Banks Destroy Your Bank Deposits with Reserve Bank Help

The Banks are now lobbying to destroy your savings deposits. This will be done indirectly by the Reserve Bank lowering interest rates which will be quickly passed on by the banks to your deposits accounts. They are also pressing for the government to reduce the deposit guarantee.

This is hypocrisy in  my view. They have a government guarantee against a run on their banks. They say they don’t need it. We’ll never know.

Dropping interest rates so far during this crisis does not appear to have helped anyone much. The banks are still not lending, nor are they keen to pass on the lower rates.

Banks don’t want to lend and businesses and the consumer are not looking to borrow right now. In the main they want to reduce their debts. So no amount of interest rate lowering will get them to take out loans en masse right now.

Bank have obviously managed to shore up their capital base enough with huge deposits to brazenly call for the destruction of your safety net – money in a bank account.

Banks don’t want to lend to anyone except another bank which is also guaranteed by government. So how are they to make money in their new risk averse world?

One of the first things to do is to make bank deposits a very poor investment option. Then scare you about the effect of inflation over the long term. They will then offer you a solution, a “cash-type” managed fund where they imply you will get a greater return on your money than having it on deposit. Their professional management will help you get better returns it seems. (There will still be the small print that states you could also lose money).

Why would banks do this?

Because your money on deposit attracts virtually no fees and can easily be withdrawn.

However your money given to a bank employee with the dubious title of “financial planner” will attract a fee. There is likely to be an up front fee and an on-going fee. Such fees can be as high as 2% of your capital.

There may also be some hidden fees paid to the banks brokerage arm. So everyone at the bank can feed at the trough on your money once again.

The banks are awash with deposits. They are too frightened to lend it. It must hurt like hell that they cannot get their 2% from all that money in guaranteed deposit accounts.

Remember Westpac made more money from its wealth management arm BT last year than it did from traditional banking. I take that to mean its lending business. That’s what banks are supposed to do, lend to businesses. But that is too risky right now.

So it would appear that there is more money to be made safely in wealth management for a bank than from lending – their primary reason for existing. What’s worse it is virtually risk free for them.

That’s because the “small print” absolves them of any responsibilities for any losses incurred managing your money. This is the deal of the century for banks and all sanctioned by governments who wanted to avoid paying pensions even though your taxes pay for your pension.

In an article in the Australian Sunday Telegraph on Superannuation returns it stated,

“Over five years, the three worst performing funds are from BT, AXA and Colonial First State, with BT’s returning an average of just 2.09 per cent a year.”

So there were no returns over the entire period of the bull market when the market was returning maybe 20% per year. How is that possible? How can they get away with it too?

Banks have failed to protect your money through their wealth management arms and in my view should be forced to sell off these wealth management divisions and get back to their core business of lending.

There are too many conflicts of interest which in the end destroy your wealth wherever you put it in a bank. Their structure encourages them to sell you their most expensive and least risky (to them) options.

Today I heard 9 out of 10 fund managers (Australia) are becoming bullish about the markets. The only reasons given for this is the markets have fallen too far, or they “sense” we are near a bottom. Some deep and meaningful research has obviously been done!

These are the same “professional money managers and economists who said in March 2003 we could not expect double digit returns in the stock market for the next few years. It then went up 16-20% per year for the next four years.

So whatever they say – do the opposite.

Right now banks have cash coming out of their ears and need to invest it somewhere. If they invest money on deposit in the stock market they may lose it and will have to bear the loss. But if they can convince you to move your money from a low interest deposit account into a cash managed fund – the risk of losses is transferred to you.

Their wealth management arms may well be investing in stocks now, trying to push the market up and outperform the index so they can get their bonus at year end. Remember they are using your retirement money to do it too.

Imagine trying to plug a bath filling with water by throwing paper money into it. It may stop the water flowing out for a time and slow it down but the bath will empty eventually.

This is what they are about to do in the stock market. All they have to do is outperform the index until the end of the year and in January let it drop again. It’s possible to do that

for a short time if they throw enough money at the markets. For this they will be well paid.

Until the volatility and market turmoil settles down it might be best to leave any money in your control in your bank deposit account. Capital preservation is the name of the game – not high returns right now. Even if Banks try to entice you with their marketing hype to get you to invest for a “better” return – say no thanks ;-(

Losing money for just a few months due to inflation is far better than losing large chunks of it by letting them “invest” it for you right now whether it be in cash funds or equity funds.

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