I'll tell you where I've been for decades. I have focused on putting my money in, in either online banks or credit unions. More importantly, and I want to talk about credit unions for, for a moment. I have banked, I've got a relationship with four different credit unions. One of those credit unions I've had a relationship with for almost, oh gosh, 30 years. Okay. Credit unions are different than banks. Credit unions serve the members. They don't have shareholders. Credit unions are membership driven. They are non profit institutions. That means that they're member owned and their profits go back to the members. What does that mean in English? Lower fees, better interest rates and more personalized services. It's a win. Now over the years, credit unions had very narrow service offerings. So if you had any complex financing needs, you couldn't do it through credit unions. But they've gotten more sophisticated since then. But the biggest thing is that banks are for profit and credit unions are for members. And that translates into more in your pocket. So you get higher savings rates. Credit unions will typically offer higher interest rates on CDs, savings accounts and, and those types of things. You get lower loan rates. Okay, mortgage rates. In fact, the mortgage on this house is held at a credit union. The cool thing is that because I had a relationship with the credit union, not only did I get a lower rate than was in the market, I was also able to negotiate specific terms in my loan that you can't get in commercial banking. I was able to negotiate some things in my loan that if I want to pay it down or if I want to do anything, there's no fees involved. And I negotiated that up front. Because credit unions are more personal in nature, you have the opportunity to have a more personalized service and perspective with them. I can reach out to a contact there, I can have them do some things for me, all of it legal. But the level of service has gone up. So more personal service, typically local ownership in the sense that they serve a community or they serve a demographic contingent. It could be like the Navy Credit Union. USAA is a credit union. You can have the motion picture credit union. They could be a certain work, a certain community. However, they give qualifications for their membership. Now.

Is it all great to have credit unions? Well, now there's risks involved with it. One is that most credit unions, you don't have the same degree of networks of physical branches or access to large banks and ATMs. Now I don't use an ATM, so it doesn't affect me. I don't go into a branch, so it doesn't affect me. And so if you have a need to, to use ATMs all the time and go into physical branches, credit unions may not be the way to go for you unless they're local to you and you have the opportunity to do that. But if you're traveling internationally and you need access to banking that way, then you have to look at that need and you got to ask yourself, do I really need that or is it just a matter of convenience? And so planning ahead to make sure that you don't have to run to an ATM may be the better way to go with doing that. Because interest rates on loans are 1 to 2% lower than banks. The National Credit Union Administration said that, that most members will have an average save an average of, of over $100 or more.

A year just in fees alone. But when you start to think about overdraft fees, commissions and in product fees, it's even greater when you do that. So that's the kind of thing that you look at. Now here's the nice thing about the limitations of branches and ATMs. Many of the credit unions realize that that's a competitive disadvantage. So what they've done is they've banded together. So for instance, I bank at one credit union that doesn't have branches where I live. They did where I used to live, but they don't where I live now. But they networked with other credit unions close to where I live, where I can, if I had to go into a branch, I can go into that branch there and, and, and work it from there. So I'm going to tell you, if it were me Unless you have some esoteric financing needs, I would, I would put your money in credit. You get low fees, lower fees, you get higher interest rates, better service, and you don't have all the crazy nonsense that's going on and now you're investing side of it. Credit unions may have an investing arm like one of mine does. I don't use them because they still don't create a bespoke enough, customized enough plan for, for me. And so I would separate my banking from my investing and have them as two separate things and do it that way. Now here's the other thing that I think we need to be aware of as to when we stay with banks. What does this give us? Because I think that we've seen how they operate over the years. If you just think about the Wells Fargo fraud scandal, three and a half million fake accounts opened without a customer's consent. There is this level of lack of transparency in fees and practices that has eroded the customer trust. Well, if I don't trust them, why am I giving my money to them? You know, if you look at banks like Deutsche bank has been involved with numerous money laundering scandals and fines in the billions for some of the things that they've done. I don't want to patronize those kinds of banks and everything. So if you look at 2020 alone, there was $12 billion in fines levied on banks for different violations. The Wells Fargo scandal was over $3 billion in fines. I don't want to promote or support organizations that are lack, that lack transparency, that lack ethics and integrity, that do things.

To the detriment of their depositors, their customers solely to maximize profits or fees or revenues. All right, so how do you eliminate these? I think that there's a couple solutions. One, I think you use credit unions instead. Okay. They offer lower fees, better rates and they focus on your financial success. And they're nonprofit, they're not driven by shareholder profits in Wall street because that now they have this similar.

Insurance on and guarantees on your deposits just from a different entity. Okay, so it's the credit union association has the guarantee on it versus FDIC in there. So you still have insured funds in there. Now I would also think about, so that's number one, use credit unions. Number two is to diversify the, the portfolio of providers you use. I, like I said, I have four credit unions that I work with. I don't work with just one now I have one that's a central hub and then I have the three others that I use for different reasons based on the rates they might have, the services they can provide with respect to international and those kinds of things. So I diversify that and then I add in online banks. Now none of this is a recommendation, but for instance, I use CIT Bank, Ally Bank, Wealthfront. Those are online banks that provide high yield savings accounts with linked accounts that make it really easy to move money in and out and that kind of thing. I separate completely my banking, my credit unions and my high yield savings accounts and online banks from my investing. My investing is not done there. My investing, frankly just totally transparent, is done through Fidelity or Schwab. Okay? That's where I have most of my investments and I do it from that perspective. And I only work with fiduciaries. I only work with those that are going to look for the best things for me. So that's number three is to seek fiduciary advice, not suitable advice that means something that's customized for you. Your facts, your circumstances, your age, your stage and everything to say what is the best for you and that they put your best interest first. Okay, so that's number three. Number four is become financially educated. Understand what's going on. Financial literacy is the pathway to financial freedom. It's not money. Because with financial literacy you'll understand how to use the money, what to do. If you are trying to figure out what do I do and how do I start building it, start with my book building your money machine. Okay? It will walk you through a process, frameworks and all the things that I do with my clients, what I've done with my family, what I've done with, with my son and his family to help them build that. And then number five is to leverage financial technology. There's a lot of fintech platforms out there and maybe I'll do a video on that as a separate. But that allow you to get access to accounts, higher rates of return, liquidity and investments that are low fee and better products. Now I'm going to give a caveat here. I don't want you to leverage any financial technologies that gamify investing or wealth building or money management. Because what that's doing, and I will throw the name out there, one of them is Robinhood. I do not like Robin Hood. I like what they tried to do. I don't like how they've implemented it because they gamified it. And what they're doing is they're creating dopamine hits every time you deposit something and you get the, the fireworks and all of that stuff. It's a dopamine hit dopamine and money do not belong together because that is going to get you to over trade, over invest to make decisions that are emotionally based. And when your emotions go up, your intellect go, goes down. And so, so that's why I don't like those. I work with traditional, traditional fiduciary or traditional discount brokers. Like I said.

Schwab, Fidelity and, and Vanguard and things like that, nowhere else. So those are my recommendations. So first, credit unions. Second, diversify the providers. Third, make sure you're working with fiduciary advisors. Fourth, become financially educated. And fifth, leverage financial technology. Keep your money out of banks so you keep more of it working for you. Building your path to financial freedom. All right, I hope that this helps. This wasn't really about bashing banks. It was more about building you up and giving you the tools to maximize your returns as you build your money machine. All right, till I get a chance to see you on the road or in another episode, always, always strive to live a life that outlives you. All right, see you soon. Thank you for listening to the affluent entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group and I'll you see you there.

And that's it for this episode of building your money machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.