About MagnifyMoney

We Are Here For a Reason

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Before creating MagnifyMoney, I spent my career in banking, working mostly with large multi-national banks like Citi and Barclays. Most recently, I ran the consumer credit card business of Barclaycard in London.

Barclaycard has an amazing history. Created in 1966, it was the first credit card company in England and one of the first in the world. What began in a small office in Northampton, became the number one card issuer in the UK – and makes nearly $2 billion a year globally.

I had the privilege of meeting the team that created this business in the 60s. You still see the twinkle in their eyes as they talk about those early years. When they describe what they did, they don’t mention revenue, earnings or market share. They desperately wanted to find a way to make it easier for small businesses on the Main Street to accept payments, and they wanted to make it easier for everyday people to buy things. I could imagine the founders of Barclaycard feeling comfortable working at PayPal, Square or any of the other payments start-ups, because they weren’t afraid to push boundaries, solve real customer needs and have fun doing it.

When the first Barclaycard was launched, it had a one page set of terms and conditions.  I met with a woman (still working at Barclaycard) who had cataloged the history of the fine print. For the first 30 years, the product was relatively simple.  But, starting in the late 90s, the fine print grew exponentially. The focus shifted from making payments easier to growing profits. Earnings growth would come not only from acquiring new customers. A bigger focus would be making more money from existing customers. This shift was not unique to Barclaycard. The credit card industry – in both the US and the UK – began to adopt tactics that would have made the employees from the 60s cringe.

What were banks adding in the fine print?

Things like:

  • Risk-based re-pricing: the ability to increase your interest rate (on your existing balance) based upon an opaque algorithm.  Reasons for being considered risky could include using your credit card.
  • Multiple interest rates for multiple types of transactions.  A purchase APR that is different from a cash advance APR that is different a go-to rate after a promotional APR. Yes – every new APR added was usually higher.
  • Extraordinarily complex definitions of grace periods (the period where no interest is charged) and interest-free periods. With double-cycle billing, it could be very difficult to finally stop the interest from being billed
  • Multiple fees, and fees that cause fees (know in the industry as a pile-on). Your payment is late. A late fee is assessed. The late fee causes you to go overlimit. So, an overlimit fee is assessed. Balances are capitalized daily. So, interest starts accruing on the fees.
  • Not to mention the shoddy insurance products that were cross-sold on top – the list goes on

A lot of those practices are now illegal, thanks to the CARD Act in the US and the Consumer White Paper in the UK. While a lot of practices have been eliminated, a ton of fine print still exists. Have you read your card agreement?  You will still see many fees, many different interest rates, a different version of risk based pricing and more.

Too much of your money gets lost in the bank’s “terms and conditions”  At Magnify, we have one goal- show you how to get it back.

Credit card businesses are still churning out record profits, with returns greater than 25% a year. How can a 50+ year old industry, loaded with data and competition, still provide returns of that magnitude? In our survey, 42% of Americans have average debt of $10,902. 75% of them pay more than 15% interest per year. Think about it: over $1,500 spent every year on interest payments.

Why do people pay those high interest rates and fees?

I believe there are 5 reasons:

  1. They don’t realize how high their rates are. Until the CARD Act, it was easy for credit card companies to increase interest rates without a whole lot of disclosure. People may not even know they are paying 29%.
  2. They don’t know how to get their rate lower. After paying the minimum due every month and watching the balance stay at the same level – they don’t know where to begin, and feel trapped.
  3. They are afraid to shop around, because of what it could do to their credit score.
  4. They don’t understand how the fees work, so find it difficult to avoid them.  And trust me – often we in the banks didn’t even realize how the fee was charged, because it was so complex.
  5. They are just so busy with their life, that they don’t have time to think about how to reduce the interest rate on their debt.

People work hard for their money, so banks should work just as hard as your local shop does for your business.

At MagnifyMoney, we are going to make it easy for people to compare products and save their hard-earned money with confidence. Our brand will be built upon the trust that we must earn. Our success will be measured by the money we save for you. Given that I spent the last 15 years growing earnings and generating fine print, I believe we are uniquely positioned to help you navigate this overly complex system.

I left my job to create MagnifyMoney with my best friend from college. We believe that we can take $1 billion off the bottom line of banks – and put it into your pockets – with over $1,000 to the average American family. That may seem like a big number, but it is just a tiny percentage of the banks’ total earnings.

Right now, MagnifyMoney is not generating revenue. Going forward, we may get paid by some banks, credit unions or new entrants for referring business.

MagnifyMoney will always make the following commitments:

  1. We always recommend the best product. We have compared over 300 credit cards and 500 bank accounts at the time of launch.  And, unlike a lot of websites, we will not put products at the top of our table because of a commission.
  2. If we are getting paid – you will know. You will see clearly on the table when and if we are getting paid
  3. If anyone finds a better deal – even if it from some small one-branch credit union – let us know and we will add it. Nothing makes us happier than a small competitor giving the big banks a run for their money.

Since I left my job last year to dedicate myself full-time to building MagnifyMoney, I have spent a lot of time meeting with banks and explaining our plan. The banks have been cordial, some have even been welcoming (because they are working hard to improve). But, during one of my early meetings, someone told me to “be careful. Too much transparency is not a good thing.”

At Magnify, we respectfully disagree. 

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Eliminating Fees

Calling Out the Banks: Fix the Overdraft Market

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Overdraft protection sounds like a program that would, I don’t know, protect you? Instead it helps lessen the fees but still gives banks the opportunity to charge you $10 to $12 (if not more) for transferring your money to cover an overdraft.

Understand what you’re up against

When I worked in banking, we would look at certain warning signals.  If a product is excessively complex and extracts revenue that is exponentially higher than the cost of providing the service, then something is wrong.

I believe the overdraft market in the US is fundamentally broken, and has morphed into the worst type of predatory lending.

I have a really simple solution, and banks all over the world are already doing this.

  • Declining a transaction costs banks fractions of a cent, so charging consumers a $35 decline fee is obscene.  The most they should charge is a few dollars. Some new entrants charge nothing at all – and they are right to do so.

  • An overdraft is a short-term loan.  Lets stop talking about fees, and start talking about interest rates

    • Checking accounts should have a disclosed overdraft limit.  In other words, you should know that you can go up to $500 overdraft

    • The bank should charge a fair interest rate for the money you borrow – and only for the days that you borrow the money

Some banks are reasonable when it comes to overdraft

First Direct, one of the most popular banks in the UK, offers the following:

  • Free overdraft protection up to $250

  • A line of credit above $250 (the better your credit score, the higher the available line).  The interest rate is about 15%.  You don’t pay a fee-only interest for the days that you use the credit line.  So, if you borrow $100 for 7 days, you would pay about $0.29.

  • If you use your entire overdraft line, and the bank declines additional transaction, you pay nothing.

Banks should make money.  This is not a charity.  But they should offer transparent pricing that is easy to understand and compare.  And the profit should be in line with the cost of providing the service.

Consumers should be able to compare and choose the best option – just like any other consumer product. Fortunately, we’re helping you do just that.

Banks that respect you and your money

Consider switching to an internet-only bank. I have made the switch.

If you have a few instances of going overdraft because of a simple mistake, then consider Ally Bank.  You get one of the best interest rates on the market for your savings account. And, if you go overdraft, Ally DOES NOT CHARGE YOU for transferring money from your savings account to your checking account.  Why you ask? Because, it doesn’t cost them anything to do it!

If you go overdraft because you need the money, then Capital One 360 might be right for you. This is the old ING Direct.  They act a lot like First Direct of the UK: no overdraft transfer fee, a line of credit, and you only pay interest for the days that you are overdraft.

If you never want to go overdraft again – and wish the bank would just decline your transaction and not charge you a fee, then look into Bluebird or Serve (both from Amex). Bluebird is in partnership with Wal-Mart.  You can never go overdraft, and you will never be charged an NSF fee.

Even if you love brick-and-mortar bank branches, do the math to see if switching to an internet-only bank could save you a substantial amount of money in fees – and don’t forget the cost of gas!

Want to know more about Internet banking? Check out this article.

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About MagnifyMoney

State of Our Finances: The MagnifyMoney Survey

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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We launched MagnifyMoney because we believe people are paying too much in credit card interest, paying too many complicated overdraft fees and not earning enough on their hard-earned savings.

Banks are in the business of borrowing money from people in the form of checking and savings account deposits and then lending that money to people who need it through loans or credit cards. Right now, banks are charging very high rates on credit cards, and paying very low rates on deposits. They sit in the middle and enjoy rich profits.

But how much money are Americans leaving on the table (or in banks’ pockets)?  We decided to conduct a national survey to see just how much money people are losing to the banks’ fine print and fees.

Savings

Of those surveyed, 73.4% of Americans keep their money in an old-fashioned branch bank account. That means they are likely receiving 0% on their checking account money and 0.01% on their savings account. Yes, the big banks are paying an average of 0.01% on their savings accounts – that is not a typo.

Of those Americans who have a savings account, the average amount sitting in the bank was was $28,696. If, instead of giving money for free to branch-based banks, people switched to FDIC insured online savings accounts, like the ones offered by Barclays, GE or Ally Bank, they could earn close to 1%. Rather than earning less than $5 a year, they could be getting over $250.

Overdraft Fees

An overdraft happens when you spend more money than you have in your checking account. According to our survey, it has happened to 35% of us. But why do people go overdraft?

53% are just forgetful (mistakes happen).

47% of people go overdraft because they need the money: the month lasts longer than their paycheck.

Last year alone, Americans were charged $32 billion in overdraft fees. According to the CFPB, the amount in annual fees, on average, for accounts that had at least one overdraft was $225. Why so much? Every incident of overdraft costs $35 and banks will charge multiple incidents per day. For example, Bank of America could charge up to $140 per day – even if you only were overdraft by $20 (4 transactions).

Our survey showed that people are definitely fed up: 69% would like an account that does not let you go overdraft and charges no fee to decline. Fortunately, such products exist – like the internet bank Simple and Bluebird by American Express. We hope to help people find these products.

Credit Card Debt

42.4% of Americans have credit card debt. The average balance of those surveyed was $10,902.

Now, you will often hear that the average interest rate is 15%. However, at MagnifyMoney we know that credit card companies engage in risk-based pricing. That means lower interest rates are given to people who pay their balance in full every month and higher interest rates are charged to people who are likely (or have historically) revolved.  That means they pay less than the full balance, and then have to pay interest.

Our data proves this. 75.7% of those with credit card debt, paid an interest rate higher than 15%. The average monthly payment on that debt is $408. At an 18% interest rate, that means the average American will pay at least $1,707 in credit card interest over the next 12 months.

Think about it this way: banks will pay (savings account deposits) 0.01% for money.  So, for $10,902 a bank would pay about $1 in interest. Then they turnaround and charge the average American $1,707 in interest. Not a bad business.

Fortunately, there are options out there to help people save money. Fifty percent of Americans with credit card debt have considered a balance transfer. Of those who completed a balance transfer, 89% would do one again. However, there are still many misconceptions about balance transfers.

People don’t understand how the interest charges work — 31% think interest is charged retroactively and 35.2% don’t know how it is charged.

Some people don’t get the full benefit of the balance transfer because they spend on the card (46.7% of people do that) or by pay late (25% of people fail to pay on time).

Rather than looking online for the best balance transfer offers, an amazing 68.5% of people respond to a direct mail offer.

But, if you choose a market-leading balance transfer, pay on time and don’t spend on the card, the average American could save more than $1,300 over the next 12 months.

Personal loans could also be a great option if you can’t qualify for a balance transfer (or don’t trust yourself with another credit card). Only 36.5% of people with credit card debt considered a personal loan

The survey results are clear

At MagnifyMoney, we believe that people are not getting enough on their savings (less than $4 a year). We think they are being charged too much for overdrafts (an average of $225).  And they are paying way too much for their credit card debt ($1,707 a year).  We think the results of our survey are clear: people are paying far too much for their banking products and services.

The good news: alternatives exist.

State Of Finances

State Of Finances

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Consumer Watchdog

Stop the madness: 6 ways to make overdraft pricing fair

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Dear Banks,

At MagnifyMoney, we were shocked to see that banks are charging effective APRs in excess of 1,000% for short-term loans.  We encourage you to consider our wish list below.

1. Stop charging to decline electronic transactions.  Declining an electronic transaction doesn’t cost you a thing.  Yet, you charge me $35 for this service.  If my gym sends a recurring electronic transaction, and you decline that transaction (electronically), then you shouldn’t be making $35.

2. Tell me my overdraft limit.  I know that you have assigned a credit limit for me, and it averages between $200 and $1,000.  (The CFPB told me that in their report, but I also worked at a bank and know that is the case).  Can you please tell me what my limit is?  That way I know my buffer and can plan accordingly.  Don’t tell me it is more complicated – because it isn’t.  When I don’t have information, I live in a constant state of stress. I know you don’t want to cause me unnecessary stress.

3. Stop charging fees and start charging interest.  When you approve an overdraft, you are giving me a loan.   Please charge me an interest rate on my loan, not a flat fee per incident.  Can you really justify charging me $35 for a $6 loan?  I understand personal loan fees: you have to cover the cost of acquisition and underwriting.  But I cannot understand the reason for this fee, other than excessive profiteering.

4. Charge a fair interest rate on my line of credit.  Nothing in life should be free.  Short-term borrowing is a convenience and a service, and you have every right to charge for it.  As a bank, you probably pay (on average) 2% to borrow your funds.  You need to make a good margin.  I believe 9.99% would be a good starting point, earning a healthy return.  If I have a bad credit history (or not much of one at all), you can charge more.  But be transparent about the pricing.

5. Stop the overdraft death spiral.  When you increase the price of something, fewer people use it.  In the case of a loan, the more you increase the price, the less it is used as a product of convenience – and the more it is used as a product of desperation.  You depend upon overdrafts for revenue. When the government gave us the right to opt out on Debit and ATM overdraft (about 40% of transactions), you increased the fees on everything else by about 40%.  Coincidence?

6. Don’t make me recommend a payday lender.  As a retail bank or a credit union, you should have the ability to put payday lenders out of business.  You already have the customers, so there is no acquisition cost.  You have a ton of data between my account history and my credit bureau.  You have a low cost of funds.   I have no doubt you can put them out of business, if you want to.

We understand you have to make a profit, but we’d like to see higher-levels of transparency (and general decency) for your customers.

Sincerely,
Nick and the MagnifyMoney Team

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Balance Transfer

Fire Your Bank and Cut Your Interest by 90% with a Balance Transfer

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Credit card debt is nasty business. Every month you throw your hard-earned money at your debt and yet your balance never seems to go down all. Your stagnant balance is the result of a banker’s best friend: insanely high interest rates, which he happily applies to your credit card.

High-risk means high interest

The average interest rate on a credit card is often cited at 15%, but that number is misleading. Banks can average out a lower interest rate by awarding low-risk customers (people who pay their balance in full every month) a low interest rate – often below 15%. Simultaneously, they spike the interest rate on higher-risk customers who borrow money using a credit card. Those rates are often higher than 15% and can even tip the scale towards 30%.

What does that mean in real terms?

  • You have $10,000 of credit card debt at a 20% interest rate.

  • You will have a minimum payment of approximately $276

  • Over the course of a year, you will make more than $3,000 of payments

  • $1,893 of that is interest

  • That equals an average $158 per month of interest to the bank

That high interest rate means that your hard-earned money is going into the pockets of bankers, rather than paying down your debt.

It’s no wonder that in our recent survey, 78.8% of Americans with debt believe that their interest rate is too high.

How to pay off your credit card debt

To get serious about paying down your debt, you need to keep two things in mind:

1.  Can you pay more each month towards your debt?

2.  Can you reduce the interest rate on your debt?

We know that brown-bagging lunch and cutting the daily latte habit gives you a nominal sum to throw at your debt, but the most effective way to pay down debt faster is reduce your interest rate.

(All while living below your means of course.)

In the example above, you would be spending nearly $2,000 in the next 12 months on interest.  If you could cut that rate in half, you would take years off the time to pay off that debt.

Shopping for lower interest rates doesn’t show lack of character

Just imagine you are the CFO (Finance Director) of a business.  You borrowed money to fund expansion plans.  You are currently paying 20% on that debt.  Banks are offering interest rates as low as 4%.  But you don’t do the work to get the 4% interest loan, because you think it shows a lack of character. You borrowed the money, so you need to pay it off. It is highly likely that you would have a short career as a Finance Director. You would be fired. And your replacement would immediately re-finance the debt at 4%. The money saved could then be used to pay down the debt more quickly or re-invest in the business.

You should run your family financial affairs no differently. You should be looking to keep your interest expense as low as possible. You can then use the money you save to pay down your debt faster.

In most cases, the banks aren’t rewarding you for being a loyal customer. They aren’t operating with buy-nine-get-the-tenth-one-free coupons! Instead, the longer you have had your credit card, the more likely the rate is even higher than 30%.

Before the CARD Act was implemented in 2010, banks used to participate in a fiendish little trick called repricing. With little disclosure, banks could rapidly, dramatically and legally increase your interest rates. And they did it often

Just because you accrued debt on a card with Bank A doesn’t mean you should subject yourself to their abusive interest rates.

Time to start looking at a balance transfer

At MagnifyMoney, we love balance transfers. They are the single best way to reduce the interest expense on your credit card. If used properly — and you must follow the rules– you can slash your interest expense by 90% or more.

And when we did a survey, 89.1% of Americans who did a balance transfer in the past would do one again.

Not sure what a balance transfer is or how to get one? Don’t worry, we’ll take you by the hand and explain it all.

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Earning Interest

Are Bank Branches the Next Blockbuster?

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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First, I must confess that I love bank branches and always have.  As a child, I used to enjoy going with my mom to the bank.  The people were friendly, the lollipops were tasty and I had a real sense of accomplishment when I could deposit a roll of coins.  My affinity for bank branches makes this article particularly difficult for me to write, but it contains good news for all of you out there who would rather do anything else other than go to a bank branch.

You can finally switch to internet-only banks and put hundreds of dollars back into your pocket.  Real choices finally exist.  In fact, after doing the research on the best bank accounts for MagnifyMoney, I switched to Ally (both checking and savings account).  And I doubt I will ever go back to branches.  (Note: I have not been paid by Ally, and they are not a sponsor or investor in this site).

How do traditional banks make money?

I used to work for large banks (like Citibank and Barclays).  Retail banks branches are expensive to run, but banks banks make a lot of money with their brick-and-mortar locations.  So, how do banks make money?

1.  You give them interest-free loans.  If you keep a lot of money in your checking and/or savings account (usually $2,000 is enough), the bank makes money by paying you virtually nothing, and then lending that money in the form of loans that make a lot more money.  When I worked at a bank, I loved “sticky, low-cost deposits” to fund our business. Every $1,000 you keep at the bank is about $20 of profit to a retail bank.  $20,000 savings accounts were the best.  We would make at least $400 a year.

2.  You pay them lots of fees.  If you don’t have a lot of money, then banks will make their money on fees.  Banks make the most money on overdraft fees.  Almost 70% of their revenue comes from overdrafts – which is the most expensive way to borrow money short-term that I have ever seen.  In addition, banks make a good chunk of money with monthly maintenance fees (those pesky charges if your balance falls below a minimum) or ATM fees (you use someone else’s ATMs).

And, although fees vary by bank – the differences are not dramatic.  The monthly fee at Citibank is $10 per month.  At Bank of America it is $12 per month.  You can save a little money at Citi, but the difference is marginal.  That is why building branches made sense for banks.  The product offering did not differ much – so people would choose banks based upon the proximity of the branch.

Credit unions are usually a little bit better than banks at both fees and interest rates.  Why? Because they don’t have shareholders.  Their customers also own the credit union, so the goal is to pay higher deposit interest rates and charge lower fees.  They do a decent job of lowering fees — credit unions have many more free accounts and much lower monthly and overdraft fees.  But while they can be dramatically better on some fees, they still tend to have hefty overdraft fees ($25 average instead of $35) and low interest rates on savings account (PenFed pays 0.05% compared to 0.01% at Bank of America).

Enter internet-only banks….

How do internet banks create a revolution in banking?

Amazon is able to charge less than Barnes and Noble.  Why?  Because they don’t have to pay for all of those bookstores and people.  Internet banking is no different.  By removing branches, you are removing the single biggest cost of banking.

So what can internet banks do with all the money they save?  They can slash the cost of routine, everyday banking for you and save you the cost of gas.

How does that add up for you?

  • Dramatically higher interest rates on your savings

The Bank of America Savings Account pays only 0.01% interest rate. Compare that to the best online savings accounts.  Right now Ally is paying 0.87% on savings, with no minimum.  So, you could earn $50 at Bank of America, or $435 at Ally on that $50,000 deposit!

  • Dramatically lower fees on your checking account

Ally, Charles Schwab and Bank of the Internet Rewards Checking (just to name a few) have no monthly fee, no minimum deposit and no requirement to keep the account free.  A real free account.

  • Actual overdraft protection

Online banks are revolutionizing overdraft charges.  Ally, Schwab and Bank of the Internet let you link your savings/money market account to your checking account.  If you make a mistake, they will transfer funds from your savings to your checking account – FOR NO CHARGE!

If you actually need to borrow money, Capital One 360 has created a line of credit that is linked to your internet checking account.  There is no overdraft fee, and interest is charged only for the days that you use the line of credit.  This is an incredible deal.

  • Reimburse you for ATM fees

Not only do internet banks not charge you for using other bank ATMs, but they also reimburse you for any charge that you may receive from the other bank.  Ally and Schwab have no limit on the reimbursement.  You can use any bank’s ATM for free!  With my Ally checking account, I happily go to the closest ATM when I need cash – and I don’t worry about fees.

  • Deposit checks with your mobile phone

MagnifyMoney did a survey of Americans, and the #1 reason people go to a bank branch is to deposit a check.  Now you can deposit a check by taking a picture with your mobile phone.  Ally Bank allows you to deposit checks with a value up to $10,000.  Thanks to the power of your mobile phone camera, you really don’t need a bank branch.

In an ironic twist: banks have made this revolution themselves. They have gone out of their way to push us into digital channels.  They want us to give up paper statements, deposit checks with our mobile and use the ATM.  Why?  Because they want marginal cost improvements.  Fewer people in the branches.  More part-time employees in the branch. But banks keep the savings of our digital banking.  They want us to make the digital switch so that they can make more money.  But  now we can make more money by switching to internet banks.

But are they safe?

Yes, they are safe.  All of these banks are FDIC Insured.  That means you have the same protections and rights as any other bank (up to $250,000).

In addition, a lot of these banks are actually being created by well-known financial organizations.  Ally has been created out of the shell of the old GMAC.  Charles Schwab is already well-known brand in its own right.  And some of the new entrants have been rapidly acquired by banks that know the world is changing.  Simple, an internet-only bank, was just acquired by BBVA – one of the largest banks in the world targeting Latin America.

Is the future finally here?

People are remarkably loyal to their bricks and mortar bank branches and banks know that. So, they pay 0.01% on deposits, charge $12 per month and $35 if you go overdraft.

But, for the first time, real competition is coming.  At MagnifyMoney we are thrilled to see the competition, and the money that it could save you. You can just see that these businesses have been designed to delight and satisfy customers. When my Ally Bank CD expired, they sent me a letter and gave me a loyalty bonus.  My rate would be 0.15% higher than the highest advertised rate – to thank me for being a customer!  Most traditional banks do it the other way.  They give big teaser introductory offers to get you to switch, and then it only gets worse over time.

But now with Ally, Schwab, Bank of the Internet, Simple and others – we will have a big incentive to switch – because the savings will go into our pocket and not the banks’.

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