There is a simple rule out there, a calculation really, that banks and other financial institutions don’t want you to know!
Why you might ask? Well, it literally could flip the whole financial system on its head. (This line sounds like one of those crazy infomercials, lol)
What do I mean? If people really grasp the reality of this simple rule they would question ever placing their money in a bank again. They might even feel swindle by these institutions that are supposed to protect and help us grow our money.
Ask yourself, do you work hard to earn your money? If you do, than ask yourself this. Shouldn’t your money work hard for you or for the banks?
Not knowing and learning the power of this simple rule may could cost you hundreds of thousands of dollars, while continuing to make the banks become bigger and wealthier with your hard earned money.
The rule the banks do not want you to learn and understand is known as, The Rule of 72. The banks do not even teach some of their employees this rule. I know since, I personally have asked tellers before, some never heard of the rule or if they did hear about it; they learned it from outside the bank.
What is The Rule of 72?
The Rule of 72 simply says, if you take the number 72 and divide it by your interest rate, it approximately calculates to how long it will take for your money to double. Here is a simple example:
72/1%=72 years 72/4%=18 years 72/8%=9 years
So as you noticed the higher the interest rate the quicker it will take for your money to double. Here is the painful reality, what bank do you know offers anything close to 8%? Most banks don’t even offer 1% interest on your money. They even expect you to deposit and maintain at least $1000 to $2000 just to get that measly 1% or less. Can you start to see the sad circumstance of choosing to rely solely on a bank for savings.
Unfortunately, based off the Rule of 72 and what the financial industry typically offers for of us, we maybe long gone before we even see our money come close to doubling.
The Worse Part
Remember the earlier question about who should your money work hard for you or the bank? The answer to that question should always be you. Although, the truth is your money that you place in the bank actually works hard and efficiently at making the banks more money.
Your money does not just sit at the bank waiting for us to utilize it. Banks are for profit businesses. One of the many ways banks make money is by lending your money out to other customers and banks in the form of high interest loans.
They also charge all types of fees like, overdraft fees and some banks charge monthly maintenance fees. All costing you a hell of a lot more than one you get on your interest returns.
Depositing Transaction
The depositor gives their money to a bank/fnancial institution. They offer interest on that money depending on the amount and other economic factors. Most often these days 1% or less. Just by banking with a financial institution you give an implied consent to them to borrow and lend your money.
The banks than take the depositors money and lend it to other customers or banks in most cases 10x the interest your money is getting. The difference between the 1% or less (what the depositor earns) and 10x or more the banks earn from loans is their profit. Also, known as the “net profit margin“, in this case an average of 9% plus.
Recently, I was looking to consolidate some of my debt and inquired loan information from my bank. They were offering loan with an interest rate of 12% plus.
The banks will than take the profits they have earned and invest it. They invest in real estate, stock market, credit cards (think about the interest on those), other financial services, etc. Which all have more potential to making them bigger and profitable.
This how your money works hard for the bank and not you. When you choose to just utilize a bank your money has one way of “earning money” low interest rate products. Your initial deposit that you placed with the bank would not even double, until we are near our death. The banks on the other hand utilize your investment to help them generate money in multitude of ways.
See how it is more valuable and lucrative for the banks to keep you in the dark about the Rule of 72.
What Are Your Options?
Now that you have learned the Rule of 72, you should realize what a huge mistake it is to use a bank solely to save your money long term.
Its almost no better than sticking your cash under the mattress.
Banks are useful in the sense that you use them as temporary storage for small deposits. Checking accounts are good money in those accounts tend to be very liquid (on the move and easy to convert to cash) which, is are our main recommendation for utilizing basic banks. Banks should not be a long term investment strategy!
Look for similar growth strategies that the bank themselves use. Seek help from professionals, that can assist you with your personal needs and goals.
Learn The Market
There are all types of products for what ever strategy you need. Even though there are chances for loss this can be minimized by diversifying your asset allowing for better returns.
People tend to think their money are safe just sitting at the bank but loss can occur here too. The rise of inflation can erode the buying power of your money over time, decreasing its value in the future.
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