Bank Strategies 4/6 - Time Value of Money

The fourth Bank Strategy I will discuss on this HUB is Time Value of Money.

Even though all 6 bank strategies in this series intermingle with each other, I believe, it is beneficial, to dissect each of these strategies individually so we can more easily identify each one's unique value in helping people get out of debt, sooner rather than later.

Some of the ways banks capitalize on the Time Value of Money concept are:

1/ You deposit a cheque today, the funds will not be available until between 1 - 7 business days later, depending on the type of cheque etc.

2/ Deposit money after a certain time of day, that money will be posted to your account as of the following day, not the day you deposited the money.

3/ Deposit the money after a certain time on Friday, money will be credited Monday, and so available Tuesday, so the banks can invest it for 3 days.

4/ Transfer money between banks and there is a minimum 2 day wait till you can use the funds.

5/ Use a credit or debit card to spend money and the money shows up on your account straight away as being accounted for and /or debited from your balance immediately.

6/ Encourage customers to leave money sitting in their cheque accounts, biding time, waiting to pay bills and expenses, so they can take advantage of our money.

7/ I have gone to my bank and deposited cash, then I have gone and bought food with my debit card. I was charged overdraft fees for overdrawing my account because even though the cash was deposited, it was not available to me for use. I could have just used cash at the store, but I had always believed if you deposit cash, it is available immediately. Apparantly not at M & T Bank. This proves my point that banks take money out of your account immediately, but take their sweet time to apply your deposit, so they can use your money, even if only for 12 hours or whatever.

8/ Every night banks sweep our chequing and savings accounts to invest our money, (for themselves) while we sleep. They understand fully, the time value of money.

9/ I have to add one more to this list as I just spoke to a friend I haven't heard from for probably 10 years and they told me that their bank, a small branch of Capital One, makes them sign a document allowing the bank to not clear any big cheques he deposits for 10 to 14 days.Obviously, they are forcing the client to give them permission to use their money, interest free, for that time to earn themselves interest.

I could not believe this when I heard it. I also couldn't believe how intimidated we as customers get when it comes to banking which allows banks to take further advantage of us.

10/ This happened to me today.April 5th 2009.

10/ This happened to me today. I went to pay my Best Buy bill online and I noticed that I had a late charge of $29 added. I am in an interest free contract for another year. I looked at my payment history and I had made one payment in January. I made 3 payments in February and I made one payment on March 5th. Well today is April 5th. The late charge was added to my account on March 31st. I called Best Buy to ask why they consider me late when I made a $100 payment during the month of March? Of course someone in a foreign country answered my call after trying to get to a live person for 10 minutes. There reason was because I paid the bill too early. The cycle started on March 8th and ended on March 31st. I am on a 25 day cycle according to them which means of course my due date changes every month. So because I made 4 payments in the cycle before the 8th and none in the 8th thru 31st. I was late, and therefore they were in their right to charge me. Of course I told them if they did not return my money I would pay off my card and never shop with Best Buy again. They said my refund would show on my next statement.

You may also notice that even though I deposited money straight out of my chequing account today, April 5th, it is showing up as scheduled for April 6th. However, when I purchase something, it is dated the actual day of purchase, even on a weekend.

Here is a perfect example of time value of money and how the banks use time in the form of payment cycles to trick us into being late with our so-called monthly payments. Let's play guess and then try to remember the due dates that change each month on our cards.

Do you know how many days are in each of your credit or store cards cycles? This is one reason I usually make two payments a month, one minimum payment and one other payment for each card. This will also help increase your credit score, or it has mine anyway.

If we go back and take another look at bank strategy 1/6 - Cancelling Interest Charges we can easily see how time value can benefit us greatly if we have a line-of-credit (LOC) and an available credit card to use for monthly living expenses.

Because LOC's are charged interest according to the average-daily-balance every single day that you have your income sitting in your HELOC (Home Equity Line of Credit) or other LOC, because it has reduced the balance owing, even if it is for one day, you will be charged less interest that month.

We, as a society,have been sensitized to bankers math. The following example shows clearly how, over time, a small change of moving money from one account to another can make a huge difference.

Take an example of a friend of mine. They have a HELOC that they owe $29,000 on and have for the last three years. They pay $278 of interest only payments to the bank, every month. This means they are being charged 11.5% interest.

They also have $10,000 sitting in a savings account earning 3% = $25 each month.

They were afraid to close their savings account and deposit all of their $10,000 into their HELOC even though;

1/ Their $10,000 would still be liquid. They could still access it anytime they needed money. Remember from 1/6 a LOC is open-ended. Money can go in and money can go out as often as you like each month.

2/ They would be reducing their monthly debt from $278 to $182.08 saving themselves $95.92 minus the $25 earned from the savings account = a total savings, every single month of $70.92.

Over the three years they have had the HELOC, if they had have merged their savings account into their heloc, their interest savings could have been $2,553.12. Over the next 7 years, the remaining term on their HELOC, they could save $5,957.28, with which they could choose to increase their spending money each month or save it up and apply it to paying back the principal when it is due.

Here is the best choice for using that extra monthly savings though!!!

If they applied that $70.92 savings to reduce the principal balance owing on that HELOC every single month, they would be charged even less interest because by reducing their principal balance every month the interest charge also has to be reduced each month.Their interest savings would be much greater than $5,957.28 in this case. And they would achieve this without spending any additional money out of their pocket. They are still spending $278 a month, but now they are paying off their principal and not just paying all of it towards interest.

This is one reason why we need a paradigm shift in our way of thinking. All of society has been brainwashed in to using our bank accounts and investing our money the way the banks want us to.

It is a lot easier to cancel interest charges than it is to accumulate interest, while you are in debt. And it is a much safer, less risky way to deal with your money also.

Smart Investors understand the value of time when it comes to money, just like banks do.

Smart Investors and banks know it is very beneficial to move the right amount of money, at the right time, into the right account, for the right amount of time and they use this bank strategy all the time.

Ever since banks opened their doors they have relied on math & timing to make money work for themselves.

It is time you start using these common, available, yet unspoken about, bank strategies so your hard earned money is working for you.

Even though each of these bank strategies sound simple to implement on their own, once we look at the reality of our hectic daily lives and daily financial inconsistencies, and everything else we have to deal with, trying to decide when to move our money into which account to pay which bill just becomes too much for most people.

What if my friends had more than just the one heloc debt? What if they had multiple debts, of all types? How would they know how much, when, and where, to move their money to?

Also, would it appeal to you to have a simple fast way of determining the very best time to buy any item, in relation to your overall personal financial situation? If so, keep reading then click on the Money Merge Account, because that is one feature it can perform for you.

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Do you want to read my next HUB called Bank Strategies 5/6 - Reposition and Maximize Idle Money?

(Jennifer Bhala Hansen is new to internet social networking. But, if this hub article has been interesting or helpful to you, a thumbs up rating and a comment would be much appreciated!) Thanks.

This hub post holds the intention of helping all who read it to learn, research, grow, and love our fellow humans/animals.

Information provided here is for EDUCATIONAL PURPOSES ONLY and is in NO WAY intended to replace proper financial advice. IT IS NOT to be construed as instruction on how to pay-off debt or overcome any financial situation the reader may be in.

Every individual is different, thus what may work for one may not work for another person. The writer of this hub post will not be held accountable in anyway if and when the recipients of this hub post choose to apply the information they read for their own personal use. Consult with the professional financial authorities of your choice.

Remember, taking responsibility for your own wealth is your own personal decision: do your research and choose wisely. I commend you!